As filed with the Securities and Exchange Commission on April 30, 2003
1933 Act File No. 333-61831
1940 Act File No. 811-05410
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 9
and
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 51
ING PRIME RATE TRUST
Exact Name of Registrant Specified in Charter
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(800) 992-0180
Registrant's Telephone Number, Including Area Code
Huey P. Falgout, Jr.
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
Name and Address (Number, Street, State, Zip Code) of Agent for Service
With copies to:
Jeffrey S. Puretz, Esq.
Dechert LLP
1775 I Street, NW
Washington, DC 20006
Approximate Date of Proposed Public Offering: As soon as practical after the
effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box.[X]
It is proposed that this filing will become effective:
[X] When declared effective pursuant to Section 8(c) of the Securities Act of
1933.
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PROSPECTUS
July 1, 2003 25,000,000
Common Shares
ING PRIME RATE TRUST
This Prospectus contains important information about
investing in the ING Prime Rate Trust (the Trust). You
should read it carefully before you invest, and keep it for
future reference.
The Trust has filed with the Securities and Exchange
Commission (the SEC) a Statement of Additional Information
dated July 1, 2003 (the SAI) containing additional
information about the Trust. The SAI is incorporated by
reference in its entirety into this Prospectus. You may
obtain a free copy of the SAI by contacting the Trust at
(800) 992-0180 or by writing to the Trust at 7337 E.
Doubletree Ranch Road, Scottsdale, Arizona 85258. The
Prospectus, SAI and other information about the Trust are
available on the SEC's website (http://www.sec.gov).
Common Shares of the Trust trade on the New York Stock
Exchange (the NYSE) under the symbol PPR.
Market fluctuations and general economic conditions can
adversely affect the Trust. There is no guarantee that the
Trust will achieve its investment objective. Investment in
the Trust involves certain risks and special considerations,
including risks associated with the Trust's use of leverage.
See "Risk Factors and Special Considerations" beginning on
page 11.
Neither the SEC nor any state securities commission has
approved or disapproved these securities, or determined that
this Prospectus is truthful or complete. Any representation [LION LOGO]
to the contrary is a criminal offense. ING FUNDS
WHAT'S INSIDE
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[GRAPHIC] OBJECTIVE
[GRAPHIC] INVESTMENT STRATEGY
[GRAPHIC] RISKS
This Prospectus describes the Trust's objective, investment strategy and risks.
You'll also find:
[GRAPHIC] WHAT YOU PAY TO INVEST.
WHAT YOU PAY TO INVEST. A list of the fees and expenses you pay -- both directly
and indirectly -- when you invest in the Trust.
Introduction to the Trust 1
Prospectus Summary 2
Investment Objective and Policies 6
The Trust's Investments 8
Trading and NAV Information 10
Risk Factors and Special Considerations 11
What You Pay To Invest -- Trust Expenses 16
Transaction Policies 18
Plan of Distribution 19
Use of Proceeds 20
Dividends and Distributions 20
Investment Management and Other Services 21
Description of the Trust 23
Description of Capital Structure 25
Tax Matters 26
More Information 27
Financial Highlights 28
Statement of Additional Information
Table of Contents 30
INTRODUCTION TO THE TRUST
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Risk is the potential that your investment will lose money or not earn as much
as you hope. All funds have varying degrees of risk, depending upon the
securities they invest in.
This Trust involves certain risks and special considerations, including risks
associated with investing in below investment grade assets and risks associated
with the Trust's use of borrowing and other leverage strategies. See "Risk
Factors and Special Considerations" beginning on page 11.
Please read this Prospectus carefully to be sure you understand the principal
risks and strategies associated with the Trust. You should consult the SAI for a
complete list of the risks and strategies.
[GRAPHIC]
If you have any questions about the Trust, please call your financial consultant
or us at 1-800-992-0180.
THIS PROSPECTUS IS DESIGNED TO HELP YOU MAKE INFORMED DECISIONS ABOUT YOUR
INVESTMENTS. PLEASE READ IT CAREFULLY.
Who should invest in the Trust?
ING PRIME RATE TRUST MAY SUIT YOU IF YOU:
* are seeking a high level of current income; and
* are willing to accept the risks associated with an investment in a
leveraged portfolio of senior loans that are typically below
investment grade credit quality.
DESCRIPTION OF THE TRUST
The Trust is a diversified, closed-end investment company that seeks to
provide investors with as high a level of current income as is consistent
with the preservation of capital. The Trust seeks to achieve this objective
by investing in a professionally managed portfolio comprised primarily of
senior loans, an investment typically not available directly to individual
investors. The Trust cannot guarantee that it will achieve its investment
objective. In addition, since the senior loans in the Trust's portfolio
typically are below investment grade credit quality and the portfolio is
leveraged, the Trust has speculative characteristics.
Common Shares of the Trust trade on the NYSE under the symbol PPR.
The Trust's investment manager is ING Investments, LLC.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Introduction to the Trust 1
PROSPECTUS SUMMARY
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The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this prospectus.
DESCRIPTION OF THE TRUST
THE TRUST
The Trust is a diversified, closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the 1940 Act). It is
organized as a Massachusetts business trust. As of June 16, 2003, the Trust's
net asset value (NAV) per Common Share was $____.
NYSE LISTED
As of June 16, 2003, the Trust had ______________ Common Shares outstanding,
which are traded on the NYSE under the symbol PPR. As of June 16, 2003, the
last reported sales price of a Common Share of the Trust was $___.
INVESTMENT OBJECTIVE
To provide investors with as high a level of current income as is consistent
with the preservation of capital. There is no assurance that the Trust will
achieve its investment objective.
INVESTMENT MANAGER
The Trust's investment manager is ING Investments, LLC (ING Investments or the
Investment Manager), an Arizona limited liability company. The Investment
Manager had assets under management of $__ billion as of May 31, 2003.
The Investment Manager is an indirect wholly-owned subsidiary of ING Groep N.V.
(NYSE: ING) (ING Groep). ING Groep is a global financial institution active in
the fields of insurance, banking and asset management in more than 65 countries
with almost 100,000 employees.
The Investment Manager receives an annual fee, payable monthly, in a maximum
amount equal to 0.80% of the Trust's average daily gross asset value, minus the
sum of the Trust's accrued and unpaid dividends on any outstanding preferred
shares and accrued liabilities (other than liabilities for the principal amount
of any borrowings incurred, commercial paper or notes issued by the Trust and
the liquidation preference of any outstanding preferred shares) (Managed
Assets). This definition includes the assets acquired through the Trust's use of
leverage.
Subject to shareholder approval, the Trust's Board of Trustees has approved
Aeltus Investment Management, Inc. to serve as the Sub-Adviser to the Trust
effective August 18, 2003. See "Investment Management and other Services-
Proposed Sub-Adviser" on page 21.
PRIMARY INVESTMENT
The Trust seeks to achieve its investment objective by investing under normal
STRATEGY circumstances at least 80% of its Managed Assets in higher yielding,
U.S. dollar denominated, floating rate secured senior loans (Senior Loans). The
Trust only invests in Senior Loans made to corporations or other business
entities organized under U.S. or Canadian law and which are domiciled in the
U.S., Canada or in U.S. territories or possessions.
Senior Loans either hold the most senior position in the capital structure of
the borrower or hold an equal ranking with other senior debt or have
characteristics that the Investment Manager believes justify treatment as senior
debt.
2 Prospectus Summary
PROSPECTUS SUMMARY
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OTHER INVESTMENT STRATEGIES AND POLICIES
Assets not invested in Senior Loans may be invested in unsecured loans,
subordinated loans, short-term debt securities, and equities acquired in
connection with investments in loans. See "Investment Objective and Policies" at
page 6.
Loans in which the Trust invests typically have interest rates which reset at
least quarterly and may reset as frequently as daily. The maximum duration of an
interest rate reset on any loan in which the Trust can invest is one year. In
order to achieve overall reset balance, the Trust will ordinarily maintain a
dollar-weighted average time to next interest rate adjustment on its loans of 90
days or less.
Normally at least 80% of the Trust's portfolio will be invested in Senior Loans
with maturities of one to ten years. The maximum maturity on any loan in which
the Trust can invest is ten years.
To seek to increase the yield on the Common Shares, the Trust may engage in
lending its portfolio securities. Such lending will be fully secured by
investment grade collateral held by an independent agent.
The Trust may hold a portion of its assets in short-term interest bearing
instruments. Moreover, in periods when, in the opinion of the Investment
Manager, a temporary defensive position is appropriate, up to 100% of the
Trust's assets may be held in cash or short-term interest bearing instruments.
The Trust may not achieve its investment objective when pursuing a temporary
defensive position.
The Trust may not invest in Senior Loans made to foreign borrowers other than
borrowers organized under Canadian law and which are domiciled in the U.S.,
Canada or in U.S. territories or possessions.
The Trust can engage in executing repurchase and reverse repurchase agreements.
LEVERAGE
To seek to increase the yield on the Common Shares, the Trust employs financial
leverage by borrowing money and issuing preferred shares. See "Risk Factors and
Special Considerations -- Leverage" at page 12.
BORROWINGS
Under the 1940 Act, the Trust may borrow up to 33 1/3% of its total assets
(including the proceeds of the borrowings) less all liabilities other than
borrowings. The Trust's obligations to holders of its debt are senior to its
ability to pay dividends on, or redeem or repurchase, Common Shares and
preferred shares, or to pay holders of Common Shares and preferred shares in the
event of liquidation.
PREFERRED SHARES
The Trust is authorized to issue an unlimited number of shares of a class of
preferred stock in one or more series. In November 2000, the Trust issued 3,600
shares each of Series M, T, W, Th and F Auction Rate Cumulative Preferred
Shares, $0.01 par value, $25,000 liquidation preference per share, for a total
issuance of $450 million (the Preferred Shares). The Trust's obligations to
holders of the Preferred Shares and holders of any other preferred shares, are
senior to its ability to pay dividends on, or redeem or repurchase, Common
Shares, or to pay holders of Common Shares in the event of liquidation.
The 1940 Act also requires that the holders of the Preferred Shares and holders
of any other preferred shares of the Trust, voting as a separate class, have the
right to:
* elect at least two trustees at all times
* elect a majority of the trustees at any time when dividends on any
series of Preferred Shares are unpaid for two full years.
In each case, the holders of Common Shares voting separately as a class will
elect the remaining trustees.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Prospectus Summary 3
PROSPECTUS SUMMARY
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DIVERSIFICATION
The Trust maintains a diversified investment portfolio, a strategy which seeks
to limit exposure to any one issuer or industry.
As a diversified investment company, the Trust may not make investments in any
one issuer (other than the U.S. government) if, immediately after such purchase
or acquisition, more than 5% of the value of the Trust's total assets would be
invested in such issuer, or the Trust would own more than 25% of any outstanding
issue. The Trust will consider a borrower on a loan, including a loan
participation, to be the issuer of that loan. This strategy is a fundamental
policy that cannot be changed without shareholder approval. With respect to no
more than 25% of its total assets, the Trust may make investments that are not
subject to the foregoing restrictions.
In addition, a maximum of 25% of the Trust's total assets, measured at the time
of investment, can be invested in any one industry. This strategy is also a
fundamental policy that cannot be changed without shareholder approval.
PLAN OF DISTRIBUTION
The Common Shares are offered by the Trust through the Trust's Shareholder
Investment Program. The Shareholder Investment Program allows participating
shareholders to reinvest all dividends in additional shares of the Trust, and
also allows participants to purchase additional Common Shares through optional
cash investments in amounts ranging from a minimum of $100 to a maximum of
$5,000 per month. The Trust reserves the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-US banks (even if payment may be effected through a US bank)
will not be accepted. Subject to the permission of the Trust, participating
shareholders may also make optional cash investments in excess of the monthly
maximum. Common Shares may be issued by the Trust under the Shareholder
Investment Program only if the Trust's Common Shares are trading at a premium to
net asset value (NAV). If the Trust's Common Shares are trading at a discount to
NAV, Common Shares purchased under the Shareholder Investment Program will be
purchased on the open market. See "Plan of Distribution" at page 19.
Shareholders may elect to participate in the Shareholder Investment Program by
telephoning the Trust or submitting a completed Participation Form to DST
Systems, Inc. (DST).
DISTRIBUTIONS
Dividends on Common Shares accrue and are declared and paid monthly. Income
dividends may be distributed in cash or reinvested in additional full and
fractional shares through the Trust's Shareholder Investment Program.
ADMINISTRATOR
The Trust's administrator is ING Funds Services, LLC (the Administrator). The
Administrator is an affiliate of the Investment Manager. The Administrator
receives an annual fee, payable monthly, in a maximum amount equal to 0.25% of
the Trust's Managed Assets.
RISK FACTORS AND SPECIAL CONSIDERATIONS
CREDIT RISK ON LOANS
Loans in the Trust's portfolio will typically be below investment grade credit
quality. As a result, investment in the Trust involves the risk that borrowers
may default on obligations to pay principal or interest when due, that lenders
may have difficulty liquidating the collateral securing the loans or enforcing
their rights under the terms of the loans, and that the Trust's investment
objective may not be realized.
INTEREST RATE RISK
Changes in market interest rates will affect the yield on the Trust's Common
Shares. If market interest rates fall, the yield on the Trust's Common Shares
will also fall. In addition, changes in market interest rates may cause the
Trust'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 Trust's
portfolio. 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
Trust invests, the value of the Trust's portfolio may decrease in response to an
increase in such spreads. Finally, substantial increases in interest rates may
cause an increase in loan defaults as borrowers may lack the resources to meet
higher debt service requirements.
4 Prospectus Summary
PROSPECTUS SUMMARY
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DISCOUNT FROM OR PREMIUM TO NAV
As with any security, the market value of the Common Shares may increase or
decrease from the amount that you paid for the Common Shares.
The Trust's Common Shares may trade at a discount to NAV. This is a risk
separate and distinct from the risk that the Trust's NAV per Common Share may
decrease.
LEVERAGE
The Trust's use of leverage through borrowings and the issuance of preferred
shares can adversely affect the yield on the Trust's Common Shares. To the
extent that the Trust is unable to invest the proceeds from the use of leverage
in assets which pay interest at a rate which exceeds the rate paid on the
leverage, the yield on the Trust's Common Shares will decrease. In addition, in
the event of a general market decline in the value of assets such as those in
which the Trust invests, the effect of that decline will be magnified in the
Trust because of the leverage.
LIMITED SECONDARY MARKET FOR LOANS
Because of the limited secondary market for loans, the Trust may be limited in
its ability to sell loans in its portfolio in a timely fashion and/or at a
favorable price.
DEMAND FOR LOANS
An increase in demand for loans may adversely affect the rate of interest
payable on new loans acquired by the Trust, and the price of loans acquired in
the secondary market.
SECONDARY MARKET FOR THE TRUST'S COMMON SHARES
The issuance of Common Shares through the Shareholder Investment Program may
have an adverse effect on prices in the secondary market for the Trust's Common
Shares by increasing the number of Common Shares available for sale. In
addition, the Common Shares may be issued at a discount to the market price for
such Common Shares, which may put downward pressure on the market price for
Common Shares of the Trust.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Prospectus Summary 5
INVESTMENT OBJECTIVE AND POLICIES
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INVESTMENT OBJECTIVE
The Trust's investment objective is to provide investors with as high a level of
current income as is consistent with the preservation of capital. The Trust
seeks to achieve this investment objective by investing in the types of assets
described below:
1. SENIOR LOANS. Under normal circumstances, at least 80% of the Trust's
Managed Assets will be invested in higher yielding, U.S. dollar
denominated, floating rate secured senior loans (Senior Loans). The
Trust will provide shareholders with at least 60 days' prior notice of
any change in this investment policy. The Trust only invests in Senior
Loans made to corporations or other business entities organized under
U.S. or Canadian law and which are domiciled in the U.S., Canada or
in U.S. territories or possessions.
Senior Loans either hold the most senior position in the capital structure
of the borrower or hold an equal ranking with other senior debt or have
characteristics that the Investment Manager believes justify treatment as
senior debt.
The Trust does not invest in Senior Loans whose interest rates are tied to
non-domestic interest rates other than the London Inter-Bank Offered Rate
(LIBOR).
2. OTHER INVESTMENTS. Under normal circumstances the Trust can also invest up
to 20% of its total assets in the following types of investments (Other
Investments):
* unsecured loans
* subordinated loans
* short-term debt securities
* equity securities incidental to investment in loans
3. CASH AND SHORT-TERM INSTRUMENTS. Under normal circumstances, the Trust may
invest in cash and/or short-term instruments. During periods when, in the
opinion of the Investment Manager, a temporary defensive posture in the
market is appropriate, the Trust may hold up to 100% of its assets in cash
and/or short-term instruments.
FUNDAMENTAL DIVERSIFICATION POLICIES
1. INDUSTRY DIVERSIFICATION. The Trust may invest in any industry. The Trust
may not invest more than 25% of its total assets in any single industry.
2. BORROWER DIVERSIFICATION. As a diversified investment company, the Trust
may not make investments in any one issuer (other than the U.S. government)
if, immediately after such purchase or acquisition, more than 5% of the
value of the Trust's total assets would be invested in such issuer, or the
Trust would own more than 25% of any outstanding issue. The Trust will
consider the borrower on a loan, including a loan participation, to be the
issuer of such loan. With respect to no more than 25% of its total assets,
the Trust may make investments that are not subject to the foregoing
restrictions.
These fundamental diversification policies may only be changed with approval by
a majority of all shareholders, including the vote of a majority of the holders
of Preferred Shares, and holders of any other preferred shares, voting
separately as a class.
INVESTMENT POLICIES
The Investment Manager follows certain investment policies set by the Trust's
Board of Trustees. Some of those policies are set forth below. Please refer to
the SAI for additional information on these and other investment policies.
1. PAYABLE IN U.S. DOLLARS. All investments purchased by the Trust must be
denominated in U.S. dollars.
2. MATURITY. Normally at least 80% of the Trust's total assets will be
invested in Senior Loans with maturities of one to ten years. The maximum
maturity on any loan in which the Trust can invest is ten years.
3. INTEREST RATE RESETS. Normally, at least 80% of the Trust's total assets
will be invested in assets with rates of interest which reset either daily,
monthly, or quarterly. The maximum duration of an interest rate reset on
any loan investment in which the Trust may invest is one year. In addition,
the Trust will ordinarily maintain a dollar-weighted average time to next
interest rate adjustment on its loan investments of 90 days or less.
4. LIMITATIONS ON SUBORDINATED AND UNSECURED LOANS. The Trust may also invest
up to 5% of its total assets, measured at the time of investment, in
subordinated and unsecured loans. The Trust may acquire a subordinated loan
only if, at the time of acquisition, it acquires or holds a Senior Loan
from the same borrower. The Trust will acquire unsecured loans only where
the Investment Manager believes, at the time of acquisition, that the Trust
would have the right to payment upon default that is not subordinate to any
other creditor. The maximum of 5% of the Trust's assets invested in
subordinated and unsecured loans will constitute part of the 20% of the
Trust's assets that may be invested in "Other Investments" as described
above, and will not count toward the 80% of the Trust's assets that are
normally invested in Senior Loans.
5. INVESTMENT QUALITY; CREDIT ANALYSIS. Loans in which the Trust invests
generally are rated below investment grade credit quality or are unrated.
In acquiring a loan, the Investment Manager will consider some or all of
the following factors concerning the borrower: ability to service debt from
internally generated funds; adequacy of liquidity and working capital;
appropriateness of capital structure; leverage consistent with industry
norms; historical experience of achieving business and financial
6 Investment Objective and Policies
INVESTMENT OBJECTIVE AND POLICIES
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projections; the quality and experience of management; and adequacy of
collateral coverage. The Investment Manager performs its own independent
credit analysis of each borrower. In so doing, the Investment Manager may
utilize information and credit analyses from agents that originate or
administer loans, other lenders investing in a loan, and other sources. The
Investment Manager also may communicate directly with management of the
borrowers. These analyses continue on a periodic basis for any Senior Loan
held by the Trust. See "Risk Factors and Special Considerations -- Credit
Risk on Senior Loans."
6. USE OF LEVERAGE. The Trust may borrow money and issue preferred shares to
the fullest extent permitted by the 1940 Act. See "Policy on Borrowing" and
"Policy on Issuance of Preferred Shares" below.
7. SHORT-TERM INSTRUMENTS. Short-term instruments in which the Trust invests
may include (i) commercial paper rated A-1 by Standard and Poor's or P-1 by
Moody's Investors Service, Inc., or of comparable quality as determined by
the Investment Manager, (ii) certificates of deposit, banker's acceptances,
and other bank deposits and obligations, and (iii) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
8. SECURITIES LENDING. The Trust also may lend portfolio securities on a
short-term or long-term basis, up to 33 1/3% of its total assets.
POLICY ON BORROWING
Beginning in May of 1996, the Trust began a policy of borrowing for investment
purposes. The Trust seeks to use proceeds from borrowing to acquire loans and
other investments which pay interest at a rate higher than the rate the Trust
pays on borrowings. Accordingly, borrowing has the potential to increase the
Trust's total income available to holders of its Common Shares.
The Trust may issue notes, commercial paper, or other evidences of indebtedness
and may be required to secure repayment by mortgaging, pledging, or otherwise
granting a security interest in the Trust's assets. The terms of any such
borrowings are subject to the provisions of the 1940 Act, and also subject to
the more restrictive terms of the credit agreements relating to borrowings and
additional guidelines imposed by rating agencies which are more restrictive than
the provisions of the 1940 Act. The Trust is permitted to borrow up to 33 1/3%,
or such other percentage permitted by law, of its total assets (including the
amount borrowed) less all liabilities other than borrowings. See "Risk Factors
and Special Considerations -- Leverage" and "Risk Factors and Special
Considerations -- Restrictive Covenants and 1940 Act Restrictions."
POLICY ON ISSUANCE OF PREFERRED SHARES
The Trust has a policy of issuing preferred shares for investment purposes. The
Trust seeks to use the proceeds from preferred shares to acquire loans and other
investments which pay interest at a rate higher than the dividends payable on
preferred shares. The terms of the issuance of preferred shares are subject to
the 1940 Act and to additional guidelines imposed by rating agencies, which are
more restrictive than the provisions of the 1940 Act. The Trust is permitted to
issue preferred shares with an aggregate liquidation value of up to 50% of the
Trust's total assets (including the proceeds of the preferred shares and any
borrowings). In November 2000, the Trust issued 18,000 Preferred Shares for a
total of $450 million. See "Risk Factors and Special Considerations --
Leverage."
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Investment Objective and Policies 7
THE TRUST'S INVESTMENTS
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As stated above under Investment Objective and Policies, the Trust will invest
primarily in Senior Loans. This section contains a discussion of the
characteristics of Senior Loans, the manner in which those investments are made
and the market for Senior Loans.
SENIOR LOAN CHARACTERISTICS
Senior Loans are loans that are typically made to business borrowers to finance
leveraged buy-outs, recapitalizations, mergers, stock repurchases and to finance
internal growth. Senior Loans generally hold the most senior position in the
capital structure of a borrower and are usually secured by liens on the assets
of the borrowers, including tangible assets such as cash, accounts receivable,
inventory, property, plant and equipment, common and/or preferred stock of
subsidiaries, and intangible assets including trademarks, copyrights, patent
rights and franchise value. The Trust may also receive guarantees as a form of
collateral.
Senior Loans that the Trust may acquire include participation interests in lease
financings (Lease Participations) where the collateral quality, credit quality
of the borrower and the likelihood of payback are believed by ING Investments to
be the same as those applied to conventional Senior Loans. A Lease Participation
is also required to have a floating interest rate that is indexed to a benchmark
indicator of prevailing interest rates, such as LIBOR or the Prime Rate.
By virtue of their senior position and collateral, Senior Loans typically
provide lenders with the first right to cash flows or proceeds from the sale of
a borrower's collateral if the borrower becomes insolvent (subject to the
limitations of bankruptcy law, which may provide higher priority to certain
claims such as, for example, employee salaries, employee pensions and taxes).
This means Senior Loans are generally repaid before unsecured bank loans,
corporate bonds, subordinated debt, trade creditors, and preferred or common
stockholders.
Senior Loans typically pay interest at least quarterly at rates which equal a
fixed percentage spread over a base rate such as LIBOR. For example, if LIBOR
were 2.00% and the borrower were paying a fixed spread of 3.00%, the total
interest rate paid by the borrower would be 5.00%. Base rates and, therefore,
the total rates paid on Senior Loans float, I.E., they change as market rates of
interest change.
Although a base rate such as LIBOR can change every day, loan agreements for
Senior Loans typically allow the borrower the ability to choose how often the
base rate for the loan will change. Such periods can range from one day to one
year, with most borrowers choosing monthly or quarterly reset periods. During
periods of rising interest rates, borrowers will tend to choose longer reset
periods, and during periods of declining interest rates, borrowers will tend to
choose shorter reset periods. The fixed spread over the base rate on a Senior
Loan typically does not change.
Senior Loans generally are arranged through private negotiations between a
borrower and several financial institutions represented by an agent who is
usually one of the originating lenders. In larger transactions, it is common to
have several agents; however, generally only one such agent has primary
responsibility for ongoing administration of a Senior Loan. Agents are typically
paid fees by the borrower for their services. The agent is primarily responsible
for negotiating the loan agreement which establishes the terms and conditions of
the Senior Loan and the rights of the borrower and the lenders. The agent also
is responsible for monitoring collateral and for exercising remedies available
to the lenders such as foreclosure upon collateral.
Loan agreements may provide for the termination of the agent's agency status in
the event that it fails to act as required under the relevant loan agreement,
becomes insolvent, enters FDIC receivership or, if not FDIC insured, enters into
bankruptcy. Should such an agent, lender or assignor with respect to an
assignment interpositioned between the Trust and the borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for the benefit of the
Trust should not be included in such person's or entity's bankruptcy estate. If,
however, any such amount were included in such person's or entity's bankruptcy
estate, the Trust would incur certain costs and delays in realizing payment or
could suffer a loss of principal or interest. In this event, the Trust could
experience a decrease in NAV.
The Trust acquires Senior Loans from lenders such as banks, insurance companies,
finance companies, other investment companies and private investment funds. The
Trust may also acquire Senior Loans from U.S. branches of foreign banks that are
regulated by the Federal Reserve System or appropriate state regulatory
authorities.
INVESTMENT BY THE TRUST
The Trust's investment in Senior Loans may take one of several forms including:
acting as one of the group of lenders originating a Senior Loan, purchasing an
assignment of a portion of a Senior Loan from a third party, or acquiring a
participation in a Senior Loan. When the Trust is a member of the originating
syndicate for a Senior Loan, it may share in a fee paid to the syndicate. When
the Trust acquires a participation in, or an assignment of, a Senior Loan, it
may pay a fee to, or forego a portion of interest payments from, the lender
selling the participation or assignment. The Trust will act as lender, or
purchase an assignment or participation, with respect to a Senior Loan only if
the agent is determined by the Investment Manager to be creditworthy.
8 The Trust's Investments
THE TRUST'S INVESTMENTS
--------------------------------------------------------------------------------
Except for rating agency guidelines imposed on the Trust's portfolio while it
has outstanding Preferred Shares, there is no minimum rating or other
independent evaluation of a borrower limiting the Trust's investments and most
Senior Loans that the Trust may acquire, if rated, will be rated below
investment grade credit quality. See "Risk Factors and Special
Considerations-Credit Risk on Senior Loans."
ORIGINAL LENDER. When the Trust is one of the original lenders, it will have a
direct contractual relationship with the borrower and can enforce compliance by
the borrower with the terms of the loan agreement. It also may have negotiated
rights with respect to any funds acquired by other lenders through set-off.
Original lenders also negotiate voting and consent rights under the loan
agreement. Actions subject to lender vote or consent generally require the vote
or consent of the holders of some specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as reducing the
amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefore, frequently
require the unanimous vote or consent of all lenders affected.
ASSIGNMENTS. When the Trust is a purchaser of an assignment, it typically
succeeds to all the rights and obligations under the loan agreement of the
assigning lender and becomes a lender under the loan agreement with the same
rights and obligations as the assigning lender. Assignments are, however,
arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an
assignment may be more limited than those held by the assigning lender.
PARTICIPATIONS. The Trust may also invest in participations in Senior Loans. The
rights of the Trust when it acquires a participation are likely to be more
limited than the rights of an original lender or an investor who acquired an
assignment. Participation by the Trust in a lender's portion of a Senior Loan
typically means that the Trust has a contractual relationship only with the
lender, not with the borrower. This means that the Trust has the right to
receive payments of principal, interest and any fees to which it is entitled
only from the lender selling the participation and only upon receipt by the
lender of payments from the borrower.
With a participation, the Trust will have no right to enforce compliance by the
borrower with the terms of the loan agreement or any rights with respect to any
funds acquired by other lenders through set-off against the borrower. In
addition, the Trust may not directly benefit from the collateral supporting the
Senior Loan because it may be treated as a general creditor of the lender
instead of the borrower. As a result, the Trust may be subject to delays,
expenses and risks that are greater than those that exist when the Trust is the
original lender or holds an assignment. This means the Trust must assume the
credit risk of both the borrower and the lender selling the participation.
In the event of bankruptcy or insolvency of a borrower, the obligation of the
borrower to repay the Senior Loan may be subject to certain defenses that can be
asserted by such borrower against the Trust as a result of improper conduct of
the lender selling the participation. A participation in a Senior Loan will be
deemed to be a Senior Loan for the purposes of the Trust's investment objective
and policies.
SENIOR LOAN MARKET
Total U.S. domestic Senior Loan volume has increased dramatically over the
last 10 years. Total Senior Loan volume was approximately $375 billion in
1992. For the 2002 year, volume has increased to approximately $969 billion.
Originated Senior loan volume peaked in year 2000 at approximately $1,296
billion. Despite continuing volatility in U.S. capital markets, demand has
remained strong. Institutional investors other than banks, such as
investment companies, insurance companies and private investment vehicles
are continuing to increase investment allocations to the Senior Loan market.
The entrance of new investors has helped create an active trading market in
Senior Loans with approximately $____ billion in trading volume during 2002.
The active secondary market, coupled with lender focus on portfolio
management and the move toward standard market practices, has helped increase
the liquidity for Seniors Loans.
Credit quality is the primary issue currently impacting the loan market. The
industry has experienced deteriorating credit quality, high profile corporate
bankruptcies, historically high default-rates and continuing concerns about
the direction of the general economy.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
The Trust's Investments 9
TRADING AND NAV INFORMATION
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The following table shows for the Trust's Common Shares for the periods
indicated: (1) the high and low closing prices as shown on the NYSE Composite
Transaction Tape; (2) the NAV per Common Share represented by each of the high
and low closing prices as shown on the NYSE Composite Transaction Tape; and (3)
the discount from or premium to NAV per Share (expressed as a percentage)
represented by these closing prices. The table also sets forth the aggregate
number of shares traded as shown on the NYSE Composite Transaction Tape during
the respective quarter.
PREMIUM/(DISCOUNT)
PRICE NAV TO NAV
------------------ ------------------ ------------------ REPORTED
HIGH LOW HIGH LOW HIGH LOW NYSE VOLUME
CALENDAR QUARTER ENDED ------- ------- ------- ------- ------- ------- -----------
March 31, 2001 8.400 7.500 8.08 8.06 3.96 (6.95) 16,921,900
June 30, 2001 7.990 7.470 7.87 7.83 1.52 (4.60) 14,967,500
September 30, 2001 7.750 6.100 7.76 7.58 (0.13) (19.53) 15,471,500
December 31, 2001 6.820 6.350 7.46 7.30 (8.58) (13.01) 17,475,300
March 31, 2002 6.950 6.640 7.29 7.25 (4.66) (8.41) 11,781,400
June 30, 2002 6.950 6.230 7.25 7.13 (4.14) (12.62) 13,759,808
September 30, 2002 6.290 5.610 7.07 6.96 (11.03) (19.40) 16,512,192
December 31, 2002 _____ _____ ____ ____ _____ ______ __________
March 31, 2003 _____ _____ ____ ____ _____ ______ __________
On June 16, 2003, the last reported sale price of a Common Share of the
Trust's Common Shares on the NYSE was $___. The Trust's NAV on June 16, 2003
was $___. See "Transaction Policies -- Net Asset Value." On June 16, 2003
the last reported sale price of a share of the Trust's Common Shares on the NYSE
($___) represented a ___% discount below NAV ($___) as of that date.
The Trust's Common Shares have traded in the market above, at, and below NAV
since March 9, 1992, when the Trust's Common Shares were listed on the NYSE. The
Trust cannot predict whether its Common Shares will trade in the future at a
premium or discount to NAV, and if so, the level of such premium or discount.
Shares of closed-end investment companies frequently trade at a discount from
NAV.
10 Trading and NAV Information
RISK FACTORS AND SPECIAL CONSIDERATIONS
--------------------------------------------------------------------------------
RISK IS INHERENT IN ALL INVESTING. THE FOLLOWING DISCUSSION SUMMARIZES SOME OF
THE RISKS THAT YOU SHOULD CONSIDER BEFORE DECIDING WHETHER TO INVEST IN THE
TRUST. FOR ADDITIONAL INFORMATION ABOUT THE RISKS ASSOCIATED WITH INVESTING IN
THE TRUST, SEE "ADDITIONAL INFORMATION ABOUT INVESTMENTS AND INVESTMENT
TECHNIQUES" IN THE SAI.
CREDIT RISK ON SENIOR LOANS
The Trust's ability to pay dividends and repurchase its Common Shares is
dependent upon the performance of the assets in its portfolio. That performance,
in turn, is subject to a number of risks, chief among which is credit risk on
the underlying assets.
Credit risk is the risk of nonpayment of scheduled interest or principal
payments. In the event a borrower fails to pay scheduled interest or principal
payments on a Senior Loan held by the Trust, the Trust will experience a
reduction in its income and a decline in the market value of the Senior Loan,
which will likely reduce dividends and lead to a decline in the NAV of the
Trust's Common Shares. If the Trust acquires a Senior Loan from another lender,
either by means of assignment or by acquiring a participation, the Trust may
also be subject to credit risks with respect to that lender. See "The Trust's
Investments - Investment by the Trust."
Senior Loans generally involve less risk than unsecured or subordinated debt and
equity instruments of the same issuer because the payment of principal of and
interest on Senior Loans is a contractual obligation of the issuer that, in most
instances, takes precedence over the payment of dividends, or the return of
capital, to the issuer's shareholders and payments to bond holders. The Trust
generally invests in Senior Loans that are usually secured with specific
collateral. However, the value of the collateral may not equal the Trust's
investment when the loan is acquired or may decline below the principal amount
of the Senior Loan subsequent to the Trust's investment. Also, to the extent
that collateral consists of stock of the borrower or its subsidiaries or
affiliates, the Trust bears the risk that the stock may decline in value, be
relatively illiquid, or may lose all or substantially all of its value, causing
the Senior Loan to be undercollateralized. Therefore, the liquidation of the
collateral underlying a Senior Loan may not satisfy the issuer's obligation to
the Trust in the event of non-payment of scheduled interest or principal, and
the collateral may not be readily liquidated.
In the event of the bankruptcy of a borrower, the Trust could experience delays
and limitations on its ability to realize the benefits of the collateral
securing the Senior Loan. Among the credit risks involved in a bankruptcy are
assertions that the pledge of collateral to secure a loan constitutes a
fraudulent conveyance or preferential transfer that would have the effect of
nullifying or subordinating the Trust's rights to the collateral.
The Senior Loans in which the Trust invests are generally rated lower than
investment grade credit quality, I.E., rated lower than "Baa" by Moody's or
"BBB" by S&P, or have been issued by issuers who have issued other debt
securities which, if unrated, would be rated lower than investment grade credit
quality. Investment decisions will be based largely on the credit analysis
performed by the Investment Manager, and not on rating agency evaluation. This
analysis may be difficult to perform. Information about a Senior Loan and its
issuer generally is not in the public domain. Moreover, Senior Loans are not
often rated by any nationally recognized rating service. Many issuers have not
issued securities to the public and are not subject to reporting requirements
under federal securities laws. Generally, however, issuers are required to
provide financial information to lenders and information may be available from
other Senior Loan participants or agents that originate or administer Senior
Loans.
INTEREST RATE RISK
During normal market conditions, changes in market interest rates will affect
the Trust in certain ways. The principal effect will be that the yield on the
Trust's Common Shares will tend to rise or fall as market interest rates rise
and fall. This is because almost all of the assets in which the Trust invests
pay interest at rates which float in response to changes in market rates.
However, because the interest rates on the Trust's assets reset over time, there
will be an imperfect correlation between changes in market rates and changes to
rates on the portfolio as a whole. This means that changes to the rate of
interest paid on the portfolio as a whole will tend to lag behind changes in
market rates.
Market interest rate changes may also cause the Trust's NAV to experience
moderate volatility. This is because the value of a loan asset in the Trust is
partially a function of whether it is paying what the market perceives to be a
market rate of interest for the particular loan, given its individual credit and
other characteristics. If market interest rates change, a loan's value could be
affected to the extent the interest rate paid on that loan does not reset at the
same time. As discussed above, the rates of interest paid on the loans in which
the Trust invests have a weighted average reset period that typically is less
than 90 days. Therefore, the impact of the lag between a change in market
interest rates and the change in the overall rate on the portfolio is expected
to be minimal.
To the extent that changes in market rates of interest are reflected not in a
change to a base rate such as LIBOR but in a change in the spread over the base
rate which is payable on loans of the type and quality in which the Trust
invests, the Trust's NAV could also be adversely affected. Again, this is
because the value of a loan asset in the Trust is partially
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Risk Factors and Special Considerations 11
RISK FACTORS AND SPECIAL CONSIDERATIONS
--------------------------------------------------------------------------------
a function of whether it is paying what the market perceives to be a market rate
of interest for the particular loan, given its individual credit and other
characteristics. However, unlike changes in market rates of interest for which
there is only a temporary lag before the portfolio reflects those changes,
changes in a loan's value based on changes in the market spread on loans in the
Trust's portfolio may be of longer duration.
Finally, substantial increases in interest rates may cause an increase in loan
defaults as borrowers may lack the resources to meet higher debt service
requirements
CHANGES TO NAV
The NAV of the Trust is expected to change in response to a variety of factors,
primarily in response to changes in the creditworthiness of the borrowers on the
loans in which the Trust invests. See "Credit Risk on Senior Loans" above.
Changes in market interest rates may also have a moderate impact on the Trust's
NAV. See "Interest Rate Risk." Another factor which can affect the Trust's NAV
is changes in the pricing obtained for the Trust's assets. See "Transaction
Policies -- Valuation of the Trust's Assets."
DISCOUNT FROM OR PREMIUM TO NAV
The Trust's Common Shares have traded in the market above, at, and below NAV
since March 9, 1992, when the Trust's shares were listed on the NYSE. The
reasons for the Trust's Common Shares trading at a premium to or discount from
NAV are not known to the Trust, and the Trust cannot predict whether its Common
Shares will trade in the future at a premium to or discount from NAV, and if so,
the level of such premium or discount. Shares of closed-end investment companies
frequently trade at a discount from NAV. The possibility that Common Shares of
the Trust will trade at a discount from NAV is a risk separate and distinct from
the risk that the Trust's NAV may decrease.
LEVERAGE
The Trust may borrow an amount up to 33 1/3% (or such other percentage permitted
by law) of its total assets (including the amount borrowed) less all liabilities
other than borrowings. The Trust may also issue preferred shares in an amount up
to 50% of the Trust's total assets (including the proceeds of preferred shares
and any borrowings). In November 2000, the Trust issued 18,000 Preferred Shares
for a total of $450 million. Borrowings and the issuance of preferred shares are
referred to in this Prospectus collectively as "leverage." The Trust may use
leverage for investment purposes, to finance the repurchase of its Common
Shares, and to meet cash requirements. The use of leverage for investment
purposes increases both investment opportunity and investment risk.
Capital raised through leverage will be subject to interest and other costs, and
these costs could exceed the income earned by the Trust on the proceeds of such
leverage. There can be no assurance that the Trust's income from the proceeds of
leverage will exceed these costs. However, the Investment Manager seeks to use
leverage for the purposes of making additional investments only if it believes,
at the time of using leverage, that the total return on the assets purchased
with such funds will exceed interest payments and other costs on the leverage.
In addition, the Investment Manager intends to reduce the risk that the costs of
the use of leverage will exceed the total return on investments purchased with
the proceeds of leveraging by utilizing leverage mechanisms whose interest rates
float (or reset frequently). In the event of a default on one or more loans or
other interest-bearing instruments held by the Trust, the use of leverage would
exaggerate the loss to the Trust and may exaggerate the effect on the Trust's
NAV. The Trust's lenders and preferred shareholders have priority to the Trust's
assets over the Trust's Common shareholders.
12 Risk Factors and Special Considerations
RISK FACTORS AND SPECIAL CONSIDERATIONS
--------------------------------------------------------------------------------
EFFECT OF LEVERAGE
The following table is designed to illustrate the effect on return to a holder
of the Trust's Common Shares of the leverage created by the Trust's use of
borrowing, using an assumed initial interest rate of ___%, assuming the Trust
has used leverage by borrowing an amount equal to 33 1/3% of the Trust's
Managed Assets and assuming hypothetical annual returns on the Trust's portfolio
of minus 10% to plus 10%. As can be seen, leverage generally increases the
return to shareholders when portfolio return is positive and decreases return
when the portfolio return is negative. Actual returns may be greater or less
than those appearing in the table.
Assumed Portfolio Return, net of
expenses(1) ...................... (10%) (5%) 0% 5% 10%
Corresponding Return to Common
Shareholders(2) .................. (_____%) (____%) (____%) ____% _____%
(1) The Assumed Portfolio Return is required by regulation of the SEC and is
not a prediction of, and does not represent, the projected or actual
performance of the Trust.
(2) In order to compute the "Corresponding Return to Common Shareholders," the
"Assumed Portfolio Return" is multiplied by the total value of the Trust's
assets at the beginning of the Trust's fiscal year to obtain an assumed
return to the Trust. From this amount, all interest accrued during the year
is subtracted to determine the return available to shareholders. The return
available to shareholders is then divided by the total value of the Trust's
net assets as of the beginning of the fiscal year to determine the
"Corresponding Return to Common Shareholders."
The Trust's leveraged capital structure creates special risks not associated
with unleveraged funds having similar investment objectives and policies. The
funds borrowed pursuant to the credit facilities or obtained through the
issuance of Preferred Shares, or any other preferred shares, constitute a
substantial lien and burden by reason of their prior claim against the income of
the Trust and against the net assets of the Trust in liquidation.
The Trust is not permitted to declare dividends or other distributions,
including dividends and distributions with respect to Common Shares or Preferred
Shares, or any other preferred shares, or purchase Common Shares, Preferred
Shares or any other preferred shares unless (i) at the time thereof the Trust
meets certain asset coverage requirements and (ii) there is no event of default
under any credit facility program that is continuing. See "Risk Factors and
Special Considerations -- Restrictive Covenants and 1940 Act Restrictions"
below. In the event of a default under a credit facility program, the lenders
have the right to cause a liquidation of the collateral (I.E., sell Senior Loans
and other assets of the Trust) and, if any such default is not cured, the
lenders may be able to control the liquidation as well.
In addition, the Trust is not permitted to pay dividends on, or redeem Common
Shares unless all accrued dividends, or accrued interest on borrowings, on the
Preferred Shares or any other preferred shares, have been paid or set aside for
payment.
Because the fee paid to the Investment Manager will be calculated on the basis
of Managed Assets, the fee will be higher when leverage is utilized, giving the
Investment Manager an incentive to utilize leverage.
The Trust is subject to certain restrictions imposed by lenders to the Trust and
by guidelines of one or more rating agencies which issue ratings for the
Preferred Shares issued by the Trust. These restrictions impose asset coverage,
fund composition requirements and limits on investment techniques, such as the
use of financial derivative products, that are more stringent than those imposed
on the Trust by the 1940 Act. These covenants or guidelines could impede the
Investment Manager from fully managing the Trust's portfolio in accordance with
the Trust's investment objective and policies.
SECONDARY MARKET FOR THE TRUST'S SHARES
The issuance of Common Shares through the Trust's Shareholder Investment Program
may have an adverse effect on the secondary market for the Trust's Common
Shares. The increase in the number of the Trust's outstanding Common Shares
resulting from issuances pursuant to the Trust's Shareholder Investment Program
or pursuant to privately negotiated transactions, and the discount to the market
price at which such Common Shares may be issued, may put downward pressure on
the market price for Common Shares of the Trust. Common Shares will not be
issued pursuant to the Trust's Shareholder Investment Program at any time when
Common Shares are trading at a price lower than the Trust's NAV per Common
Share.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Risk Factors and Special Considerations 13
RISK FACTORS AND SPECIAL CONSIDERATIONS
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When the Trust's Common Shares are trading at a premium, the Trust may also
issue Common Shares of the Trust that are sold through transactions effected on
the NYSE or through broker-dealers who have entered into selected dealer
agreements with ING Funds Distributor, LLC (ING Funds Distributor) the Trust's
distributor. The increase in the number of outstanding Common Shares resulting
from these offerings may put downward pressure on the market price for the
Common Shares.
LIMITED SECONDARY MARKET FOR LOANS
Although the resale, or secondary, market for loans is growing, it is currently
limited. There is no organized exchange or board of trade on which loans are
traded. Instead, the secondary market for loans is an unregulated inter-dealer
or inter-bank re-sale market.
Loans usually trade in large denominations (typically more than $1 million
units) and trades can be infrequent. The market has limited transparency so that
information about actual trades may be difficult to obtain. Accordingly, some or
many of the loans in which the Trust invests will be relatively illiquid.
In addition, loans in which the Trust invests may require the consent of the
borrower and/or the agent prior to sale or assignment. These consent
requirements can delay or impede the Trust's ability to sell loans and can
adversely affect the price that can be obtained. The Trust may have difficulty
disposing of loans if it needs cash to repay debt, to pay dividends, to pay
expenses or to take advantage of new investment opportunities. Although the
Trust has not conducted a tender offer since 1992, if it determines to again
conduct a tender offer, limitations of a secondary market may result in
difficulty raising cash to purchase tendered Common Shares.
These considerations may cause the Trust to sell securities at lower prices than
it would otherwise consider to meet cash needs or cause the Trust to maintain a
greater portion of its assets in cash equivalents than it would otherwise, which
could negatively impact performance. The Trust seeks to avoid the necessity of
selling assets to meet such needs by the use of borrowings.
The Trust values its assets daily. However, because the secondary market for
loans is limited, it may be difficult to value loans. Market quotations may not
be readily available for some loans and valuation may require more research than
for liquid securities. In addition, elements of judgment may play a greater role
in valuation than for securities with a secondary market, because there is less
reliable, objective market value data available. In addition, if the Trust
purchases a relatively large loan to generate extra income sometimes paid to
large lenders, the limitations of the secondary market may inhibit the Trust
from selling a portion of the loan and reducing its exposure to a borrower
when the Investment Manager deems it advisable to do so.
LENDING PORTFOLIO SECURITIES
To generate additional income, the Trust may lend portfolio securities in an
amount up to 33 1/3% of total Trust assets to broker-dealers, major banks, or
other recognized domestic institutional borrowers of securities. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower default or fail financially. The
Trust intends to engage in lending portfolio securities only when such lending
is fully secured by investment grade collateral held by an independent agent.
DEMAND FOR LOANS
Although the volume of loans has increased in recent years, demand for loans has
also grown. An increase in demand may benefit the Trust by providing increased
liquidity for loans, but may also adversely affect the rate of interest payable
on loans acquired by the Trust, the price of loans acquired in the secondary
market and the rights provided to the Trust under the terms of the loan.
UNSECURED LOANS AND SUBORDINATED LOANS
Subject to the 20% of the Trust's assets that may be invested in Other
Investments, the Trust may invest up to 5% of its total assets, measured at the
time of investment, in unsecured loans and in subordinated loans. Unsecured
loans and subordinated loans share the same credit risks as those discussed
above under "Credit Risk on Senior Loans" except that unsecured loans are not
secured by any collateral of the borrower and subordinated loans are not the
most senior debt in a borrower's capital structure. Unsecured loans do not enjoy
the security associated with collateralization and may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans. The primary
additional risk in a subordinated loan is the potential loss in the event of
default by the issuer of the loan. Subordinated loans in an insolvency bear an
increased share, relative to senior secured lenders, of the ultimate risk that
the borrower's assets are insufficient to meet its obligations to its creditors.
SHORT-TERM DEBT SECURITIES
Subject to the 20% of the Trust's assets that may be invested in Other
Investments, the Trust may invest in short-term debt securities. Short-term debt
securities are subject to the risk of the issuer's inability to meet principal
and interest payments on the obligation and also may be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity.
Because short-term debt securities pay interest at a fixed-rate, when interest
rates decline, the value of the Trust's short-term debt securities can be
expected to rise, and when interest rates
14 Risk Factors and Special Considerations
RISK FACTORS AND SPECIAL CONSIDERATIONS
--------------------------------------------------------------------------------
rise, the value of those securities can be expected to decline.
INVESTMENTS IN EQUITY SECURITIES INCIDENTAL TO INVESTMENT IN LOANS
Subject to the 20% of the Trust's assets that may be invested in Other
Investments, the Trust may acquire equity securities as an incident to the
purchase or ownership of a loan or in connection with a reorganization of a
borrower. Investments in equity securities incidental to investment in loans
entail certain risks in addition to those associated with investment in loans.
The value of these securities may be affected more rapidly, and to a greater
extent, by company-specific developments and general market conditions. These
risks may increase fluctuations in the Trust's NAV. The Trust may frequently
possess material non-public information about a borrower as a result of its
ownership of a loan of such borrower. Because of prohibitions on trading in
securities of issuers while in possession of such information the Trust might be
unable to enter into a transaction in a security of such a borrower when it
would otherwise be advantageous to do so.
BORROWINGS UNDER THE CREDIT FACILITY PROGRAM
In May 1996, the Trust began a policy of borrowing to acquire income-producing
investments which, by their terms, pay interest at a rate higher than the rate
the Trust pays on borrowings. Accordingly, borrowing has the potential to
increase the Trust's total income. The Trust currently is a party to two credit
facilities with financial institutions that permit the Trust to borrow up to an
aggregate of $540 million. Interest is payable on the credit facilities by the
Trust at a variable rate that is tied to either LIBOR, the federal funds rate,
or a commercial paper based rate and includes a facility fee on unused
commitments. As of October 8, 2002, the Trust had outstanding borrowings under
the credit facilities of approximately $205 million. Collectively, the lenders
under the credit facilities have a security interest in all assets of the Trust.
Under each of the credit facilities, the lenders have the right to liquidate
Trust assets in the event of default by the Trust under such credit facility,
and the Trust may be prohibited from paying dividends in the event of certain
adverse events or conditions respecting the Trust or Investment Manager until
the credit facility is repaid in full or until the event or condition is cured.
The current credit facility for $450 million is due to expire on July 16,
2003. The Trust intends to replace that facility with a similar facility from
another financial institution on terms that are substantially identical to
the terms of the current credit facility. This replacement credit facility is
expected to be between $300 and $400 million.
RANKING OF SENIOR INDEBTEDNESS
The rights of lenders to receive payments of interest on and repayments of
principal of any borrowings made by the Trust under the credit facility program
are senior to the rights of holders of Common Shares, Preferred Shares and any
other preferred shares, with respect to the payment of dividends or upon
liquidation.
RESTRICTIVE COVENANTS AND 1940 ACT RESTRICTIONS
The credit agreements governing the credit facility program (the Credit
Agreements) include usual and customary covenants for their respective type of
transaction, including limits on the Trust's ability to (i) issue preferred
shares, (ii) incur liens or pledge portfolio securities, (iii) change its
investment objective or fundamental investment restrictions without the approval
of lenders, (iv) make changes in any of its business objectives, purposes or
operations that could result in a material adverse effect, (v) make any changes
in its capital structure, (vi) amend the Trust documents in a manner which could
adversely affect the rights, interests or obligations of any of the lenders,
(vii) engage in any business other than the businesses currently engaged in,
(viii) create, incur, assume or permit to exist certain debt except for certain
specified types of debt, and (ix) permit any of its ERISA affiliates to cause or
permit to occur an event that could result in the imposition of a lien under the
Internal Revenue Code or ERISA. In addition, the Credit Agreements do not permit
the Trust's asset coverage ratio (as defined in the credit agreements) to fall
below 300% at any time (the Credit Agreement Asset Coverage Test).
Under the requirements of the 1940 Act, the Trust must have asset coverage of at
least 300% immediately after any borrowing, including borrowing under the credit
facility program. For this purpose, asset coverage means the ratio which the
value of the total assets of the Trust, less liabilities and indebtedness not
represented by senior securities, bears to the aggregate amount of borrowings
represented by senior securities issued by the Trust. The Credit Agreements
limit the Trust's ability to pay dividends or make other distributions on the
Trust's Common Shares, or purchase or redeem Common Shares, unless the Trust
complies with the Credit Agreement Asset Coverage Test. In addition, the Credit
Agreements do not permit the Trust to declare dividends or other distributions
or purchase or redeem Common Shares or any preferred shares (i) at any time that
an event of default under a Credit Agreement has occurred and is continuing; or
(ii) if, after giving effect to such declaration, the Trust would not meet the
Credit Agreement Asset Coverage Test set forth in the Credit Agreement.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Risk Factors and Special Considerations 15
WHAT YOU PAY TO INVEST -- TRUST EXPENSES
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The following table is intended to assist you in understanding the various costs
and expenses associated with investing in the Trust.(1)
SHAREHOLDER TRANSACTION EXPENSES
Shareholder Investment Program
Commission (as a percentage of offering price)(2) 1.00%
Shareholder Investment Program Fees NONE
Privately Negotiated Transactions
Commission (as a percentage of offering price)(2) 3.00%
Shareholder Investment Program Fees NONE
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management and Administrative Fees(3) %
Interest Expense on Borrowed Funds %
Other Operating Expenses(4) %
Total Annual Expenses %
(1) The table above assumes that the Trust has used leverage by borrowing
an amount equal to 33 1/3% of the Trust's Managed Assets and shows
expenses as a percentage of net assets. However, certain expenses of
the Trust, such as management fees, are calculated on the basis of
Managed Assets. If the Trust's expenses assuming the use of leverage
by borrowing an amount equal to 33 1/3% of Managed Assets are shown as
a percentage of Managed Assets rather than as a percentage of net
assets, the annual expenses in the fee table would read as follows:
ANNUAL EXPENSES (AS A PERCENTAGE OF MANAGED ASSETS)
Management and Administrative Fees(3) %
Interest Expense on Borrowed Funds %
Other Operating Expenses(4) %
Total Annual Expenses %
Borrowing may be made for the purpose of acquiring additional
income-producing investments when the Investment Manager believes that
such use of borrowed proceeds will enhance the Trust's net yield.
(2) In connection with optional cash investments in excess of $5,000
pursuant to a waiver, a commission of up to 1.00% of the amount of
such investment may be paid to ING Funds Distributor for services in
connection with the sale of the Common Shares, while in connection
with certain privately negotiated transactions, a commission of up to
3.00% of such investment may be paid to ING Funds Distributor. ING
Funds Distributor may allow all or some of such commission to other
broker-dealers. See "Distribution Arrangements." No commissions will
be paid by the Trust or its shareholders in connection with the
reinvestment of dividends and capital gains distributions or in
connection with optional cash investments up to the maximum of $5,000
per month.
(3) Pursuant to the Investment Management Agreement with the Trust, ING
Investments is paid a fee of 0.80% of the Trust's Managed Assets.
Pursuant to its Administration Agreement with the Trust, ING Funds
Services, LLC., the Trust's Administrator, is paid a fee of 0.25% of
the Trust's Managed Assets. See "Investment Management and Other
Services -- The Administrator."
(4) "Other Operating Expenses" are based on estimated amounts for the
current fiscal year, which, in turn, are based on "other operating
expenses" for the fiscal year ended February 28, 2003, and does not
include the expenses of borrowing.
16 What You Pay to Invest -- Trust Expenses
WHAT YOU PAY TO INVEST -- TRUST EXPENSES
--------------------------------------------------------------------------------
The following example applies to shares issued in connection with the Trust's
Shareholder Investment Program. Because the assumed amount of investment in the
example is $1,000, the example does not reflect the maximum front-end commission
of 1.00% on sales of greater than $5,000 per month pursuant to a request for
waiver.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and where the
Trust has borrowed $ $ $ $
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and where the
Trust has not borrowed $ $ $ $
The following example applies to shares issued in connection with privately
negotiated transactions, which may have a maximum front-end commission of 3.0%.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and where the
Trust has borrowed $ $ $ $
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and where the
Trust has not borrowed $ $ $ $
These hypothetical examples assume that all dividends and other distributions
are reinvested at NAV and that the percentage amounts listed under Annual
Expenses above remain the same in the years shown. The above tables and the
assumption in the hypothetical example of a 5% annual return are required by
regulation of the SEC applicable to all investment companies; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of the Trust's Shares. For more complete descriptions of
certain of the Trust's costs and expenses, see "Investment Management and Other
Services."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
What You Pay to Invest -- Trust Expenses 17
TRANSACTION POLICIES
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NET ASSET VALUE
The NAV per Common Share of the Trust is determined once daily at the close of
regular trading on the NYSE (normally 4:00 p.m. Eastern Time) on each day the
NYSE is open. The NAV per Common Share is determined by dividing the value of
the Trust's loan assets plus all cash and other assets (including interest
accrued but not collected) less all liabilities (including accrued expenses but
excluding capital and less the liquidation preference of any outstanding
preferred shares) by the number of shares outstanding. The NAV per Common Share
is made available for publication.
VALUATION OF THE TRUST'S ASSETS
The assets in the Trust's portfolio are valued daily in accordance with the
Trust's Loan Valuation Procedures adopted by the Board of Trustees. A
majority of the Trust's assets are valued using quotations supplied by a
third party loan pricing service. However, the loans in which the Trust
invests are not listed on any securities exchange or board of trade. Some
loans are traded by institutional investors in an over-the-counter secondary
market that has developed in the past several years. This secondary market
generally has fewer trades and less liquidity than the secondary markets for
other types of securities. Some loans have few or no trades. Accordingly,
determinations of the value of loans may be based on infrequent and dated
trades. Because there is less reliable, objective market value data
available, elements of judgment may play a greater role in valuation of loans
than for other types of securities. For further information, see "Risk
Factors and Special Considerations -- Limited Secondary Market for Loans."
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 believed to be
reliable. Loans for which reliable quotations are not available from a
pricing service 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. The
Trust has engaged an independent pricing service to provide quotations from
dealers in loans and to calculate values under this "proxy" procedure.
It is expected that most of the loans held by the Trust will be valued with
reference to quotations from the independent pricing service or with reference
to the "proxy" procedure described above. The Investment Manager may believe
that the price for a loan derived from 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 it 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
under procedures established by the Trust's Board of Trustees, and in
accordance with the provisions of the 1940 Act.
Under these procedures, fair value is determined by the Investment Manager and
monitored by the Trust's Board of Trustees through its Valuation Committee. In
fair valuing a loan, consideration is given to several factors, which may
include, among others, the following:
* 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;
* the nature, adequacy and value of the collateral, including the
Trust's rights, remedies and interests with respect to the collateral;
* 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;
* 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;
* the reputation and financial condition of the agent of the loan and
any intermediate participants in the loans;
* the borrower's management; and
* the general economic and market conditions affecting the fair value of
the loan.
Securities for which the primary market is a national securities exchange
Securities reported by NASDAQ National Market System will be valued at the
NASDAQ Official Closing Price on the valuation day, are stated at the last
reported sale price on the day of valuation. Debt and equity securities
traded in the over-the-counter market and listed securities for which no sale
was reported on that date are valued at the mean between the last reported
bid and asked price. Valuation of short term cash equivalent investments will
be at amortized cost.
ACCOUNT ACCESS
Unless your Common Shares are held through a third-party fiduciary or in an
omnibus registration at your bank or brokerage firm, you may be able to access
your account information over the internet at www.ingfunds.com, or via a touch
tone telephone by calling (800) 992-0180 and selecting Option 1. Should you wish
to speak with a Shareholder Services Representative, you may call the toll-free
number listed above and select Option 2.
18 Transaction Policies
PLAN OF DISTRIBUTION
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SHAREHOLDER INVESTMENT PROGRAM
The following is a summary of the Shareholder Investment Program (the
"Program"). Shareholders are advised to review a fuller explanation of the
Program contained in the Trust's SAI. Common Shares are offered by the Trust
through the Program. The Program allows participating shareholders to reinvest
all dividends ("Dividends") in additional Common Shares of the Trust, and also
allows participants to purchase additional Common Shares through optional cash
investments in amounts ranging from a minimum of $100 to a maximum of $5,000 per
month. The Trust reserves the right to reject any purchase order. Please note
that cash, travelers checks, third party checks, money orders and checks drawn
on non-US banks (even if payment may be effected through a US bank) will not be
accepted. Subject to the permission of the Trust ("Waiver"), participating
shareholders may also make optional cash investments in excess of the monthly
maximum. Common Shares may be issued by the Trust under the Program only if the
Trust's Common Shares are trading at a premium to NAV. If the Trust's Common
Shares are trading at a discount to NAV, Common Shares purchased under the
Program will be purchased on the open market.
Shareholders may elect to participate in the Program by telephoning the Trust or
submitting a completed Participation Form to DST Systems, Inc. ("DST"), the
Program administrator. DST will credit to each participant's account funds it
receives from: (a) Dividends paid on Trust shares registered in the
participant's name, and (b) optional cash investments. DST will apply all
Dividends and optional cash investments received to purchase Common Shares as
soon as practicable beginning on the relevant investment date (as described
below) and not later than six business days after the relevant investment date,
except when necessary to comply with applicable provisions of the federal
securities laws. For more information on the Trust's distribution policy, see
"Dividends and Distributions."
In order for participants to purchase shares through the Program in any month,
the Administrator must receive from the participant any optional cash investment
by the relevant investment date. The relevant investment date will be set in
advance by the Trust, upon which optional cash investments are first applied by
DST to the purchase of Common Shares. Investment dates may vary depending on
whether or not the optional cash investment exceeds $5,000. Participants may
obtain a schedule of relevant dates, including investments dates, the dates in
which all requests for a Waiver must be received and the dates in which shares
will be paid by calling ING's Shareholder Services Department at (800) 992-0180.
With the exception of shares purchased in connection with optional cash
investments in excess of $5,000, shares issued by the Trust under the Program
will be issued commission free. Common Shares purchased for the Program directly
from the Trust in connection with the Program will be acquired at the greater of
(i) NAV at the close of business on the day preceding the relevant investment
date or (ii) the average of the daily market price of the Common Shares during
the pricing period minus a discount of 5%, for reinvested Dividends, and 0%-5%,
for optional cash investments.
It is solely within the Trust's discretion as to whether approval for any cash
investments in excess of $5,000 will be granted. In deciding whether to approve
a request for Waiver, the Trust will consider relevant factors including, but
not limited to, whether the Program is then acquiring newly issued Common Shares
directly from the Trust or acquiring shares from third parties in the open
market, the Trust's need for additional funds, the attractiveness of obtaining
such additional funds through the sale of Common Shares as compared to other
sources of funds, the purchase price likely to apply to any sale of Common
Shares under the Program, the participant submitting the request, the extent and
nature of such participant's prior participation in the Program, the number of
Common Shares held by such participant and the aggregate amount of cash
investments for which requests for Waiver have been submitted by all
participants. If such requests are submitted for any Waiver for an aggregate
amount in excess of the amount the Trust is then willing to accept, the Trust
may honor such requests in order of receipt, pro rata or by any other method
that the Trust determines in its sole discretion to be appropriate. For
information on a commission that may apply in connection with an optional cash
investment in excess of $5,000, see "More Information -- Distribution
Arrangements."
The Trust may establish for a minimum price applicable to the purchase of newly
issued Common Shares through requests for Waiver, which will be a stated dollar
amount that the market price of the Common Shares during a day in which the
shares are reported on the New York Stock Exchange ("Trading Day") during the
relevant pricing period must equal or exceed. No shares will be issued and funds
submitted pursuant to requests for Waiver will be returned to the participant if
the minimum price is not obtained for at least three of the five Trading Days.
Participants will pay a pro rata share of brokerage commissions with respect to
DST's open market purchases in connection with the reinvestment of Dividends or
purchases made with optional cash investments.
From time to time, financial intermediaries, including brokers and dealers, and
other persons may wish to engage in positioning transactions in order to benefit
from the discount from market price of the Common Shares acquired under the
Program. Such transactions could cause fluctuations in the trading volume and
price of the Common Shares. The difference between the price such owners pay to
the Trust for Shares acquired under the Program, after deduction of the
applicable discount from the market price, and the price at which such Common
Shares are resold, may be deemed to constitute underwriting commissions received
by such owners in connection with such transactions.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Plan of Distribution 19
PLAN OF DISTRIBUTION
--------------------------------------------------------------------------------
The Program is intended for the benefit of investors in the Trust. The Trust
reserves the right to exclude from participation, at any time, (i) persons or
entities who attempt to circumvent the Program's standard $5,000 maximum by
accumulating accounts over which they have control or (ii) any other persons or
entities, as determined in the sole discretion of the Trust.
Currently, persons who are not shareholders of the Trust may not participate in
the Program. The Board of Trustees of the Trust may elect to change this policy
at a future date, and permit non-shareholders to participate in the Program.
Shareholders may request to receive their Dividends in cash at any time by
giving DST written notice or by contacting ING's Shareholder Services Department
at (800) 992-0180, Option 2. Shareholders may elect to close their account at
any time by giving DST written notice. When a participant closes their account,
the participant upon request will receive a certificate for full Common Shares
in the Account. Fractional Common Shares will be held and aggregated with other
fractional Common Shares being liquidated by DST as agent of the Program and
paid for by check when actually sold.
The automatic reinvestment of Dividends does not affect the tax characterization
of the Dividends (i.e., capital gains and income are realized even though cash
is not received). If shares are issued pursuant to the Program's dividend
reinvestment provisions or cash purchase provisions at a discount from market
price, participants may have income equal to the discount.
Additional information about the Program may be obtained from ING's Shareholder
Services Department at (800) 992-0180, Option 2.
PRIVATELY NEGOTIATED TRANSACTIONS
The Common Shares may also be offered pursuant to privately negotiated
transactions between the Trust and specific investors. The terms of such
privately negotiated transactions will be subject to the discretion of the
management of the Trust. In determining whether to sell Common Shares pursuant
to a privately negotiated transaction, the Trust will consider relevant factors
including, but not limited to, the attractiveness of obtaining additional funds
through the sale of Common Shares, the purchase price to apply to any such sale
of Common Shares and the person seeking to purchase the Common Shares.
Common Shares issued by the Trust in connection with privately negotiated
transactions will be issued at the greater of (i) NAV per Common Share of the
Trust's Common Shares or (ii) at a discount ranging from 0% to 5% of the average
of the daily market price of the Trust's Common Shares at the close of business
on the two business days preceding the date upon which Common Shares are sold
pursuant to the privately negotiated transaction. The discount to apply to such
privately negotiated transactions will be determined by the Trust with regard to
each specific transaction. For information on a commission that may apply in
connection with privately negotiated transactions, see "More Information --
Distribution Arrangements."
USE OF PROCEEDS
--------------------------------------------------------------------------------
It is expected that the net proceeds of Common Shares issued pursuant to the
Shareholder Investment Program and privately negotiated transactions will be
invested in Senior Loans and other securities consistent with the Trust's
investment objective and policies. Pending investment in Senior Loans, the
proceeds will be used to pay down the Trust's outstanding borrowings under its
credit facilities. See "Investment Objective and Policies -- Policy on
Borrowing." As of June 16, 2003, the Trust's outstanding borrowings under its
credit facilities was $___ million. By paying down the Trust's borrowings, the
Trust can avoid adverse impacts on yields pending investment of such proceeds in
Senior Loans. As investment opportunities are subsequently identified, it is
expected that the Trust will reborrow amounts previously repaid and invest such
amounts in additional Senior Loans.
DIVIDENDS AND DISTRIBUTIONS
--------------------------------------------------------------------------------
DISTRIBUTION POLICY
Income dividends on Common Shares are declared and paid monthly under guidelines
approved by the Board of Trustees.
Capital gains, if any, are declared and paid annually.
DIVIDEND REINVESTMENT
Unless you instruct the Trust to pay you dividends in cash, dividends and
distributions paid by the Trust will be reinvested in additional Common Shares
of the Trust. You may request to receive dividends in cash at any time by giving
DST written notice or by contacting the ING's Shareholder Services Department at
1-800-992-0180, Option 2.
20 Plan of Distribution
INVESTMENT MANAGEMENT AND OTHER SERVICES
--------------------------------------------------------------------------------
INVESTMENT MANAGER
ING INVESTMENTS, LLC (the Investment Manager or ING Investments), an Arizona
limited liability company, (formerly ING Pilgrim Investments, LLC), serves as
Investment Manager to the Trust and has overall responsibility for the
management of the Trust under the general supervision of the Board of Trustees.
Its principal business address is 7337 East Doubletree Ranch Road, Scottsdale,
Arizona 85258. The Trust and the Investment Manager have entered into an
Investment Management Agreement that requires ING Investments to provide all
investment advisory and portfolio management services for the Trust. It also
requires ING Investments to assist in managing and supervising all aspects of
the general day-to-day business activities and operations of the Trust,
including custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services. ING Investments provides the Trust with office
space, equipment and personnel necessary to administer the Trust. The agreement
with ING Investments can be canceled by the Board of Trustees upon 60 days'
written notice.
ING Investments is an indirect wholly-owned subsidiary of ING Groep N.V. (NYSE:
ING) (ING Groep). ING Groep is a global financial institution active in the
fields of insurance, banking and asset management in more than 65 countries
with more than 100,000 employees. The Investment Manager is registered as an
investment adviser with the SEC. As of May 31, 2003, ING Investments had assets
under management of $___ billion.
The Investment Manager bears its expenses of providing the services described
above. The Investment Manager currently receives from the Trust an annual fee,
paid monthly, of 0.80% of the Trust's Managed Assets.
The Trust pays all operating and other expenses of the Trust not borne by ING
Investments including, but not limited to, audit and legal fees, transfer agent,
registrar and custodian fees, expenses in preparing repurchase offers,
shareholder reports and proxy solicitation materials and other miscellaneous
business expenses. The Trust also pays all taxes imposed on it and all brokerage
commissions and loan-related fees.
PROPOSED SUB-ADVISER
Subject to shareholder approval, the Trust's Board of Trustees has approved
Aeltus Investment Management, Inc., a Connecticut Corporation (Aeltus or
Sub-Adviser) to serve as the Sub-Adviser to the Trust effective August 18,
2003. Aeltus is responsible for managing the assets of the Trust in
accordance with its investment objective and policies, subject to oversight
by ING Investments. The portfolio management team described below will not
change.
Founded in 1972, Aeltus is registered as an investment adviser with the SEC.
Aeltus is an indirect wholly-owned subsidiary of ING Groep N.V., and is an
affiliate of ING Investments. Aeltus has acted as adviser of subadviser to
mutual funds since 1994 and has managed institutional accounts since 1972.
As of June 2, 2003, Aeltus managed over $_____ billion in assets. Its principal
office is located at 10 State House Square, Hartford, Connecticut 06103-3602.
For its services, Aeltus is entitled to receive a sub-advisory fee of ______,
expressed as an annual rate based on the average daily [Managed Assets] of the
Trust and is paid by ING Investments. Under the terms of the sub-advisory
agreement, the agreement can be terminated by either ING Investments or the
Board of Trustees. In the event the sub-advisory agreement is terminated, the
Sub-Adviser may be replaced subject the any regulatory requirements or ING
Investments may assume day-to-day investment management of the Trust.
PORTFOLIO MANAGEMENT. A portfolio management team consisting of the following
individuals manages the Trust.
DANIEL A. NORMAN serves as Senior Vice President, Treasurer and Co-Senior
Portfolio Manager of the Trust. Mr. Norman has served ING Prime Rate Trust in
various capacities from February 1992 to the present. He also serves as Senior
Vice President, Treasurer and Co-Senior Portfolio Manager of ING Senior Income
Fund, another closed-end fund that invests primarily in Senior Loans. Mr.
Norman is a Senior Vice President of ING Investments (since December 1994). Mr.
Norman has served as an officer of other affiliates of ING since February 1992.
Mr. Norman co-manages the Trust with Jeffrey A. Bakalar.
JEFFREY A. BAKALAR serves as Senior Vice President and Co-Senior Portfolio
Manager of the Trust. Mr. Bakalar has served ING Prime Rate Trust in various
capacities from February 1998 to the present. He also serves as Senior Vice
President and Co-Senior Portfolio Manager of ING Senior Income Fund, another
closed-end fund that invests primarily in Senior Loans. Prior to joining ING
Investments, Mr. Bakalar was Vice President of The First National Bank of
Chicago (July 1994 - January 1998). Mr. Bakalar co-manages the Trust with
Daniel A. Norman.
CURTIS F. LEE serves as Senior Vice President and Chief Credit Officer of the
Trust (since January 2001). He also serves as Senior Vice President and Chief
Credit Officer of ING Senior Income Fund, another closed-end fund that invests
primarily in Senior Loans. Mr. Lee is a Senior Vice President of and Chief
Credit Officer of ING Investments (since August 1999). Prior to joining ING
Investments, Mr. Lee held a series of positions with Standard Chartered Bank in
the credit approval and problem loan management functions (1992 - 1999).
ROBERT L. WILSON serves as Senior Vice President and Portfolio Manager of
the Trust (since July 1998). He also serves as Portfolio Manager of ING
Senior Income Fund, another closed-end fund that invests primarily in
Senior Loans. Mr. Wilson is a Vice President of ING Investments (since July
1998). Prior to joining ING Investments. Mr. Wilson was a Vice President
of Bank of Hawaii (May 1997 - June 1998) and Vice President of Union
Bank of California (November 1994 - May 1997).
MICHEL PRINCE serves as Portfolio Manager of the Trust (since May 1998). He also
serves as Portfolio Manager of ING Senior Income Fund, another closed-end fund
that invests primarily in Senior Loans. Mr. Prince is a Vice President of ING
Investments (since May 1998). Prior to joining ING Investments, Mr. Prince was
Vice President of Rabobank International, Chicago Branch (July 1996 - April
1998).
JASON T. GROOM serves as Portfolio Manager of the Trust (since November 2000).
He also serves as Portfolio Manager of ING Senior Income Fund, another
closed-end fund that invests primarily in Senior Loans. Mr. Groom is a Vice
President of ING Investments (since June 2000). He served as an Assistant Vice
President from July 1998 to May 2000. Prior to joining ING Investments, Mr.
Groom was an Associate in the Corporate Finance Group of NationsBank (January
1998 - June 1998) and Assistant Vice President, Corporate Finance Group of The
Industrial Bank of Japan Limited (August 1995 - December 1997).
CHARLES E. LEMIEUX serves as Portfolio Manager of the Trust (since July 1998).
He also serves as Portfolio Manager of ING Senior Income Fund, another
closed-end fund that invests primarily in Senior Loans.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Investment Management and Other Services 21
INVESTMENT MANAGEMENT AND OTHER SERVICES
--------------------------------------------------------------------------------
Mr. LeMieux is a Vice President of ING Investments (since June 2000). He served
as an Assistant Vice President of ING Investments from July 1998 to May 2000.
Prior to joining ING Investments, Mr. LeMieux was Assistant Treasurer Cash
Management with Salt River Project (October 1993 - June 1998).
MARK F. HAAK serves as Vice President and Portfolio Manager of the Trust (since
June 1999). He also serves as Portfolio Manager of ING Senior Income Fund,
another closed-end fund that invests primarily in Senior Loans. Mr. Haak is an
Assistant Vice President of ING Investments (June 1999). Prior to joining ING
Investments, Mr. Haak was Assistant Vice President, Corporate Banking with
Norwest Bank (December 1997 -June 1998); Lead Financial Analyst and Portfolio
Manager for Bank One AZ, N.A. (May 1996 - December 1997); and Credit Manager,
Norwest Financial (May 1994 -May 1996).
WILLIAM F. NUTTING, JR. serves as Vice President and Senior Portfolio Analyst
and Secondary Loan Trader for the Trust (since December 1999). He also serves
as Senior Portfolio Analyst and a Secondary Loan Trader for ING Senior Income
Fund, another closed-end fund that invests primarily in Senior Loans. Mr.
Nutting is an Assistant Vice President of ING Investments (since November 1999)
and joined ING Funds Services in July 1995 as an Operations Associate.
RALPH E. BUCHER serves as Portfolio Manager of the Trust and Vice President of
ING Investments (since November 2001). He also serves as Portfolio Manager of
ING Senior Income Fund, another closed-end fund that invests primarily in Senior
Loans. Prior to joining ING Investments, Mr. Bucher was the North American Head
of Special Assets for Standard Chartered Bank (June 1999 - November 2001). Mr.
Bucher has also held other senior credit approval positions with Societe
Generale (June 1997 - June 1999) and with Standard Chartered (February 1992 -
June 1997).
BRIAN S. HORTON serves as Portfolio Manager of the Trust and Vice President of
ING Investments (since September 2001). He also serves as Portfolio Manager of
ING Senior Income Fund, another closed-end fund that invests primarily in Senior
Loans. Prior to joining ING Investments, Mr. Horton was a Vice President in the
Corporate and Investment Banking Group at Bank of America Securities LLC, where
he worked in the Consumer and Retail Industry Group, providing clients in those
industries with services including debt and equity capital raising, mergers and
acquisitions advisory, credit, derivatives, and other corporate and investment
banking products (1999 - 2001). Mr. Horton also served in various other
corporate finance and relationship management positions during his seven years
at Bank of America, including corporate finance specialist for the Southeast
U.S. region from (1997 - 1999). Mr. Horton's other professional experience
includes positions as Associate at Salomon Brothers Inc. and Senior Investment
Analyst for Franchise Finance Corporation of America.
MOHAMED N. BASMA serves as Vice President and Research Analyst for the Trust
(since January 2000). He also serves as Vice President and Research Analyst for
ING Senior Income Fund, another closed-end fund that invests primarily in
Senior Loans. Prior to joining ING in January 2000, Mr. Basma was a senior
auditor/consultant in the audit and business advisory group with Arthur
Andersen, LLP. (1995-1997). Mr. Basma attended school for the years between
Arthur Andersen and ING.
THE ADMINISTRATOR
The Administrator of the Trust is ING Funds Services, LLC (ING Funds Services).
Its principal business address is 7337 East Doubletree Ranch Road, Scottsdale,
Arizona 85258. The Administrator is a wholly-owned subsidiary of ING Groep and
the immediate parent company of the Investment Manager.
Under an Administration Agreement between ING Funds Services and the Trust, ING
Funds Services administers the Trust's corporate affairs subject to the
supervision of the Board of Trustees of the Trust. In that connection, ING Funds
Services monitors the provisions of the Senior Loan agreements and any
agreements with respect to interests in Senior Loans and is responsible for
recordkeeping with respect to the Senior Loans in the Trust's repurchase offers
portfolio. ING Funds Services also furnishes the Trust with office facilities
and furnishes executive personnel together with clerical and certain
recordkeeping and administrative services. These services include preparation of
annual and other reports to shareholders and to the SEC. ING Funds Services also
handles the filing of federal, state and local income tax returns not being
furnished by the Custodian or Transfer Agent (as defined below). The
Administrator has authorized all of its officers and employees who have been
elected as Trustees or officers of the Trust to serve in the latter capacities.
All services furnished by the Administrator under the Administration Agreement
may be furnished by such officers or employees of the Administrator.
The Trust pays ING Funds Services an administration fee, computed daily and
payable monthly. The Administration Agreement states that ING Funds Services is
entitled to receive a fee at an annual rate of 0.25% of the Trust's Managed
Assets.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the Common
Shares is DST Systems, Inc., whose principal business address is 816 Wyandotte,
Kansas City, Missouri 64105.
CUSTODIAN
The Trust's securities and cash are held and maintained under a Custody
Agreement with State Street Bank and Trust Company, whose principal place of
business is 801 Pennsylvania Avenue, Kansas City, Missouri 64105.
22 Investment Management and Other Services
DESCRIPTION OF THE TRUST
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The Trust is an unincorporated business trust established under the laws of the
Commonwealth of Massachusetts by the Declaration of Trust dated December 2,
1987, as amended. The Declaration of Trust provides that the Trustees of the
Trust may authorize separate classes of shares of beneficial interest. The
Trustees have authorized an unlimited number of shares of beneficial interest,
par value $0.01 per share, all of which were initially classified as Common
Shares. The Declaration of Trust also authorizes the creation of an unlimited
number of shares of beneficial interest with preference rights, including
preferred shares, having a par value of $0.01 per share, in one or more series,
with rights as determined by the Board of Trustees, by action of the Board of
Trustees without the approval of the shareholders. The following table shows the
amount of (i) shares authorized, (ii) shares held by the Trust for its own
account and (iii) shares outstanding, for each class of authorized securities of
the Trust as of June 16, 2003.
AMOUNT HELD BY
AMOUNT TRUST FOR ITS AMOUNT
TITLE OF CLASS AUTHORIZED OWN ACCOUNT OUTSTANDING
-------------- ---------- ----------- -----------
Common Shares unlimited 0
Preferred Shares, Series M 3,600 0 3,600
Preferred Shares, Series T 3,600 0 3,600
Preferred Shares, Series W 3,600 0 3,600
Preferred Shares, Series Th 3,600 0 3,600
Preferred Shares, Series F 3,600 0 3,600
The Common Shares outstanding are fully paid and nonassessable by the Trust.
Holders of Common Shares are entitled to share equally in dividends declared by
the Board of Trustees payable to holders of common shares and in the net assets
of the Trust available for distribution to holders of Common Shares after
payment of the preferential amounts payable to holders of any outstanding
Preferred Shares. Neither holders of Common Shares nor holders of Preferred
Shares have pre-emptive or conversion rights and Common Shares are not
redeemable. Upon liquidation of the Trust, after paying or adequately providing
for the payment of all liabilities of the Trust and the liquidation preference
with respect to any outstanding preferred shares, and upon receipt of such
releases, indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining assets of the Trust among
the holders of the Common Shares. Under the rules of the NYSE applicable to
listed companies, the Trust is required to hold an annual meeting of
shareholders in each year. If the Trust is converted to an open-end investment
company or if for any other reason Common Shares are no longer listed on the
NYSE (or any other national securities exchange the rules of which require
annual meetings of shareholders), the Trust does not intend to hold annual
meetings of shareholders.
Under Massachusetts law, shareholders, including holders of Preferred Shares,
could under certain circumstances be held personally liable for the obligations
of the Trust. However, the Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations.
Holders of Common Shares are entitled to one vote for each share held and will
vote with the holders of any outstanding Preferred Shares or any other preferred
shares on each matter submitted to a vote of holders of Common Shares, except as
described under "Description of Capital Structure--Preferred Shares."
Shareholders are entitled to one vote for each share held. The Common Shares,
Preferred Shares and any other preferred shares do not have cumulative voting
rights, which means that the holders of more than 50% of the shares of Common
Shares, Preferred Shares and any other preferred shares voting for the election
of Trustees can elect all of the Trustees standing for election by such holders,
and, in such event, the holders of the remaining shares of Common Shares,
Preferred Shares and any other preferred shares will not be able to elect any of
such Trustees.
So long as any Preferred Shares or any other preferred shares are outstanding,
holders of Common Shares will not be entitled to receive any dividends of or
other distributions from the Trust, unless at the time of such declaration, (1)
all accrued dividends on preferred shares or accrued interest on borrowings has
been paid and (2) the value of the Trust's total assets (determined after
deducting the amount of such dividend or other distribution), less all
liabilities and indebtedness of the Trust not represented by senior securities,
is at least 300% of the aggregate amount of such securities representing
indebtedness and at least 200% of the aggregate amount of securities
representing indebtedness plus the aggregate liquidation value of the
outstanding preferred shares (expected to equal the aggregate original purchase
price of the outstanding preferred shares plus redemption premium, if any,
together with any accrued and unpaid dividends thereon, whether or not earned or
declared and on a cumulative basis). In addition to the requirements of the 1940
Act, the Trust is required to comply with other asset coverage requirements as a
condition of the Trust obtaining a rating of the preferred shares from a rating
agency. These requirements include an asset coverage test more stringent than
under the 1940 Act.
The Trust will send unaudited reports at least semi-annually and audited
financial statements annually to all of its shareholders.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon Trustees individually but only upon the property of the Trust and
that the Trustees will not
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Description of the Trust 23
DESCRIPTION OF THE TRUST
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be liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
CONVERSION TO OPEN-END FUND
The Trustees may at any time propose conversion of the Trust to an open-end
management investment company depending upon their judgment as to the
advisability of such action in light of circumstances then prevailing. In
considering whether to submit an open-ending proposal to shareholders, the
Trustees might consider, among other factors, the differences in operating
expenses between open-end and closed-end funds (due to the expenses of
continuously selling shares and of standing ready to effect redemptions), the
potentially adverse tax consequences to non-redeeming shareholders once a fund
is open-ended, and the impact of open-ending on portfolio management policies.
Such a conversion would require the approval of both a majority of the Trust's
outstanding Common Shares and preferred shares voting together as a single class
and a majority of the outstanding preferred shares voting as a separate class on
such conversion. Conversion of the Trust to an open-end investment company would
require the redemption of all outstanding preferred shares, including the
Preferred Shares, which would eliminate the leveraged capital structure of the
Trust with respect to the Common Shares. A delay in conversion could result
following shareholder approval due to the Trust's inability to redeem the
preferred shares. Shareholders of an open-end investment company may require the
company to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their next computed NAV less any
redemption charge as might be in effect at the time of redemption. If the Trust
is converted to an open-end management investment company, it could be required
to liquidate portfolio securities to meet requests for redemption, and its
shares would no longer be listed on the NYSE. If the Trust were to experience
significant redemptions as an open-end fund, the decrease in total assets could
result in a higher expense ratio and inefficiencies in portfolio management. In
this regard, the Trust could reserve the right to effect redemptions in-kind
with portfolio securities, which would subject redeeming shareholders to
transaction costs in liquidating those securities.
REPURCHASE OF COMMON SHARES
In recognition of the possibility that the Trust's Common Shares may trade at a
discount to their NAV, the Trust may from time to time take action to attempt to
reduce or eliminate a market value discount from NAV by repurchasing its Common
Shares in the open market or by tendering its Common Shares at NAV. So long as
any preferred shares are outstanding, the Trust may not purchase, redeem or
otherwise acquire any Common Shares unless (1) all accumulated dividends on the
preferred shares have been paid or set aside for payment through the date of
such purchase, redemption or other acquisition and (2) at the time of such
purchase, redemption or acquisition asset coverage requirements set forth in the
Declaration of Trust and the Trust's Certificate of Designation for Preferred
Shares are met. Repurchases of Common Shares may result in the Trust being
required to redeem preferred shares to satisfy asset coverage requirements.
FUNDAMENTAL AND NON-FUNDAMENTAL POLICIES OF THE TRUST
The investment objective of the Trust, certain policies of the Trust specified
herein as "fundamental" and the investment restrictions of the Trust described
in the SAI are fundamental policies of the Trust and may not be changed without
a "Majority Vote" of the shareholders of the Trust. The term "Majority Vote"
means the affirmative vote of (a) more than 50% of the outstanding shares of the
Trust or (b) 67% or more of the shares present at a meeting if more than 50% of
the outstanding shares of the Trust are represented at the meeting in person or
by proxy, whichever is less. All other policies of the Trust may be modified by
resolution of the Board of Trustees of the Trust.
24 Description of the Trust
DESCRIPTION OF CAPITAL STRUCTURE
--------------------------------------------------------------------------------
COMMON SHARES
The Trust's Declaration of Trust authorizes the issuance of an unlimited number
of Common Shares of beneficial interest, par value $.01 per share. All Common
Shares have equal rights to the payment of dividends and the distribution of
assets upon liquidation. Common Shares will, when issued, be fully paid and
non-assessable, and will have no pre-emptive or conversion rights or rights to
cumulative voting.
Whenever preferred shares are outstanding, holders of Common Shares will not be
entitled to receive any distributions from the Trust, unless at the time of such
declaration, (1) all accrued dividends on preferred shares or accrued interest
on borrowings have been paid and (2) the value of the Trust's total assets
(determined after deducting the amount of such dividend or other distribution),
less all liabilities and indebtedness of the Trust not represented by senior
securities, is at least 300% of the aggregate amount of such securities
representing indebtedness and at least 200% of the aggregate amount of
securities representing indebtedness plus the aggregate liquidation value of the
outstanding preferred shares. In addition to the requirements of the 1940 Act,
the Trust is required to comply with the other asset coverage requirements as a
condition of the Trust obtaining a rating of the preferred shares from a rating
agency. These requirements include asset coverage tests more stringent than
under the 1940 Act. See "Preferred Shares" below.
BORROWINGS
The Trust's Declaration of Trust authorizes the Trust, without the prior
approval of holders of Common Shares, to borrow money. In this connection, the
Trust may issue notes or other evidence of indebtedness (including bank
borrowings or commercial paper) and may secure any such borrowings by
mortgaging, pledging or otherwise granting a security interest in the Trust's
assets. See "Risk Factors and Special Consideration-Leverage."
PREFERRED SHARES
Under the 1940 Act, the Trust is permitted to have outstanding more than one
series of preferred shares as long as no single series has priority over another
series nor holders of preferred shares have pre-emptive rights to purchase any
Preferred Shares or any other preferred shares that might be issued.
The Trust's Declaration of Trust authorizes the issuance of a class of preferred
shares (which class may be divided into two or more series) as the Trustees may,
without shareholder approval, authorize. The preferred shares have such
preferences, voting powers, terms of redemption, if any, and special or relative
rights or privileges (including conversion rights, if any) as the Trustee may
determine and as are set forth in the Trust's Certificate of Designation
establishing the terms of the preferred shares. The number of shares of the
preferred class or series authorized is unlimited, and the shares authorized may
be represented in part by fractional shares. Under the Trust's Certificate of
Designation, the Trustees have authorized the creation of 18,000 Auction Rate
Cumulative Preferred Shares, having a par value of $0.01 per share, with a
liquidation preference of $25,000 per share, classified as Series M, T, W, Th
and F Auction Rate Cumulative Preferred Shares.
Any decision to offer preferred shares is subject to market conditions and to
the Board of Trustees' and the Investment Manager's continuing belief that
leveraging the Trust's capital structure through the issuance of preferred
shares is likely to achieve the benefits to the Common Shares described in this
Prospectus for long-term investors. The terms of the preferred shares will be
determined by the Board of Trustees in consultation with the Investment Manager
(subject to applicable law and the Trust's Declaration of Trust) if and when it
authorizes a preferred shares offering.
The preferred shares have complete priority over the Common Shares as to
distribution of assets. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Trust, holders of
preferred shares will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus
accumulated and unpaid dividends thereon, whether or not earned or declared)
before any distribution of assets is made to holders of Common Shares.
SENIOR SECURITIES TABLE
The table below sets forth certain specified information for the senior
securities that are outstanding for the Trust; these securities are the Series
M, T, W, Th and F Preferred Shares. The calculation of asset coverage per share
is explained in a note to the table below.
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2003
--------------------------------------------------------------
SERIES M SERIES T SERIES W SERIES TH SERIES F
-------- -------- -------- --------- --------
Total Number of Preferred Shares Outstanding ______ _______ _______ ______ _______
Asset Coverage Per Preferred Share(1) ______% _______% _______% ______% _______%
Involuntary Liquidating Preference Per Preferred Share $______ $_______ $_______ $______ $_______
Stated Value Per Preferred Share $______ $_______ $_______ $______ $_______
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2002
--------------------------------------------------------------
SERIES M SERIES T SERIES W SERIES TH SERIES F
-------- -------- -------- --------- --------
Total Number of Preferred Shares Outstanding 3,600 3,600 3,600 3,600 3,600
Asset Coverage Per Preferred Share(1) 235% 235% 235% 235% 235%
Involuntary Liquidating Preference Per Preferred Share $25,000 $25,000 $25,000 $25,000 $25,000
Stated Value Per Preferred Share $25,000 $25,000 $25,000 $25,000 $25,000
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2001
----------------------------------------------------------------
SERIES M SERIES T SERIES W SERIES TH SERIES F
-------- -------- -------- --------- --------
Total Number of Preferred Shares Outstanding 3,600 3,600 3,600 3,600 3,600
Asset Coverage Per Preferred Share(1) 215% 215% 215% 215% 215%
Involuntary Liquidating Preference Per Preferred Share $25,000 $25,000 $25,000 $25,000 $25,000
Stated Value Per Preferred Share $25,000 $25,000 $25,000 $25,000 $25,000
(1) Asset Coverage per share means the ratio of the total assets of the Trust
to the total number of Preferred Shares outstanding at the end of the
period.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Description of Capital Structure 25
TAX MATTERS
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The following information is meant as a general summary for U.S. shareholders.
Please see the SAI for additional information. Investors should rely on their
own tax adviser for advice about the particular federal, state and local tax
consequences to them of investing in the Trust.
The federal income tax treatment of the Trust's Preferred Shares is not entirely
clear, but the Trust believes, based on the advice of its counsel, that the
Preferred Shares will constitute stock of the Trust. It is possible, however,
that the IRS might take a contrary position, asserting, for example, that the
Preferred Shares constitute debt of the Trust. The discussion below assumes that
the Preferred Shares are stock.
The Trust will distribute all or substantially all of its net investment income
and net realized capital gains, if any, to its shareholders each year. Although
the Trust will not be taxed on amounts it distributes, most shareholders will be
taxed on amounts they receive. A particular distribution generally will be
taxable as either ordinary income or long-term capital gain. The Trust will
allocate a proportionate amount of each type of its income to the Common Shares
and to the Preferred Shares. It does not matter how long a shareholder has held
the Trust's Common Shares or Preferred Shares or whether the shareholder elects
to receive distributions in cash or reinvest them in additional Trust's Common
Shares or Preferred Shares. For example, if the Trust designates a particular
distribution as a long-term capital gains distribution, it will be taxable to a
shareholder at his or her long-term capital gains rate.
Dividends declared by the Trust in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
Each shareholder will receive an annual statement summarizing the shareholder's
dividend and capital gains distributions.
If a shareholder invests through a tax-deferred account, such as a retirement
plan, the shareholder generally will not have to pay tax on dividends until they
are distributed from the account. These accounts are subject to complex tax
rules, and shareholders should consult a tax adviser about investment through a
tax-deferred account.
There may be tax consequences to a shareholder if the shareholder sells the
Trust's Common Shares or Preferred Shares. A shareholder will generally have a
capital gain or loss, which will be long-term or short-term, generally depending
on how long the shareholder holds those Common Shares or Preferred Shares. If a
shareholder exchanges shares, the shareholder may be treated as if he or she
sold them. Shareholders are responsible for any tax liabilities generated by
their own transactions.
As with all investment companies, the Trust may be required to withhold U.S.
federal income tax at the rate of 30% of all taxable distributions payable to a
shareholder if the shareholder fails to provide the Trust with his or her
correct taxpayer identification number or to make required certifications, or if
the shareholder has been notified by the IRS that he or she is subject to backup
withholding. Backup withholding is not an additional tax; rather, it is a way in
which the IRS ensures it will collect taxes otherwise due. Any amounts withheld
may be credited against a shareholder's U.S. federal income tax liability.
26 Tax Matters
MORE INFORMATION
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DISTRIBUTION ARRANGEMENTS
Pursuant to the terms of a Distribution Agreement, ING Funds Distributor will
provide certain soliciting services on behalf of the Trust in connection with
certain privately negotiated transactions and investments in excess of $5,000
pursuant to a waiver. The Trust has agreed to pay ING Funds Distributor a
commission in connection with the sale of the Common Shares under the
Distribution Agreement up to 1.00% of the gross sales price of the Common Shares
sold pursuant to requests for waiver, and up to 3.00% of the gross sales price
of the Common Shares sold pursuant to privately negotiated transactions, payable
from the proceeds of the sale of the Common Shares. ING Funds Distributor may
allow all or a portion of the fee to another broker-dealer. In any event, the
net proceeds received by the Trust in connection with the sale may not be less
than the greater of (i) the net asset value per Common Share or (ii) 94% of the
average daily market price over the relevant Pricing Period (as described in
"Plan of Distribution"). No commissions will be paid by the Trust or its
shareholders in connection with the reinvestment of dividends and capital gains
distributions or in connection with optional cash investments up to the maximum
of $5,000 per month. ING Funds Distributor's principal business address is 7337
E. Doubletree Ranch Road, Scottsdale, Arizona 85258. ING Funds Distributor and
ING Investments, the Trust's Investment Manager, are indirect, wholly-owned
subsidiaries of ING Groep. See "Investment Management and Other Services --
Investment Manager."
The Trust bears the expenses of issuing the Common Shares. These expenses
include, but are not limited to, the expense of preparation and printing of the
prospectus and SAI, the expense of counsel and auditors, and others.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed on for the Trust
by Dechert LLP, 1775 I Street, NW, Washington, DC, counsel to the Trust.
AUDITORS
KPMG LLP serves as independent auditors for the Trust. The auditors' address is
355 South Grand Avenue, Los Angeles, California 90071.
REGISTRATION STATEMENT
The Trust has filed with the SEC, Washington, DC, a Registration Statement under
the Securities Act, relating to the Common Shares offered hereby. For further
information with respect to the Trust and its Common Shares, reference is made
to such Registration Statement and the exhibits filed with it.
SHAREHOLDER REPORTS
The Trust issues reports that include financial information to its shareholders
at least semi-annually.
PRIVACY POLICY
The Trust has adopted a policy concerning investor privacy. To review the
privacy policy, contact a Shareholder Services Representative at (800) 992-0180
and select Option 1, obtain a policy over the internet at www.ingfunds.com or
see the privacy policy that accompanies this Prospectus.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
More Information 27
FINANCIAL HIGHLIGHTS
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FINANCIAL HIGHLIGHTS TABLE
The table below sets forth selected financial information which has been
derived from the financial statements in the Trust's Annual Report dated as
of February 28, 2003. For the fiscal years ended February 28, 2003,
February 28, 2002, February 28, 2001, February 29, 2000, February 28, 1999,
1998 and 1997, and February 29, 1996, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ended prior to
February 29, 1996, the financial information was audited by the Trust's
former auditors.
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
-----------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(6) 1998(6) 1997(6)
------- -------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ ___ $ 8.09 $ 8.95 $ 9.24 $ 9.34 $ 9.45 $ 9.61
Net investment income ___ 0.74 0.88 0.79 0.79 0.87 0.82
Net realized and unrealized gain
(loss) on investments (___) (0.89) (0.78) (0.30) (0.10) (0.13) (0.02)
------- -------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net asset value
from investment operations ___ (0.15) 0.10 0.49 0.69 0.74 0.80
Distributions to Common Shareholders
from net investment income ___ (0.63) (0.86) (0.78) (0.82) (0.85) (0.82)
Distribution to Preferred Shareholders ___ (0.11) (0.06) -- -- -- --
Increase in net asset value from
share offerings ___ -- -- -- 0.03 -- --
Reduction in net asset value from
rights offering ___ -- -- -- -- -- (0.14)
Increase in net asset value from
repurchase of capital stock ___ -- -- -- -- -- --
Reduction in net asset value from
Preferred Shares offerings ___ -- (0.04) -- -- -- --
------- -------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ ___ $ 7.20 $ 8.09 $ 8.95 $ 9.24 $ 9.34 $ 9.45
======= ======== ========== ========== ========== ========== ==========
Closing market price at end of period $ ___ $ 6.77 $ 8.12 $ 8.25 $ 9.56 $ 10.31 $ 10.00
TOTAL RETURN(1)
Total investment return at closing
market price(2) ___% (9.20)% 9.10% (5.88)% 1.11% 12.70% 15.04%(4)
Total investment return at net
asset value(3) ___% (3.02)% 0.19% 5.67% 7.86% 8.01% 8.06%(4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $ ___ $985,982 $1,107,432 $1,217,339 $1,202,565 $1,034,403 $1,031,089
Preferred Rate Shares
Aggregate amount outstanding (000's) $ ___ $450,000 $ 450,000 -- -- -- --
Liquidation and market value Per Share $ ___ $ 25,000 $ 25,000 -- -- -- --
Asset coverage Per Share** ___% 235% 215% -- -- -- --
Average borrowings (000's) $ ___ $365,126 $ 450,197 $ 524,019 $ 490,978 $ 346,110 $ 131,773
Ratios to average net assets including
preferred*
Expenses (before interest and other
fees related to revolving credit
facility) ___ 1.57% 1.62% -- -- -- --
Expenses ___% 2.54% 3.97% -- -- -- --
Net investment income ___% 6.83%(A) 9.28% -- -- -- --
Ratios to average net assets plus
borrowing
Expenses (before interest and other
fees related to revolving credit
facility) ___% 1.66% 1.31% 1.00%(7) 1.05%(7) 1.04% 1.13%
Expenses ___% 2.70% 3.21% 2.79%(7) 2.86%(7) 2.65% 1.92%
Net investment income ___% 7.24%(B) 7.50% 6.12% 6.00% 6.91% 7.59%
Ratios to average net assets
Expenses (before interest and other
fees related to revolving credit
facility) ___% 2.25% 1.81% 1.43%(7) 1.50%(7) 1.39% 1.29%
Expenses ___% 3.64% 4.45% 4.00%(7) 4.10%(7) 3.54% 2.20%
Net investment income ___% 9.79%(C) 10.39% 8.77% 8.60% 9.23% 8.67%
Portfolio turnover rate ___% 53% 46% 71% 68% 90% 82%
Common shares outstanding at end of
period (000's) ___ 136,973 136,847 136,036 130,206 110,764 109,140
----------
(1) Total return calculations are attributable to common shareholders.
(2) Total investment return measures the change in the market value of your
investment assuming reinvestment of dividends and capital gain
distributions, if any, in accordance with the provisions of the dividend
reinvestment plan. On March 9, 1992, the shares of the Trust were initially
listed for trading on the New York Stock Exchange. Accordingly, the total
investment return for the year ended February 28, 1993, covers only the
period from March 9, 1992, to February 28, 1993. Total investment return
for periods prior to the year ended February 28, 1993, are not presented
since market values for the Trust's shares were not available. Total
returns for less than one year are not annualized.
(3) Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at
net asset value at the end of each period and assumes reinvestment of
dividends and capital gain distributions in accordance with the provisions
of the dividend reinvestment plan. This calculation differs from total
investment return because it excludes the effects of changes in the market
values of the Trust's shares. Total returns for less than one year are not
annualized.
(4) Calculation of total return excludes the effects of the per share dilution
resulting from the rights offering as the total account value of a fully
subscribed shareholder was minimally impacted.
28 Financial Highlights
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
------------------------------------------------
1996(5) 1995 1994
-------- -------- --------
$ 9.66 $ 10.02 $ 10.05
0.89 0.74 0.60
(0.08) 0.07 (0.05)
-------- -------- --------
0.81 0.81 0.55
(0.86) (0.73) (0.60)
-- -- --
-- -- --
-- (0.44) --
-- -- 0.02
-- -- --
-------- -------- --------
$ 9.61 $ 9.66 $ 10.02
======== ======== ========
$ 9.50 $ 8.75 $ 9.25
19.19% 3.27%(4) 8.06%
9.21% 5.24%(4) 6.28%
$862,938 $867,083 $719,979
-- -- --
-- -- --
-- -- --
-- -- --
-- -- --
-- -- --
-- -- --
-- -- --
-- -- --
-- -- --
-- -- --
1.23% 1.30% 1.31%
9.23% 7.59% 6.04%
88% 108% 87%
89,794 89,794 71,835
----------
(5) ING Investments, LLC, the Trust's investment manager, acquired certain
assets of Pilgrim Management Corporation, the Trust's former investment
manager, in a transaction that closed on April 7, 1995.
(6) The Manager agreed to reduce its fee for a period of three years from the
Expiration Date of the November 12, 1996 Rights Offering to 0.60% of the
average daily net assets, plus the proceeds of any outstanding borrowings,
over $1.15 billion.
(7) Calculated on total expenses before impact of earnings credits.
* Ratios do not reflect the effect of dividend payments to Preferred
Shareholders; income ratios reflect income earned on assets attributable to
preferred shares.
** Asset coverage represents the total assets available for settlement of
Preferred Stockholder's interest and notes payables in relation to the
Preferred Shareholder interest and notes payable balance outstanding. The
Preferred Shares were first offered November 2, 2000.
(A) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets including preferred shares
would have been 6.43% for the year ended February 28, 2002.
(B) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets plus borrowings applicable to
common shares would have been 6.82% for the year ended February 28, 2002.
(C) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets applicable to common shares
would have been 9.22% for the year ended February 28, 2002.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Financial Highlights 29
STATEMENT OF ADDITIONAL INFORMATION
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TABLE OF CONTENTS
PAGE
----
Change of Name ............................................................ 2
Investment Objective ...................................................... 2
Investment Restrictions ................................................... 2
Additional Information About Investments and Investment Techniques ........ 3
Trustees and Officers ..................................................... 12
Compensation Table ........................................................ 23
Code of Ethics ............................................................ 25
Investment Management and Other Services .................................. 25
Portfolio Transactions .................................................... 28
Net Asset Value ........................................................... 30
Plans of Distribution ..................................................... 31
Federal Taxation .......................................................... 36
Advertising and Performance Data .......................................... 39
General Information ....................................................... 41
Financial Statements ...................................................... 41
30 Statement of Additional Information
ING PRIME RATE TRUST
7337 E. DOUBLETREE RANCH ROAD
SCOTTSDALE, ARIZONA 85258
(800) 992-0180
25,000,000 COMMON SHARES OF BENEFICIAL INTEREST
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TRUST ADVISORS AND AGENTS
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INVESTMENT MANAGER DISTRIBUTOR
ING Investments, LLC ING Funds Distributor, LLC
7337 E. Doubletree Ranch Road 7337 E. Doubletree Ranch Road
Scottsdale, AZ 85258 Scottsdale, AZ 85258
ADMINISTRATOR TRANSFER AGENT
ING Funds Services, LLC DST Systems, Inc.
7337 E. Doubletree Ranch Road 816 Wyandotte
Scottsdale, AZ 85258 Kansas City, MO 64105
CUSTODIAN LEGAL COUNSEL
State Street Bank and Trust Company Dechert LLP
801 Pennsylvania Avenue 1775 I Street, NW
Kansas City, MO 64105 Washington, DC 20006
INDEPENDENT AUDITORS INSTITUTIONAL INVESTORS AND ANALYSTS
KPMG LLP Call ING Prime Rate Trust
355 South Grand Avenue 1-800-336-3436
Los Angeles, California 90071
THE TRUST HAS NOT AUTHORIZED ANY PERSON TO PROVIDE YOU WITH ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS
PROSPECTUS OR OTHER INFORMATION TO WHICH WE HAVE REFERRED YOU. THIS PROSPECTUS
IS NOT AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT
TO THIS PROSPECTUS DOES NOT IMPLY THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME AFTER THE DATE OF THIS PROSPECTUS. HOWEVER,
IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED.
WHEN CONTACTING THE SEC, YOU WILL WANT TO REFER TO THE TRUST'S SEC FILE NUMBER.
THE FILE NUMBER IS AS FOLLOWS: 1940 Act File No. 811-5410
[LION LOGO]
ING FUNDS
GRAPHICS DESCRIPTION APPENDIX
The cover of the prospectus has an image of the columns of the New York Stock
Exchange. The ING Funds Logo, which consists of a lion at rest to the right of
the word ING and the word Funds appearing below the word ING, appears at the
bottom of the outside front cover and outside back cover.
There are six icon sized graphics used throughout the prospectus as follows:
1. In the sections describing the objective of the Funds, the graphic icon is
that of a dart in the bullseye of a target.
2. In the sections describing the investment strategy of the Funds, the
graphic icon is that of a compass pointing due north.
3. In the sections describing the risks of the Funds, the graphic icon is that
of an old fashioned scale tilting heavy on the left side.
4. In the sections describing the performance history of the Funds, the
graphic icon is that of a stack of US currency bills.
5. In the sections describing what you pay to invest, the graphic icon is that
of a penny.
6. On the bottom footer of every odd numbered page (right hand page), the
graphic icon is that of a telephone by the 800 number of the fund to call
for information.
ING PRIME RATE TRUST
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 2003
ING Prime Rate Trust (the "Trust") is a diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Trust's investment objective is to
provide investors with as high a level of current income as is consistent with
the preservation of capital. There is no assurance that the Trust will achieve
its investment objective. The Trust is managed by ING Investments, LLC ("ING
Investments" or the "Investment Manager").
This Statement of Additional Information ("SAI") does not constitute a
prospectus, but should be read in conjunction with the prospectus relating
thereto dated July 1, 2003. This SAI does not include all information that a
prospective investor should consider before purchasing Common Shares in this
offering, and investors should obtain and read the prospectus prior to
purchasing such shares. A copy of the Prospectus may be obtained without charge
by calling the Investment Manager at (800) 992-0180.
TABLE OF CONTENTS
PAGE
CHANGE OF NAME 2
INVESTMENT OBJECTIVE 2
INVESTMENT RESTRICTIONS 2
ADDITIONAL INFORMATION ABOUT INVESTMENTS AND INVESTMENT TECHNIQUES 3
TRUSTEES AND OFFICERS 12
COMPENSATION TABLE 23
CODE OF ETHICS 25
INVESTMENT MANAGEMENT AND OTHER SERVICES 25
PORTFOLIO TRANSACTIONS 28
NET ASSET VALUE 30
PLANS OF DISTRIBUTION 31
FEDERAL TAXATION 36
ADVERTISING AND PERFORMANCE DATA 39
GENERAL INFORMATION 41
FINANCIAL STATEMENTS 41
The prospectus and SAI omit certain information contained in the
registration statement filed with the Securities and Exchange Commission
("Commission" or "SEC"), Washington, DC. The registration statement may be
obtained from the Commission upon payment of the fee prescribed, or inspected at
the Commission's office for no charge. The registration statement is also
available on the Commission's website (www.sec.gov).
1
CHANGE OF NAME
The Trust changed its name from "Pilgrim Prime Rate Trust" to "Pilgrim
America Prime Rate Trust" in April 1996, and then changed its name back to
"Pilgrim Prime Rate Trust" on November 16, 1998. Effective March 1, 2002 the
Trust changed its name to "ING Prime Rate Trust".
INVESTMENT OBJECTIVE
The Trust's investment objective is to obtain as high a level of
current income as is consistent with the preservation of capital. The Trust
seeks to achieve its investment objective by investing under normal
circumstances at least 80% of its Managed Assets in higher yielding, U.S. dollar
denominated, floating rate secured senior loans ("Senior Loans"). The Trust only
invests in Senior Loans made to corporations or other business entities
organized under U.S. or Canadian law and which are domiciled in the U.S., Canada
or in U.S. territories and or possessions. The Trust can also invest up to 20%
of its total assets in other investments, including unsecured loans,
subordinated loans, short-term debt instruments, equity securities acquired in
connection with investments in loans and other instruments as described under
"Additional Information About Investments and Investment Techniques." During
periods when, in the opinion of the Trust's Investment Manager, a temporary
defensive posture in the market is appropriate, the Trust may hold up to 100% of
its assets in cash and/or in short-term debt instruments.
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions relating to its
investments and activities, which may not be changed without a Majority Vote, as
defined in the 1940 Act. The Trust may not:
1. Issue senior securities, except insofar as the Trust may be deemed
to have issued a senior security by reason of (i) entering into certain interest
rate hedging transactions, (ii) entering into reverse repurchase agreements, or
(iii) borrowing money in an amount not exceeding 33 1/3%, or such other
percentage permitted by law, of the Trust's total assets (including the borrowed
amount) less all liabilities other than borrowings, or (iv) issuing a class or
classes of preferred shares in an amount not exceeding 50%, or such other
percentage permitted by law, of the Trust's total assets less all liabilities
and indebtedness not represented by senior securities.
2. Invest more than 25% of its total assets in any industry.
3. Invest in marketable warrants other than those acquired in
conjunction with Senior Loans and such warrants will not constitute more than 5%
of its assets.
4. Make investments in any one issuer other than U.S. government
securities if, immediately after such purchase or acquisition, more than 5% of
the value of the Trust's total assets would be invested in such issuer, or the
Trust would own more than 25% of any outstanding issue, except that up to 25% of
the Trust's total assets may be invested without regard to the foregoing
restrictions. For the purpose of the foregoing restriction, the Trust will
consider the borrower of a Senior Loan to be the issuer of such Senior Loan. In
addition, with respect to a Senior Loan under which the Trust does not have
privity with the borrower or would not have a direct cause of action against the
borrower in the event of the failure of the borrower to pay scheduled principal
or interest, the Trust will also separately meet the foregoing requirements and
consider each interpositioned bank (a lender from which the Trust acquires a
Senior Loan) to be an issuer of the Senior Loan.
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5. Act as an underwriter of securities, except to the extent that it
may be deemed to act as an underwriter in certain cases when disposing of its
portfolio investments or acting as an agent or one of a group of co-agents in
originating Senior Loans.
6. Purchase or sell equity securities (except that the Trust may,
incidental to the purchase or ownership of an interest in a Senior Loan, or as
part of a borrower reorganization, acquire, sell and exercise warrants and/or
acquire or sell other equity securities), real estate, real estate mortgage
loans, commodities, commodity futures contracts, or oil or gas exploration or
development programs; or sell short, purchase or sell straddles, spreads, or
combinations thereof, or write put or call options.
7. Make loans of money or property to any person, except that the
Trust (i) may make loans to corporations or other business entities, or enter
into leases or other arrangements that have the characteristics of a loan; (ii)
may lend portfolio instruments; and (iii) may acquire securities subject to
repurchase agreements.
8. Purchase shares of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
9. Make investments on margin or hypothecate, mortgage or pledge any
of its assets except for the purpose of securing borrowings as described above
in connection with the issuance of senior securities and then only in an amount
up to 33 1/3% (50% in the case of the issuance of a preferred class of shares),
or such other percentage permitted by law, of the value of the Trust's total
assets (including, with respect to borrowings, the amount borrowed) less all
liabilities other than borrowings (or, in the case of the issuance of senior
securities, less all liabilities and indebtedness not represented by senior
securities).
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in value of the
Trust's investments or amount of total assets will not be considered a violation
of any of the foregoing restrictions.
There is no limitation on the percentage of the Trust's total assets
that may be invested in instruments which are not readily marketable or subject
to restrictions on resale, and to the extent the Trust invests in such
instruments, the Trust's portfolio should be considered illiquid. The extent to
which the Trust invests in such instruments may affect its ability to realize
the net asset value ("NAV") of the Trust in the event of the voluntary or
involuntary liquidation of its assets.
The Trust has also adopted a non-fundamental policy as required by Rule
35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of
its Managed Assets in higher yielding, U.S. dollar denominated, floating rate
secured senior loans. The Trust has also adopted a policy to provide its
shareholders with at least 60 days' prior notice of any change in such
investment policy. If, subsequent to an investment, the 80% requirement is no
longer met, the Trust's future investments will be made in a manner that will
bring the Trust into compliance with this policy.
ADDITIONAL INFORMATION ABOUT INVESTMENTS AND INVESTMENT TECHNIQUES
Some of the different types of securities in which the Trust may
invest, subject to its investment objective, policies and restrictions, are
described in the prospectus under "Investment Objective and Policies."
Additional information concerning certain of the Trust's investments and
investment techniques is set forth below.
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EQUITY SECURITIES
In connection with its purchase or holding of interests in Senior
Loans, the Trust may acquire (and subsequently sell) equity securities or
exercise warrants that it receives. The Trust will acquire such interests only
as an incident to the intended purchase or ownership of loans or in connection
with a reorganization of a borrower. The Trust normally will not hold more than
20% of its total assets in equity securities. Equity securities will not be
treated as Senior Loans; therefore, an investment in such securities will not
count toward the 80% of the Trust's Managed Assets that normally will be
invested in Senior Loans. Equity securities are subject to financial and market
risks and can be expected to fluctuate in value.
LEASE PARTICIPATIONS
The credit quality standards and general requirements that the Trust
applies to Lease Participations including collateral quality, the credit quality
of the borrower and the likelihood of payback are substantially the same as
those applied to conventional Senior Loans. A Lease Participation is also
required to have a floating interest rate that is indexed to the federal funds
rate, London Inter-Bank Offered Rate ("LIBOR"), or Prime Rate in order to be
eligible for investment.
The Office of the Comptroller of the Currency has established
regulations which set forth circumstances under which national banks may engage
in lease financings. Among other things, the regulation requires that a lease be
a net-full payout lease representing the noncancelable obligation of the lessee,
and that the bank make certain determinations with respect to any estimated
residual value of leased property relied upon by the bank to yield a full return
on the lease. The Trust may invest in lease financings only if the Lease
Participation meets these banking law requirements.
INTEREST RATES AND PORTFOLIO MATURITY
Interest rates on loans in which the Trust invests adjust periodically.
The interest rates are adjusted based on a base rate plus a premium or spread
over the base rate. The base rate usually is LIBOR, the Federal Reserve federal
funds rate, the Prime Rate or other base lending rates used by commercial
lenders. LIBOR usually is an average of the interest rates quoted by several
designated banks as the rates at which they pay interest to major depositors in
the London interbank market on U.S. dollar denominated deposits. The Investment
Manager believes that changes in short-term LIBOR rates are closely related to
changes in the Federal Reserve federal funds rate, although the two are not
technically linked. The Prime Rate quoted by a major U.S. bank is generally the
interest rate at which that bank is willing to lend U.S. dollars to its most
creditworthy borrowers, although it may not be the bank's lowest available rate.
Loans in which the Trust invests typically have interest rates which
reset at least quarterly and may reset as frequently as daily. The maximum
duration of an interest rate reset on any loan in which the Trust can invest is
one year. The maximum maturity on any loan in which the Trust can invest is ten
years. The Trust's portfolio of loans will ordinarily have a dollar-weighted
average time until the next interest rate adjustment of 90 days or less,
although the time may exceed 90 days. The Trust may find it possible and
appropriate to use interest rate swaps and other investment practices to shorten
the effective interest rate adjustment period of loans. If the Trust does so, it
will consider the shortened period to be the adjustment period of the loan. As
short-term interest rates rise, interest payable to the Trust should increase.
As short-term interest rates decline, interest payable to the Trust should
decrease. The amount of time that will pass before the Trust experiences the
effects of changing short-term interest rates will depend on the dollar-weighted
average time until the next interest rate adjustment on the Trust's portfolio of
loans.
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Loans usually have mandatory and optional prepayment provisions.
Because of prepayments, the actual remaining maturity of a loan may be
considerably less than its stated maturity. If a loan is prepaid, the Trust will
have to reinvest the proceeds in other loans or securities which may have a
lower fixed spread over its base rate. In such a case, the amount of interest
paid to the Trust would likely decrease.
In the event of a change in the benchmark interest rate on a loan, the
rate payable to lenders under the loan will, in turn, change at the next
scheduled reset date. If the benchmark rate goes up, the Trust as lender would
earn interest at a higher rate, but only on and after the reset date. If the
benchmark rate goes down, the Trust as lender would earn interest at a lower
rate, but only on and after the reset date.
During normal market conditions, changes in market interest rates will
affect the Trust in certain ways. The principal effect will be that the yield on
the Trust's Common Shares will tend to rise or fall as market interest rates
rise and fall. This is because almost all of the assets in which the Trust
invests pay interest at rates which float in response to changes in market
rates. However, because the interest rates on the Trust's assets reset over
time, there will be an imperfect correlation between changes in market rates and
changes to rates on the portfolio as a whole. This means that changes to the
rate of interest paid on the portfolio as a whole will tend to lag behind
changes in market rates.
Market interest rate changes may also cause the Trust's NAV to
experience moderate volatility. This is because the value of a loan asset in the
Trust is partially a function of whether it is paying what the market perceives
to be a market rate of interest for the particular loan, given its individual
credit and other characteristics. If market interest rates change, a loan's
value could be affected to the extent the interest rate paid on that loan does
not reset at the same time. As discussed above, the rates of interest paid on
the loans in which the Trust invests have a weighted average reset period that
typically is less than 90 days. Therefore, the impact of the lag between a
change in market interest rates and the change in the overall rate on the
portfolio is expected to be minimal.
Finally, to the extent that changes in market rates of interest are
reflected not in a change to a base rate such as LIBOR but in a change in the
spread over the base rate which is payable on loans of the type and quality in
which the Trust invests, the Trust's NAV could be adversely affected. Again,
this is because the value of a loan asset in the Trust is partially a function
of whether it is paying what the market perceives to be a market rate of
interest for the particular loan, given its individual credit and other
characteristics. However, unlike changes in market rates of interest for which
there is only a temporary lag before the portfolio reflects those changes,
changes in a loan's value based on changes in the market spread on loans in the
Trust's portfolio may be of longer duration.
OTHER INVESTMENTS
Assets not invested in Senior Loans will generally consist of other
instruments, including unsecured loans and subordinated loans up to a maximum of
5% of the Trust's net assets, short-term debt instruments with remaining
maturities of 120 days or less (which may have yields tied to the Prime Rate,
commercial paper rates, the federal funds rate or LIBOR) and equity securities
acquired in connection with investments in loans. Short-term debt instruments
may include (i) commercial paper rated A-1 by Standard & Poor's Ratings Services
or P-1 by Moody's Investors Service, Inc., or of comparable quality as
determined by the Investment Manager, (ii) certificates of deposit, bankers'
acceptances, and other bank deposits and obligations, and (iii) securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
During periods when, in the judgment of the Investment Manager, a temporary
defensive posture in the market is appropriate, the Trust may hold up to 100% of
its assets in cash and/or in short-term debt instruments.
5
REPURCHASE AGREEMENTS
The Trust has the ability, pursuant to its investment objective and
policies, to enter into repurchase agreements. Such agreements may be considered
to be loans by the Trust for purposes of the 1940 Act. Each repurchase agreement
must be collateralized fully, in accordance with the provisions of Rule 5b-3
under the 1940 Act, at all times. Pursuant to such repurchase agreements, the
Trust acquires securities from financial institutions such as brokers, dealers
and banks, subject to the seller's agreement to repurchase and the Trust's
agreement to resell such securities at a mutually agreed upon date and price.
The term of such an agreement is generally quite short, possibly overnight or
for a few days, although it may extend over a number of months (up to one year)
from the date of delivery. The repurchase price generally equals the price paid
by the Trust plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio security).
The securities underlying a repurchase agreement will be marked to market every
business day so that the value of the collateral is at least equal to the value
of the loan, including the accrued interest thereon, and the Investment Manager
will monitor the value of the collateral. Securities subject to repurchase
agreements will be held by the Custodian or in the Federal Reserve/Treasury
Book-Entry System or an equivalent foreign system. If the seller defaults on its
repurchase obligation, the Trust will suffer a loss to the extent that the
proceeds from a sale of the underlying securities is less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the Trust's rights with respect to such securities to be delayed or
limited. To mitigate this risk, the Trust may only enter into repurchase
agreements that qualify for an exclusion from any automatic stay of creditors'
rights against the counterparty under applicable insolvency law in the event of
the counterparty's insolvency.
REVERSE REPURCHASE AGREEMENTS
The Trust has the ability, pursuant to its investment objective and
policies, to enter into reverse repurchase agreements. A reverse repurchase
agreement is an instrument under which the Trust may sell an underlying debt
instrument and simultaneously obtain the commitment of the purchaser to sell the
security back to the Trust at an agreed upon price on an agreed upon date.
Reverse repurchase agreements will be considered borrowings by the Trust, and as
such are subject to the restrictions on borrowing. Borrowings by the Trust
create an opportunity for greater total return, but at the same time, increase
exposure to capital risk. The Trust will maintain in a segregated account with
its custodian cash or liquid high grade portfolio securities in an amount
sufficient to cover its obligations with respect to the reverse repurchase
agreements. The Trust will receive payment for such securities only upon
physical delivery or evidence of book entry transfer by its custodian.
Regulations of the Commission require either that securities sold by the Trust
under a reverse repurchase agreement be segregated pending repurchase or that
the proceeds be segregated on the Trust's books and records pending repurchase.
Reverse repurchase agreements may involve certain risks in the event of default
or insolvency of the other party, including possible loss from delays or
restrictions upon the Trust's ability to dispose of the underlying securities.
An additional risk is that the market value of securities sold by the Trust
under a reverse repurchase agreement could decline below the price at which the
Trust is obligated to repurchase them.
LENDING LOANS AND OTHER PORTFOLIO INSTRUMENTS
To generate additional income, the Trust may lend its portfolio
securities including an interest in a Senior Loan, in an amount up to 33 1/3% of
total Trust assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made with any companies
affiliated with the Investment Manager. During the time portfolio securities are
on loan, the borrower pays the Trust any dividends or interest paid on such
securities, and the Trust may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from
6
the borrower who has delivered equivalent collateral or a letter of credit. As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower fail financially.
The Trust may seek to increase its income by lending financial
instruments in its portfolio in accordance with present regulatory policies,
including those of the Board of Governors of the Federal Reserve System and the
Commission. The lending of financial instruments is a common practice in the
securities industry. The loans are required to be secured continuously by
collateral, consistent with the requirements of the 1940 Act discussed below,
maintained on a current basis at an amount at least equal to the market value of
the portfolio instruments loaned. The Trust has the right to call a loan and
obtain the portfolio instruments loaned at any time on such notice as specified
in the transaction documents. For the duration of the loan, the Trust will
continue to receive the equivalent of the interest paid by the issuer on the
portfolio instruments loaned and may also receive compensation for the loan of
the financial instrument. Any gain or loss in the market price of the
instruments loaned that may occur during the term of the loan will be for the
account of the Trust.
The Trust may lend its portfolio instruments so long as the terms and
the structure of such loans are not inconsistent with the requirements of the
1940 Act, which currently require that (a) the borrower pledge and maintain with
the Trust collateral consisting of cash, a letter of credit issued by a domestic
U.S. bank, or securities issued or guaranteed by the U.S. government having a
value at all times not less than 100% of the value of the instruments loaned,
(b) the borrowers add to such collateral whenever the price of the instruments
loaned rises (i.e., the value of the loan is "marked to market" on a daily
basis), (c) the loan be made subject to termination by the Trust at any time,
and (d) the Trust receives reasonable interest on the loan (which may include
the Trust's investing any cash collateral in interest bearing short-term
investments), any distributions on the loaned instruments and increase in their
market value. The Trust may lend its portfolio instruments to member banks of
the Federal Reserve System, members of the New York Stock Exchange ("NYSE") or
other entities determined by the Investment Manager to be creditworthy. All
relevant facts and circumstances, including the creditworthiness of the
qualified institution, will be monitored by the Investment Manager, and will be
considered in making decisions with respect to the lending of portfolio
instruments.
The Trust may pay reasonable negotiated fees in connection with loaned
instruments. In addition, voting rights may pass with loaned securities, but if
a material event were to occur affecting such a loan, the Trust will retain the
right to call the loan and vote the securities. If a default occurs by the other
party to such transaction, the Trust will have contractual remedies pursuant to
the agreements related to the transaction, but such remedies may be subject to
bankruptcy and insolvency laws which could materially and adversely affect the
Trust's rights as a creditor. However, the loans will be made only to firms
deemed by the Investment Manager to be of good financial standing and when, in
the judgment of the Investment Manager, the consideration which can be earned
currently from loans of this type justifies the attendant risk.
INTEREST RATE HEDGING TRANSACTIONS
The Trust has the ability, pursuant to its investment objectives and
policies, to engage in certain hedging transactions including interest rate
swaps and the purchase or sale of interest rate caps and floors. The Trust may
undertake these transactions primarily for the following reasons: to preserve a
return on or value of a particular investment or portion of the Trust's
portfolio, to protect against decreases in the anticipated rate of return on
floating or variable rate financial instruments which the Trust owns or
anticipates purchasing at a later date, or for other risk management strategies
such as managing the effective dollar-weighted average duration of the Trust's
portfolio. Market conditions will determine
7
whether and in what circumstances the Trust would employ any of the hedging
techniques described below.
Interest rate swaps involve the exchange by the Trust with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of an obligation to make floating rate payments on a specified dollar
amount referred to as the "notional" principal amount for an obligation to make
fixed rate payments. For example, the Trust may seek to shorten the effective
interest rate redetermination period of a Senior Loan in its portfolio that has
an interest rate redetermination period of one year. The Trust could exchange
its right to receive fixed income payments for one year from a borrower for the
right to receive payments under an obligation that readjusts monthly. In such an
event, the Trust would consider the interest rate redetermination period of such
Senior Loan to be the shorter period. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling such interest rate floor.
The Trust will not enter into swaps, caps or floors if, on a net basis, the
aggregate notional principal amount with respect to such agreements exceeds the
net assets of the Trust or to the extent the purchase of swaps, caps or floors
would be inconsistent with the Trust's other investment restrictions.
The Trust will not treat swaps covered in accordance with applicable
regulatory guidance as senior securities. The Trust will usually enter into
interest rate swaps on a net basis, i.e., where the two parties make net
payments with the Trust receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the Trust's
obligations over its entitlement with respect to each interest rate swap will be
accrued and an amount of cash or liquid securities having an aggregate NAV at
least equal to the accrued excess will be maintained in a segregated account. If
the Trust enters into a swap on other than a net basis, the Trust will maintain
in the segregated account the full amount of the Trust's obligations under each
such swap. The Trust may enter into swaps, caps and floors with member banks of
the Federal Reserve System, members of the NYSE or other entities determined by
ING Investments. If a default occurs by the other party to such transaction, the
Trust will have contractual remedies pursuant to the agreements related to the
transaction but such remedies may be subject to bankruptcy and insolvency laws
which could materially and adversely affect the Trust's rights as a creditor.
The swap, cap and floor market has grown substantially in recent years
with a large number of banks and financial services firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
this market has become relatively liquid. There can be no assurance, however,
that the Trust will be able to enter into interest rate swaps or to purchase
interest rate caps or floors at prices or on terms the Investment Manager
believes are advantageous to the Trust. In addition, although the terms of
interest rate swaps, caps and floors may provide for termination, there can be
no assurance that the Trust will be able to terminate an interest rate swap or
to sell or offset interest rate caps or floors that it has purchased.
The successful utilization of hedging and risk management transactions
requires skills different from those needed in the selection of the Trust's
portfolio securities and depends on the Investment Manager's ability to predict
correctly the direction and degree of movements in interest rates. Although the
Trust believes that use of the hedging and risk management techniques described
above will benefit the Trust, if the Investment Manager's judgment about the
direction or extent of the movement in interest rates is incorrect, the Trust's
overall performance would be worse than if it had not entered into any such
transactions. The Trust will incur brokerage and other costs in connection with
its hedging transactions.
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ORIGINATING SENIOR LOANS
The Trust has the ability to act as an "agent" in originating and
administering a loan on behalf of all lenders or as one of a group of
"co-agents" in originating Senior Loans. The agent is required to administer and
manage the Senior Loan and to service or monitor the collateral. The agent is
also responsible for the collection of principal and interest and fee payments
from the borrower and the apportionment of these payments to the credit of all
lenders which are parties to the loan agreement. The agent is charged with the
responsibility of monitoring compliance by the borrower with the restrictive
covenants in the loan agreement and of notifying the lenders of any adverse
change in the borrower's financial condition. In addition, the agent generally
is responsible for determining that the lenders have obtained a perfected
security interest in the collateral securing the Senior Loan.
Lenders generally rely on the agent to collect their portion of the
payments on a Senior Loan and to use the appropriate creditor remedies against
the borrower. Typically under loan agreements, the agent is given broad
discretion in enforcing the loan agreement and is obligated to use the same care
it would use in the management of its own property. The borrower compensates the
agent for these services. Such compensation may include special fees paid on
structuring and funding the Senior Loan and other fees on a continuing basis.
The precise duties and rights of an agent are defined in the loan agreement.
When the Trust is an agent, it has, as a party to the loan agreement, a
direct contractual relationship with the borrower and, prior to allocating
portions of the Senior Loan to the lenders, if any, assumes all risks associated
with the Senior Loan. The agent may enforce compliance by the borrower with the
terms of the loan agreement. Agents also have voting and consent rights under
the applicable loan agreement. Action subject to agent vote or consent generally
requires the vote or consent of the holders of some specified percentage of the
outstanding principal amount of the Senior Loan, which percentage varies
depending on the relative loan agreement. Certain decisions, such as reducing
the amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or relating collateral therefor, frequently require
the unanimous vote or consent of all lenders affected.
Pursuant to the terms of a loan agreement, the agent typically has sole
responsibility for servicing and administering a loan on behalf of the other
lenders. Each lender in a Senior Loan is generally responsible for performing
its own credit analysis and its own investigation of the financial condition of
the borrower. Generally, loan agreements will hold the agent liable for any
action taken or omitted that amounts to gross negligence or willful misconduct.
In the event of a borrower's default on a loan, the loan agreements provide that
the lenders do not have recourse against the Trust for its activities as agent.
Instead, lenders will be required to look to the borrower for recourse.
Acting in the capacity of an agent in a Senior Loan may subject the
Trust to certain risks in addition to those associated with the Trust's current
role as lender. An agent is charged with the above described duties and
responsibilities to lenders and borrowers subject to the terms of the loan
agreement. Failure to adequately discharge such responsibilities in accordance
with the standard of care set forth in the loan agreement may expose the Trust
to liability for breach of contract. If a relationship of trust is found between
the agent and the lenders, the agent will be held to a higher standard of
conduct in administering the loan. In consideration of such risks, the Trust
will invest no more than 10% of its total assets in Senior Loans in which it
acts as agent or co-agent and the size of any individual loan will not exceed 5%
of the Trust's total assets.
9
ADDITIONAL INFORMATION ON SENIOR LOANS
Senior Loans are direct obligations of corporations or other business
entities and are arranged by banks or other commercial lending institutions and
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, and leveraged buyouts. Senior Loans usually include restrictive
covenants which must be maintained by the borrower. Such covenants, in addition
to the timely payment of interest and principal, may include mandatory
prepayment provisions arising from free cash flow and restrictions on dividend
payments, and usually state that a borrower must maintain specific minimum
financial ratios as well as establishing limits on total debt. A breach of
covenant, which is not waived by the agent, is normally an event of
acceleration, i.e., the agent has the right to call the outstanding Senior Loan.
In addition, loan covenants may include mandatory prepayment provisions stemming
from free cash flow. Free cash flow is cash that is in excess of capital
expenditures plus debt service requirements of principal and interest. The free
cash flow shall be applied to prepay the Senior Loan in an order of maturity
described in the loan documents. Under certain interests in Senior Loans, the
Trust may have an obligation to make additional loans upon demand by the
borrower. The Trust intends to reserve against such contingent obligations by
segregating sufficient assets in high quality short-term liquid investments or
borrowing to cover such obligations.
In a typical interest in a Senior Loan, the agent administers the loan
and has the right to monitor the collateral. The agent is also required to
segregate the principal and interest payments received from the borrower and to
hold these payments for the benefit of the lenders. The Trust normally looks to
the agent to collect and distribute principal of and interest on a Senior Loan.
Furthermore, the Trust looks to the agent to use normal credit remedies, such as
to foreclose on collateral, monitor credit loan covenants, and notify the
lenders of any adverse changes in the borrower's financial condition or
declarations of insolvency. At times the Trust may also negotiate with the agent
regarding the agent's exercise of credit remedies under a Senior Loan. The agent
is compensated for these services by the borrower as set forth in the loan
agreement. Such compensation may take the form of a fee or other amount paid
upon the making of the Senior Loan and/or an ongoing fee or other amount.
The loan agreements in connection with Senior Loans set forth the
standard of care to be exercised by the agents on behalf of the lenders and
usually provide for the termination of the agent's agency status in the event
that it fails to act properly, becomes insolvent, enters FDIC receivership, or
if not FDIC insured, enters into bankruptcy or if the agent resigns. In the
event an agent is unable to perform its obligations as agent, another lender
would generally serve in that capacity.
The Trust believes that the principal credit risk associated with
acquiring Senior Loans from another lender is the credit risk associated with
the borrower of the underlying Senior Loan. The Trust may incur additional
credit risk, however, when the Trust acquires a participation in a Senior Loan
from another lender because the Trust must assume the risk of insolvency or
bankruptcy of the other lender from which the Senior Loan was acquired.
Senior Loans, unlike certain bonds, usually do not have call
protection. This means that investments comprising the Trust's portfolio, while
having a stated one to ten-year term, may be prepaid, often without penalty. The
Trust generally holds Senior Loans to maturity unless it has become necessary to
sell them to satisfy any shareholder tender offers or to adjust the Trust's
portfolio in accordance with the Investment Managers' view of current or
expected economic or specific industry or borrower conditions.
Senior Loans frequently require full or partial prepayment of a loan
when there are asset sales or a securities issuance. Prepayments on Senior Loans
may also be made by the borrower at its election. The rate of such prepayments
may be affected by, among other things, general business and economic
10
conditions, as well as the financial status of the borrower. Prepayment would
cause the actual duration of a Senior Loan to be shorter than its stated
maturity. Prepayment may be deferred by the Trust. This should, however, allow
the Trust to reinvest in a new loan and recognize as income any unamortized loan
fees. In many cases this will result in a new facility fee payable to the Trust.
Because interest rates paid on these Senior Loans fluctuate
periodically with the market, it is expected that the prepayment and a
subsequent purchase of a new Senior Loan by the Trust will not have a material
adverse impact on the yield of the portfolio. See "Portfolio Transactions."
Under a Senior Loan, the borrower generally must pledge as collateral
assets which may include one or more of the following: cash, accounts
receivable, inventory, property, plant and equipment, both common and preferred
stock in its subsidiaries, trademarks, copyrights, patent rights and franchise
value. The Trust may also receive guarantees as a form of collateral. In some
instances, a Senior Loan may be secured only by stock in a borrower or its
affiliates. There is no assurance, however, that the borrower would provide
additional collateral or that the liquidation of the existing collateral would
satisfy the borrower's obligation in the event of nonpayment of scheduled
interest or principal, or that such collateral could be readily liquidated.
The Trust may be required to pay and receive various fees and
commissions in the process of purchasing, selling and holding Senior Loans. The
fee component may include any, or a combination of, the following elements:
arrangement fees, non-use fees, facility fees, letter of credit fees and ticking
fees. Arrangement fees are paid at the commencement of a loan as compensation
for the initiation of the transaction. A non-use fee is paid based upon the
amount committed but not used under the loan. Facility fees are on-going annual
fees paid in connection with a loan. Letter of credit fees are paid if a loan
involves a letter of credit. Ticking fees are paid from the initial commitment
indication until loan closing if for an extended period. The amount of fees is
negotiated at the time of transaction.
In order to allow national banks to purchase shares of the Trust for
their own accounts without limitation, the Trust invests only in obligations
which are eligible for purchase by national banks for their own accounts
pursuant to the provisions of paragraph seven of Section 24 of the U.S. Code
Title 12. National banks which are contemplating purchasing shares of the Trust
for their own accounts should refer to Banking Circular 220, issued by the U.S.
Comptroller of the Currency on November 21, 1986, for a description of certain
considerations applicable to such purchases.
11
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES. The Trust is governed by its Board of Trustees. A Trustee who
is not an interested person of the Trust, as defined in the 1940 Act, is an
independent trustee ("Independent Trustee"). The Trustees of the Trust are
listed below.
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Term of Number of
Office Portfolios
and in Fund
Position(s) Length Complex
held with of Time Principal Occupation(s) - overseen Other Directorships held
Name, Address and Age Trust Served(1) during the Past 5 Years by Trustee by Trustee
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Independent Trustees
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Paul S. Doherty Trustee October Mr. Doherty is President and Partner, 107 Trustee, GCG Trust
7337 E. Doubletree Ranch Rd. 1999 - Doherty, Wallace, Pillsbury and Murphy, (February 2002 - Present).
Scottsdale, Arizona 85258 Present P.C., Attorneys (1996 - Present);
Date of Birth: 04/28/1934 Director, Tambrands, Inc. (1993 - 1998);
and Trustee of each of the funds managed
by Northstar Investment Management
Corporation (1993 - 1999).
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
J. Michael Earley Trustee February President and Chief Executive Officer, 107 Trustee, GCG Trust (1997 -
7337 E. Doubletree Ranch Rd. 2002 - Bankers Trust Company, N.A. (1992 - Present).
Scottsdale, Arizona 85258 Present Present).
Date of Birth: 05/02/1945
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
R. Barbara Gitenstein Trustee February President, College of New Jersey (1999 - 107 Trustee, GCG Trust (1997 -
7337 E. Doubletree Ranch Rd. 2002 - Present). Formerly, Executive Vice Present).
Scottsdale, Arizona 85258 Present President and Provost, Drake University
Date of Birth: 02/18/1948 (1992 - 1998).
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Walter H. May Trustee October Retired. Formerly, Managing Director and 107 Trustee, GCG Trust
7337 E. Doubletree Ranch Rd. 1999 - Director of Marketing, Piper Jaffray, (February 2002 - Present)
Scottsdale, Arizona 85258 Present Inc.; Trustee of each of the funds and Best Prep Charity
Date of Birth: 12/21/1936 managed by Northstar Investment (1991 - Present).
Management Corporation (1996 - 1999).
12
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Term of Number of
Office Portfolios
and in Fund
Position(s) Length Complex
held with of Time Principal Occupation(s) - overseen Other Directorships held
Name, Address and Age Trust Served(1) during the Past 5 Years by Trustee by Trustee
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Jock Patton Trustee August Private Investor (June 1997 - Present). 107 Trustee, GCG Trust
7337 E. Doubletree Ranch Rd. 1995 - Formerly, Director and Chief Executive (February 2002 - Present);
Scottsdale, Arizona 85258 Present Officer, Rainbow Multimedia Group, Inc. Director, Hypercom, Inc.
Date of Birth: 12/11/1945 (January 1999 - December 2001); Director (January 1999 - Present);
of Stuart Entertainment, Inc.; Director JDA Software Group, Inc.
of Artisoft, Inc. (1994 - 1998). (January 1999 - Present);
Buick of Scottsdale, Inc.;
National Airlines, Inc.; BG
Associates, Inc.; BK
Entertainment, Inc.; and
Arizona Rotorcraft, Inc.
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
David W.C. Putnam Trustee October President and Director, F.L. Putnam 107 Trustee, GCG Trust
7337 E. Doubletree Ranch Rd. 1999 - Securities Company, Inc. and its (February 2002 - Present),
Scottsdale, Arizona 85258 Present affiliates; President, Secretary and Anchor International Bond
Date of Birth: 10/08/1939 Trustee, The Principled Equity Market Trust (December 2000 -
Fund. Formerly, Trustee, Trust Realty Present); F.L. Putnam
Corp.; Anchor Investment Trust; Bow Ridge Foundation (December 2000
Mining Company and each of the funds - Present); Progressive
managed by Northstar Investment Capital Accumulation Trust
Management Corporation (1994 - 1999). (August 1998 - Present);
Principled Equity Market
Fund (November 1996 -
Present), Mercy Endowment
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 Partners 107 Trustee, GCG Trust
7337 E. Doubletree Ranch Rd. 2001 - (January 1997 - Present). Chairman of (February 2002 - Present)
Scottsdale, Arizona 85258 Present the Board and Trustee of each of the and Morgan Chase Trust
Date of Birth: 09/10/1933 funds managed by ING Investment Co. (January 1998 -
Management Co. LLC (November 1998 - Present).
February 2001).
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
13
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Term of Number of
Office Portfolios
and in Fund
Position(s) Length Complex
held with of Time Principal Occupation(s) - overseen Other Directorships held
Name, Address and Age Trust Served(1) during the Past 5 Years by Trustee by Trustee
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Roger B. Vincent Trustee February President, Springwell Corporation (1989 - 107 Trustee, GCG Trust (1994 -
7337 E. Doubletree Ranch Rd. 2002 - Present). Formerly, Director, Tatham Present); and Director,
Scottsdale, Arizona 85258 Present Offshore, Inc. (1996 - 2000). AmeriGas Propane, Inc.
Date of Birth: 08/26/1945 (1998 - Present).
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Richard A. Wedemeyer Trustee February Retired. Mr. Wedemeyer was formerly Vice 107 Trustee, GCG Trust
7337 E. Doubletree Ranch Rd. 2001 - President - Finance and Administration, (February 2002 -
Scottsdale, Arizona 85258 Present Channel Corporation (June 1996 - April Present) and Touchstone
Date of Birth: 03/23/1936 2002). Formerly, Vice President, Consulting Group (1997 -
Operations and Administration, Jim Henson Present).
Productions (1979 - 1997); Trustee, First
Choice Funds (1997 - 2001); and of each
of the funds managed by ING Investment
Management Co. LLC (1998 - 2001).
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Trustees who are "Interested Persons"
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Thomas J. McInerney(2) Trustee February Chief Executive Officer, ING U.S. 161 Trustee, GCG Trust
7337 E. Doubletree Ranch Rd. 2001 - Financial Services (September 2001 - (February 2002 - Present);
Scottsdale, Arizona 85258 Present Present); General Manager and Chief Equitable Life Insurance
Date of Birth: 05/05/1956 Executive Officer, ING U.S. Worksite Co., Golden American Life
Financial Services (December 2000 - Insurance Co., Life
Present); Member, ING Americas Executive Insurance Company of
Committee (2001 - Present); President, Georgia, Midwestern United
Chief Executive Officer and Director of Life Insurance Co.,
Northern Life Insurance Company (March ReliaStar Life Insurance
2001 - October 2002), ING Aeltus Holding Co., Security Life of
Company, Inc. (2000 - Present), ING Denver, Security
Retail Holding Company (1998 - Present), Connecticut Life Insurance
ING Life Insurance and Annuity Company Co., Southland Life
(September 1997 - November 2002) and ING Insurance Co., USG Annuity
Retirement Holdings, Inc. (1997 - and Life Company, and
Present). Formerly, General Manager and United Life and Annuity
Chief Executive Officer, ING Worksite Insurance Co. Inc. (March
Division (December 2000 - October 2001), 2001 - Present); Director,
President, ING-SCI, Inc. (August 1997 - Ameribest Life Insurance
December 2000); President, Aetna Co., (March 2001 to January
Financial Services (August 1997 - 2003); Director, First
December 2000). Columbine Life Insurance
Co. (March 2001 to December
2002); Member of the Board,
National Commission on
Retirement Policy,
Governor's Council on
Economic Competitiveness
and Technology of
Connecticut, Connecticut
Business and Industry
Association, Bushnell;
Connecticut Forum; Metro
Hartford Chamber of
Commerce; and is Chairman,
Concerned Citizens for
Effective Government.
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
14
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
Term of Number of
Office Portfolios
and in Fund
Position(s) Length Complex
held with of Time Principal Occupation(s) - overseen Other Directorships held
Name, Address and Age Trust Served(1) during the Past 5 Years by Trustee by Trustee
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
John G. Turner(3) Trustee October Chairman, Hillcrest Capital Partners (May 107 Trustee, GCG; Director,
7337 E. Doubletree Ranch Rd. 1999 - 2002 - Present); President, Turner Hormel Foods Corporation
Scottsdale, Arizona 85258 Present Investment Company (January 2002 (March 2000 - Present);
Date of Birth: 10/03/1939 - Present). Mr. Turner was formerly Vice Shopko Stores, Inc. (August
Chairman of ING Americas (2000 - 2002); 1999 - Present); and M.A.
Chairman and Chief Executive Officer of Mortenson Company (March
ReliaStar Financial Corp. and ReliaStar 2002 - Present).
Life Insurance Company (1993 - 2000);
Chairman of ReliaStar United Services
Life Insurance Company (1995 - 1998);
Chairman of ReliaStar Life Insurance
Company of New York (1995 - 2001);
Chairman of Northern Life Insurance
Company (1992 - 2001); Chairman and
Trustee of the Northstar affiliated
investment companies (1993 - 2001) and
Director, Northstar Investment Management
Corporation and its affiliates (1993 -
1999 ).
---------------------------- ----------- --------- ----------------------------------------- ---------- --------------------------
(1) Trustees serve until their successors are duly elected and qualified
(2) Mr. McInerney is an "interested person," as defined by the 1940 Act,
because of his affiliation with ING U.S. Worksite Financial Services,
an affiliate of ING Investments, LLC
(3) Mr. Turner is an "interested person," as defined by the 1940 Act, because
of his affiliation with ING Americas, an affiliate of ING Investments, LLC.
15
OFFICERS
Information about the Trust's officers are set forth in the table below:
--------------------------------- --------------------------------- -----------------------------------------------
Name, Address and Age Positions Held with the Trust Term of Office and Length of Time Served (1)(2)
--------------------------------- --------------------------------- -----------------------------------------------
James M. Hennessy President and Chief Executive February 2001 - Present
7337 E. Doubletree Ranch Rd. Officer
Scottsdale, Arizona 85258
Date of Birth: 04/09/1949 Chief Operating Officer July 2000 - Present
--------------------------------- --------------------------------- -----------------------------------------------
Michael J. Roland Executive Vice President, and March 2002 - Present
7337 E. Doubletree Ranch Rd. Assistant Secretary
Scottsdale, Arizona 85258
Date of Birth: 05/30/1958 Chief Financial Officer June 1998 - Present
Senior Vice President June 1998 - February 2002
--------------------------------- --------------------------------- -----------------------------------------------
Robert S. Naka Senior Vice President November 1999 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258
Date of Birth: 06/17/1963
Assistant Secretary July 1996 - Present
--------------------------------- --------------------------------- -----------------------------------------------
Robyn L. Ichilov Vice President November 1997 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258
Date of Birth: 09/25/1967
--------------------------------- --------------------------------- -----------------------------------------------
-----------------------------------------------------------------
Principal Occupation(s) During the Last Five Years (3)
--------------------------------------------------------------------
President and Chief Executive Officer, ING Capital Corporation,
LLC, ING Funds Services, LLC, ING Advisors, Inc., ING
Investments, LLC, Lexington Funds Distributor, Inc., Express
America T.C., Inc. and EAMC Liquidation Corp. (December 2001 -
Present); Executive Vice President and Chief Operating Officer
and ING Funds Distributor, LLC (June 2000 - Present).
Formerly, Executive Vice President and Chief Operating Officer,
ING Quantitative Management, Inc. (October 2001 - September
2002), Senior Executive Vice President (June 2000 - December
2000) and Secretary (April 1995 - December 2000), ING Capital
Corporation, LLC, ING Funds Services, LLC, ING Investments,
LLC, ING Advisors, Inc., Express America T.C., Inc. and EAMC
Liquidation Corp.; Executive Vice President, ING Capital
Corporation, LLC and its affiliates (May 1998 - June 2000); and
Senior Vice President, ING Capital Corporation, LLC and its
affiliates (April 1995 - April 1998).
--------------------------------------------------------------------
Executive Vice President, Chief Financial Officer and
Treasurer, ING Funds Services, LLC, ING Funds Distributor, LLC,
ING Advisors, Inc., ING Investments, LLC, Inc., Lexington Funds
Distributor, Inc., Express America T.C., Inc. and EAMC
Liquidation Corp. (December 2001 - Present). Formerly,
Executive Vice President, Chief Financial Officer and Treasurer
ING Quantitative Management (December 2001 - September 2002),
Senior Vice President, ING Funds Services, LLC, ING
Investments, LLC and ING Funds Distributor, LLC (June 1998 -
December 2001) and Chief Financial Officer of Endeavor Group
(April 1997 - June 1998).
--------------------------------------------------------------------
Senior Vice President and Assistant Secretary, ING Funds
Services, LLC, ING Funds Distributor, LLC, ING Advisors, Inc.,
ING Capital Corporation, LLC, ING Investments, LLC (October
2001 - Present) and Lexington Funds Distributor, Inc. (December
2001 - Present). Formerly, Senior Vice President and Assistant
Secretary, ING Quantitative Management, Inc. (October 2001 -
September 2002), Vice President, ING Investments, LLC (April
1997 - October 1999), ING Funds Services, LLC (February 1997 -
August 1999) and Assistant Vice President, ING Funds Services,
LLC (August 1995 - February 1997).
--------------------------------------------------------------------
Vice President, ING Funds Services, LLC (October 2001 -
Present) and ING Investments, LLC (August 1997 - Present);
Accounting Manager, ING Investments, LLC (November 1995 -
Present).
--------------------------------------------------------------------
16
--------------------------------- --------------------------------- -----------------------------------------------
Name, Address and Age Positions Held with the Trust Term of Office and Length of Time Served (1)(2)
--------------------------------- --------------------------------- -----------------------------------------------
Kimberly A. Anderson Vice President and Secretary February 2001 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258
Date of Birth: 07/25/1964
--------------------------------- --------------------------------- -----------------------------------------------
Sue Kinens Assistant Vice President and February 2003 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258
Date of Birth: 12/31/1976 Assistant Secretary
--------------------------------- --------------------------------- -----------------------------------------------
Todd Modic Assistant Vice President August 2001 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258
Date of Birth: 11/03/1967
--------------------------------- --------------------------------- -----------------------------------------------
--------------------------------- --------------------------------- -----------------------------------------------
Maria M. Anderson Assistant Vice President August 2001 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258
Date of Birth: 05/29/1958
--------------------------------- --------------------------------- -----------------------------------------------
Daniel Norman Senior Vice President April 1995 - Present
7337 E. Doubletree Ranch Rd. Co-Senior Portfolio Manager February 1992 - Present
Scottsdale, Arizona 85258
Date of Birth: 12/29/1957 Treasurer June 1997 - Present
--------------------------------- -------------------------------- ------------------------------------------------
Jeffrey A. Bakalar Senior Vice President November 1999 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258 Co-Senior Portfolio
Date of Birth: 12/15/1959 Manager January 1998 - Present
--------------------------------- -------------------------------- ------------------------------------------------
Elliot Rosen Senior Vice President May 2002 - Present
7337 E. Doubletree Ranch Rd.
Scottsdale, Arizona 85258
Date of Birth: 05/07/1953
--------------------------------- -------------------------------- ------------------------------------------------
-----------------------------------------------------------------
Principal Occupation(s) During the Last Five Years (3)
--------------------------------------------------------------------
Vice President and Secretary, ING Funds Services, LLC, ING
Funds Distributor, LLC, ING Advisors, Inc., ING Investments,
LLC (October 2001 - Present) and Lexington Funds Distributor,
Inc. (December 2001 - Present). Formerly, Vice President, ING
Quantitative Management, Inc. (October 2001 - September 2002);
Assistant Vice President, ING Funds Services, LLC (November
1999 - January 2001) and has held various other positions with
ING Funds Services, LLC for more than the last five years.
--------------------------------------------------------------------
Assistant Vice President and Assistant Secretary, ING Funds
Services, LLC (December 2002 - Present); and has held various
other positions with ING Funds Services, LLC for the last five
years.
--------------------------------------------------------------------
Director of Financial Reporting, ING Investments, LLC (March
2001 - Present). Formerly, Director of Financial Reporting,
Axient Communications, Inc. (May 2000 - January 2001) and
Director of Finance, Rural/Metro Corporation (March 1995 - May
2000).
--------------------------------------------------------------------
--------------------------------------------------------------------
Assistant Vice President, ING Funds Services, LLC (October 2001
- Present). Formerly, Manager of Fund Accounting and Fund
Compliance, ING Investments, LLC (September 1999 - November
2001); Section Manager of Fund Accounting, Stein Roe Mutual
Analyst, Stein Roe Mutual Funds (August 1997 - July 1998).
--------------------------------------------------------------------
Senior Vice President, ING Investments, LLC (December 1994 -
Present); and ING Funds Distributor, LLC (December 1995 -
Present); has served as an officer of other affiliates of ING
since February 1992.
--------------------------------------------------------------------
Senior Vice President, ING Investments, LLC (November 1999 -
Present). Formerly, Vice President and Assistant Portfolio
Manager, ING Investments, LLC (February 1998 - November 1999);
Vice President of The Communications Positions of First National
Bank of Chicago (July 1994 - January 1998).
--------------------------------------------------------------------
Senior Vice President, ING Investments, LLC (February 1999 -
Present). Formerly, Senior Vice President IPS-Sendero (May 1997 -
February 1999) and President of Sendero, which merged into IPS
(August 1993 - May 1997).
--------------------------------------------------------------------
17
--------------------------------- --------------------------------- -----------------------------------------------
Name, Address and Age Positions Held with the Trust Term of Office and Length of Time Served (1)(2)
--------------------------------- --------------------------------- -----------------------------------------------
William H. Rivoir III Senior Vice President and
7337 E. Doubletree Ranch Rd. Assistant Secretary February 2001 - Present
Scottsdale, Arizona 85258
Date of Birth: 01/19/1951
--------------------------------- -------------------------------- ------------------------------------------------
Curtis F. Lee Senior Vice President and January 2001 - Present
7337 E. Doubletree Ranch Rd. Chief Credit Officer
Scottsdale, Arizona 85258
Date of Birth: 06/05/1954
--------------------------------- -------------------------------- ------------------------------------------------
--------------------------------------------------------------------
Principal Occupation(s) During the Last Five Years (3)
--------------------------------------------------------------------
Senior Vice President and Secretary of ING Capital Corporation,
LLC and ING Funds Services, LLC (February 2001 - Present), ING
Funds Distributor, LLC, ING Advisors, Inc. and ING Investments,
LLC. (October 2001 - Present), Senior Vice President and
Secretary, ING Quantitative Management, Inc. (October 2001 -
September 2002). Lexington Funds Distributor, Inc., ING Pilgrim
Funding, Inc., Pilgrim America Financial, Inc., Express America
TC, Inc. and EAMC Liquidation Corp. (December 2001 - Present).
Formerly, Senior Vice President and Assistant Secretary of ING
Funds Services, LLC (June 1998 - Present), ING Investments, LLC,
and Pilgrim America Financial, Inc. (February 1999 - Present),
Senior Vice President of ING Investments, LLC (December - Present
1998) and Assistant Secretary of ING Funds Distributor, LLC
(February 1999 - Present) and ING Investments, LLC (June 1998 -
Present).
--------------------------------------------------------------------
Senior Vice President and Chief Credit Officer - Senior Loans of
ING Investments, LLC (August 1999 - Present). Formerly, held a
series of positions with Standard Chartered Bank in the credit
approval and problem loan management functions (August 1992 - June
1999).
--------------------------------------------------------------------
(1) The officers hold office until the next annual meeting of the Trustees and
until their successors shall have been elected and qualified.
(2) Prior to May 1999, the Pilgrim family of funds consisted of 5 registrants
with 8 series. As of May 24, 1999, the former Nicholas-Applegate Capital
Management funds (consisting of 1 registrant with 11 series) joined the
fund complex and the fund complex retained the name "Pilgrim Funds." On
November 16, 1999, the former Northstar funds (consisting of 9 registrants
with 22 series) joined the fund complex and the fund complex retained the
name "Pilgrim Funds." On July 26, 2000, the former Lexington funds
(consisting of 14 registrants with 14 series) joined the fund complex and
the fund complex retained the name "Pilgrim Funds." On March 23, 2001, the
original ING funds (consisting of 2 registrants with 18 series) joined the
fund complex and the fund complex retained the name "Pilgrim Funds." On
March 1, 2002, the former Aetna funds (consisting of 8 registrants with 50
series) joined the fund complex and the name of the fund complex name
changed to "ING Funds.
(3) The following documents the evolution of the name of each ING corporate
entity referenced in the above biographies:
ING INVESTMENTS, LLC (MARCH 2002 - NAME CHANGED FROM ING PILGRIM INVESTMENTS, LLC)
----------------------------------------------------------------------------------
ING Mutual Funds Management Co., LLC (April 2001 - merged into ING Pilgrim Investments, LLC)
ING Pilgrim Investments, Inc. (February 2001 - merged into ING Pilgrim Investments, LLC)
ING Pilgrim Investments, LLC (February 2001 - formed)
ING Pilgrim Investments, Inc. (September 2000 - name changed from Pilgrim Investments, Inc.)
Pilgrim Advisors, Inc.** (April 2000 - merged into Pilgrim Investments, Inc.)
Pilgrim Investments, Inc. (October 1998 - name changed from Pilgrim America Investments, Inc.)
Pilgrim America Investments, Inc. (April 1995 - name changed from Newco Advisory Corporation)
Newco Advisory Corporation (December 1994 - incorporated)
**Pilgrim Advisors, Inc. (November 1999 - name changed from Northstar Investment
Management Corporation)
ING FUNDS SERVICES, LLC (MARCH 2002 - NAME CHANGED FROM ING PILGRIM GROUP, LLC)
-------------------------------------------------------------------------------
ING Pilgrim Group, Inc. (February 2001 - merged into Pilgrim Group LLC)
ING Pilgrim Group, LLC (February 2001 - formed)
ING Pilgrim Group, Inc. (September 2000 - name changed from Pilgrim Group, Inc.)
Lexington Global Asset Managers, Inc. (July 2000 - merged into Pilgrim Group, Inc.)
Northstar Administrators, Inc. (November 1999 - merged into Pilgrim Group, Inc.)
Pilgrim Group, Inc. (October 1998 - name changed from Pilgrim American Group, Inc.)
Pilgrim America Group, Inc. (April 1995 - name changed from Newco Holdings Management Corporation)
Newco Holdings Management Corporation (December 1994 - incorporated)
18
ING FUNDS DISTRIBUTOR, LLC. (OCTOBER 2002)
-------------------------------------------
ING Funds Distributor, Inc. (October 2002 - merged into ING Funds Distributor, LLC)
ING Funds Distributor, LLC (October 2002 - formed)
ING Pilgrim Securities, Inc. (September 2000 - name changed from Pilgrim Securities, Inc.)
Northstar Distributors Inc. (November 1999 - merged into Pilgrim Securities, Inc.)
Pilgrim Securities, Inc. (October 1998 - name changed from Pilgrim America Securities, Inc.)
Pilgrim America Securities, Inc. (April 1995 - name changed from Newco Distributors Corporation)
Newco Distributors Corporation (December 1994 -incorporated)
ING ADVISORS, INC. (MARCH 2002 - NAME CHANGED FROM ING PILGRIM ADVISORS, INC.)
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ING Pilgrim Advisors, Inc. (March 2001 - name changed from ING Lexington Management Corporation)
ING Lexington Management Corporation (October 2000 - name changed from Lexington Management Corporation)
Lexington Management Corporation (December 1996 - incorporated)
ING CAPITAL CORPORATION, LLC (MARCH 2002 - NAME CHANGED FROM ING PILGRIM CAPITAL CORPORATION, LLC)
--------------------------------------------------------------------------------------------------
ING Pilgrim Capital Corporation (February 2001 - merged into ING Pilgrim Capital Corporation, LLC)
ING Pilgrim Capital Corporation, LLC (February 2001 - formed)
ING Pilgrim Capital Corporation (September 2000 - name changed from Pilgrim Capital Corporation)
Pilgrim Capital Corporation (February 2000 - name changed from Pilgrim Holdings Corporation)
Pilgrim Holdings Corporation (October 1999 - name changed from Northstar Holdings, Inc.)
Northstar Holdings, Inc. (October 1999 - merged into Pilgrim Capital Corporation)
Pilgrim Capital Corporation (June 1999 - name changed from Pilgrim America Capital Corporation)
Pilgrim Capital Corporation (June 1999 - merged into Pilgrim America Capital Corporation)
Pilgrim America Capital Corporation (April 1997 - incorporated)
ING QUANTITATIVE MANAGEMENT, INC. (SEPTEMBER 2002 - DISSOLVED)
--------------------------------------------------------------
ING Quantitative Management, Inc. (March 2002 - name changed from ING Pilgrim Quantitative Management, Inc.)
ING Pilgrim Quantitative Management, Inc. (March 2001 - name changed from Market Systems Research Advisors)
Market Systems Research Advisors, Inc. (November 1986 - incorporated)
19
The Trust currently has an Executive Committee, Audit Committee,
Valuation Committee, Nominating Committee, and an Investment Review Committee.
The Audit, Valuation and Nominating Committees consist entirely of Independent
Trustees.
COMMITTEES
The Board of Trustees has an Executive Committee whose function is to
act on behalf of the full Board of Trustees between regularly scheduled meetings
when necessary. The following Trustees serve as members of the Executive
Committee: Messrs. Turner, McInerney, May and Patton. Mr. Turner serves as
Chairman of the Committee. The Executive Committee held five (5) meetings during
the fiscal year ended February 28, 2003.
The Board of Trustees has an Audit Committee whose function is to meet
with the independent auditors of the Trust to review the scope of the Trust's
audit, its financial statements and interim accounting controls, and to meet
with management concerning these matters, among other things. The Audit
Committee currently consists of Messrs. Earley, Rieke, Vincent and Putnam. Mr.
Earley serves as Chairman of the Committee. The Audit Committee held five (5)
meetings during the fiscal year ended February 28, 2003.
The Board of Trustees has formed a Valuation Committee whose function
is to review the determination of the value of securities held by the Trust for
which market quotations are not available. The Valuation Committee currently
consists of five Independent Trustees: Dr. Gitenstein and Messrs. May, Patton,
Doherty and Wedemeyer. Mr. Patton serves as Chairman of the Committee. The
Valuation Committee held five (5) meetings during the fiscal year ended February
28, 2003.
The Board of Trustees has established a Nominating Committee for the
purpose of considering and presenting to the Board of Trustees candidates it
proposes for nomination to fill Independent Trustee vacancies on the Board of
Trustees. The Nominating Committee currently consists of four Independent
Trustees: Dr. Gitenstein and Messrs. Doherty, May, and Wedemeyer. Mr. May serves
as Chairman of the Committee. The Committee does not currently have a policy
regarding whether it will consider nominees recommended by shareholders. The
Nominating Committee held one (1) meeting during the fiscal year ended February
28, 2003.
The Board of Trustees has established an Investment Review Committee
that will monitor the investment performance of the Trust and make
recommendations to the Board of Trustees with respect to the Trust. The
Committee currently consists of five Independent Trustees and one Trustee who is
an "interested person" as defined in the 1940 Act: Dr. Gitenstein and Messrs.
Doherty, Patton, May, McInerney and Wedemeyer. Mr. Wedemeyer serves as Chairman
of the Committee. The Investment Review Committees held five (5) meetings during
the fiscal year ended February 28, 2003.
20
TRUSTEE OWNERSHIP OF SECURITIES
Set forth below is the dollar range of equity securities owned by each Trustee.
----------------------------------------- --------------------------------- ----------------------------------------
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED
DOLLAR RANGE OF EQUITY INVESTMENT COMPANIES OVERSEEN BY
SECURITIES IN THE TRUST AS OF TRUSTEE IN FAMILY OF INVESTMENT
NAME OF TRUSTEE DECEMBER 31, 2002 COMPANIES
----------------------------------------- --------------------------------- ----------------------------------------
INDEPENDENT TRUSTEES
----------------------------------------- --------------------------------- ----------------------------------------
Paul S. Doherty
----------------------------------------- --------------------------------- ----------------------------------------
J. Michael Earley(1)
----------------------------------------- --------------------------------- ----------------------------------------
R. Barbara Gitenstein(1)
----------------------------------------- --------------------------------- ----------------------------------------
Walter H. May
----------------------------------------- --------------------------------- ----------------------------------------
Jock Patton
----------------------------------------- --------------------------------- ----------------------------------------
David W. C. Putnam
----------------------------------------- --------------------------------- ----------------------------------------
Blaine E. Rieke
----------------------------------------- --------------------------------- ----------------------------------------
Roger B. Vincent(1)
----------------------------------------- --------------------------------- ----------------------------------------
Richard A. Wedemeyer
----------------------------------------- --------------------------------- ----------------------------------------
TRUSTEES WHO ARE "INTERESTED PERSONS"
----------------------------------------- --------------------------------- ----------------------------------------
Thomas J. McInerney
----------------------------------------- --------------------------------- ----------------------------------------
John G. Turner
----------------------------------------- --------------------------------- ----------------------------------------
(1) Commenced service as a Trustee on February 26, 2002.
INDEPENDENT TRUSTEE OWNERSHIP OF SECURITIES
Set forth in the table below is information regarding each Independent
Trustee's (and his or her immediate family members') share ownership in
securities of the Trust's investment adviser or principal underwriter, and the
ownership of securities in an entity controlling, controlled by or under common
control with the investment adviser or principal underwriter of the Trust (not
including registered investment companies) as of December 31, 2002.
21
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
NAME OF TRUSTEE NAME OF OWNERS COMPANY TITLE OF CLASS VALUE OF PERCENTAGE OF
AND RELATIONSHIP
TO TRUSTEE SECURITIES CLASS
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
Paul S. Doherty N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
J. Michael Earley(1) N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
R. Barbara Gitenstein(1) N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
Walter H. May N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
Jock Patton N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
David W. C. Putnam N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
Blaine E. Rieke N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
Roger B. Vincent(1) N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
Richard A. Wedemeyer N/A N/A N/A $0 N/A
--------------------------- ------------------ ----------------- ------------------- ----------------- ---------------
(1) Commenced service as a Trustee on February 26, 2002.
COMPENSATION OF TRUSTEES
The Trust pays each Trustee who is not an interested person a PRO RATA
share, as described below of: (i) an annual retainer of $40,000 (Messrs. Patton
and May, as lead trustees, receive an annual retainer of $55,000); (ii) $7,000
for each in person meeting of the Board; (iii) $2,000 per attendance of any
committee meeting; (iv) $2,000 per telephonic meeting; and (v) out-of-pocket
expenses. The PRO RATA share paid by the Trust is based on the average net
assets as a percentage of the average net assets of all the funds managed by the
Investment Manager for which the Trustees serve in common as Directors/Trustees.
The following table sets forth information regarding compensation of
Trustees by the Trust and other funds managed by ING Investments for the fiscal
year ended February 28, 2003. Officers of the Trust and Trustees who are
interested persons of the Trust do not receive any compensation from the Trust
or any other funds managed by ING Investments.
22
COMPENSATION TABLE
PENSION OR TOTAL COMPENSATION
RETIREMENT BENEFITS ESTIMATED ANNUAL FROM TRUST AND FUND
NAME AND POSITION AGGREGATE COMPENSATION ACCRUED AS PART OF BENEFITS UPON COMPLEX PAID TO
FROM TRUST FUND EXPENSES RETIREMENT(5) TRUSTEES(7)
Paul S. Doherty
Trustee
J. Michael Earley
Trustee
R. Barbara Gitenstein
Trustee
Alan S. Gosule,
Trustee(1)
R. Glenn Hilliard
Trustee(2)(6)
Walter H. May
Trustee
Thomas J. McInerney
Trustee(3)
Jock Patton
Trustee
David W.C. Putnam
Trustee
Blaine E. Rieke
Trustee
John G. Turner
Trustee (4)
Roger B. Vincent
Trustee
Richard A. Wedemeyer
Trustee
---------------------
(1) Resigned as a Trustee effective December 28, 2001. Mr. Gosule was an
"interested person," as defined in the 1940 Act, of the Trust. Mr. Gosule
is a partner at Clifford Chance Rogers & Wells LLP, which has provided
certain legal services for the Trust. Mr. Gosule was paid $132,500 upon his
resignation pursuant to a retirement policy adopted by the ING Funds. Mr.
Gosule satisfied the criteria for such payment (which was equal to twice
the compensation normally paid to him for one year of service) since he
served as an Independent Trustee of certain of the ING Funds for at least
five years prior to his resignation. $16,419 of this payment was funded by
the Trust.
(2) Mr. Hilliard is an "interested person," as defined in the 1940 Act, because
of his relationship with ING Americas, an affiliate of ING Investments,
LLC.
23
(3) Mr. McInerney is an "interested person," as defined in the 1940 Act, because
of his affiliation with ING U.S. Financial Services, an affiliate of ING
Investments, LLC.
(4) Mr. Turner is an "interested person," as defined in the 1940 Act, because of
his former affiliation with ING Americas, an affiliate of ING Investments,
LLC.
(5) The ING Funds have adopted a retirement policy under which a
director/trustee who has served as an Independent Director/Trustee for five
years or more will be paid by the ING Funds at the time of his or her
retirement an amount equal to twice the compensation normally paid to the
Independent Director/Trustee for one year of service.
(6) Resigned as a Trustee effective April 30, 2003.
(7) Represents compensation from 107 funds (total in complex as of February 28,
2003).
24
As of June 2, 2003, the Trustees and Officers of the Trust as a group
owned beneficially less than 1% of the Trust's Common Shares.
As of June 2, 2003, the Trustees and Officers of the Trust as a group
owned beneficially less than 1% of the Trust's Preferred Shares.
As of June 2, 2003, no person to the knowledge of the Trust, owned
beneficially or of record more than 5% of the outstanding Common Shares of the
Trust.
As of June 2, 2003, no person, to the knowledge of the Trust, owned
beneficially or of record more than 5% of the outstanding Preferred Shares of
the Trust.
CODE OF ETHICS
The Trust's Distributor, ING Funds Distributor, LLC (the
"Distributor"), the Investment Manager and the Trust have adopted a Code of
Ethics governing personal trading activities of all Trustees and the officers of
the Trust and the Distributor and persons who, in connection with their regular
functions, play a role in the recommendation of any purchase or sale of a
security by the Trust or obtain information pertaining to such purchase or sale.
The Code of Ethics is intended to prohibit fraud against the Trust that may
arise from personal trading. Personal trading is permitted by such persons
subject to certain restrictions; however such persons are generally required to
pre-clear all security transactions with the Trust's Compliance Officer or her
designee and to report all transactions on a regular basis. The Sub-Adviser has
adopted its own Codes of Ethics to govern the personal trading activities of its
personnel.
The Code of Ethics can be reviewed and copied at the SEC's Public
Reference Room located at 450 Fifth Street, NW, Washington, DC 20549.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at (202) 942-8090. The Code of Ethics is available on the SEC's
website (http://www.sec.gov) and copies may also be obtained at prescribed rates
by electronic request at [email protected], or by writing the SEC's Public
Reference Section at the address listed above.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE INVESTMENT MANAGER
The investment adviser for the ING Funds is ING Investments, LLC
("Investment Manager" or "ING Investments"), which is registered as an
investment adviser with the SEC and serves as an investment adviser to
registered investment companies (or series thereof), as well as privately
managed accounts. The Investment Manager, subject to the authority of the
Trustees of the Trust, has the overall responsibility for the management of the
Trust's portfolio subject to delegation of certain responsibilities to the
investment adviser (the "Sub-Adviser"); Aeltus (See "Proposed Sub-Adviser"
section below). The Investment Manager is a direct, wholly owned subsidiary of
ING Groep N.V. (NYSE: ING) ("ING Groep N.V."). ING Groep N.V. is a global
financial institution active in the field of insurance, banking, and asset
management in more than 65 countries, with more than 100,000 employees.
On February 26, 2001, the name of the Investment Manager changed from
ING Pilgrim Investments, Inc. to ING Pilgrim Investments, LLC. On March 1, 2002,
the name of the Investment Manager was changed from "ING Pilgrim Investments,
LLC" to "ING Investments, LLC."
The Investment Manager pays all of its expenses from the performance of
its obligations under the Investment Management Agreement, including executive
salaries and expenses of the Trustees and
25
Officers of the Trust who are employees of the Investment Manager or its
affiliates. Other expenses incurred in the operation of the Trust are borne by
the Trust, including, without limitation, expenses incurred in connection with
the sale, issuance, registration and transfer of its Common Shares; fees of its
Custodian, Transfer and Shareholder Servicing; salaries of officers and fees and
expenses of Trustees or members of any advisory board or committee of the Trust
who are not members of, affiliated with or interested persons of the Investment
Manager; the cost of preparing and printing reports, proxy statements and
prospectuses of the Trust or other communications for distribution to its
shareholders; legal, auditing and accounting fees; the fees of any trade
association of which the Trust is a member; fees and expenses of registering and
maintaining registration of its Common Shares for sale under federal and
applicable state securities laws; and all other charges and costs of its
operation plus any extraordinary or non-recurring expenses.
For the fiscal years ended February 28, 2003, February 28, 2002
and February 28, 2001 the Investment Manager was paid $__________, $14,838,307
and $14,077,382 respectively, for services rendered to the Trust.
After an initial term, the Investment Management Agreement continues
from year to year if specifically approved at least annually by the Trustees or
the Shareholders. In either event, the Investment Management Agreement must also
be approved by vote of a majority of the Trustees who are not parties to the
Investment Management Agreement or "interested persons" of any party, cast in
person at a meeting called for that purpose.
In connection with their deliberations relating to the Trust's current
Investment Management Agreement, the Board of Trustees considered information
that had been provided by the Investment Manager. In considering the Investment
Management Agreement, the Board of Trustees considered several factors they
believed, in light of the legal advice furnished to them by their independent
legal counsel and their own business judgment, to be relevant. The matters
considered by the Board of Trustees in reviewing the Investment Management
Agreement included, but were not limited to the following: (1) the performance
of the Trust compared to those of a peer group of funds; (2) the nature and
quality of the services provided by the Investment Manager to the Trust; (3) the
fairness of the compensation under the Investment Management Agreement in light
of the services provided to the Trust; (4) the profitability to the Investment
Manager from the Investment Management Agreement; (5) the personnel, operations,
financial condition, and investment management capabilities, methodologies and
resources of the Investment Manager, as well as its efforts in recent years to
build its investment management capabilities and administrative infrastructure;
(6) the expenses borne by shareholders of the Trust and a comparison of the
Trust's fees and expenses to those of a peer group of funds; (7) the Investment
Manager's compliance capabilities and efforts on behalf of the Trust; (8) the
complexity of the instruments in which the Trust invests and the investment
research associated with those instruments performed by the Investment Manager;
and (9) the substantial time and resources devoted to the valuation process by
the Investment Manager. The Board of Trustees also considered the total services
provided by ING Funds Services, LLC, the Trust's administrator, as well as the
fees it receives for such services.
In considering the Investment Management Agreement, the Board of
Trustees, including the Independent Trustees, did not identify any single factor
as all-important or controlling. However, the Independent Trustees indicated
that, generally, they initially scrutinized the performance of the Trust,
including performance in relation to a peer group of funds, and the fees paid by
the Trust.
In reviewing the terms of the Investment Management Agreement and in
discussions with the Investment Manager concerning such Investment Management
Agreement, the Independent Trustees were represented by independent legal
counsel. Based upon its review, the Board of Trustees has determined that the
26
Investment Management Agreement is in the best interests of the Trust and its
shareholders, and that the Investment Management fees are fair and reasonable.
Accordingly, after consideration of the factors described above, and such other
factors and information it considered relevant, the Board of Trustees of the
Trust, including the unanimous vote of the Independent Trustees, approved the
Investment Management Agreement.
The Investment Management Agreement is terminable without penalty with
not less than 60 days' notice by the Board of Trustees or by a vote of the
holders of a majority of the Trust's outstanding shares voting as a single
class, or upon not less than 60 days' notice by the Investment Adviser. The
Investment Management Agreement will terminate automatically in the event of its
"assignment" (as defined in the 1940 Act).
As of June 1, 2003, the Investment Manager had assets under management
of over $____ billion.
The use of the name "ING" in the Trust's name is pursuant to the
Investment Management Agreement between the Trust and the Investment Manager,
and in the event that the Agreement is terminated, the Trust has agreed to amend
its Agreement and Declaration of Trust to remove the reference to "ING."
PROPOSED SUB-ADVISER
The Investment Management Agreement for the Trust provides that the
Investment Manager, with the approval of the Board, may select and employ an
investment adviser to serve as a Sub-Adviser to the Trust, shall monitor the
Sub-Adviser's investment programs and results, and coordinate the investment
activities of the Sub-Adviser to ensure compliance with regulatory restrictions.
The Investment Manager pays all of its expenses arising from the performance of
its obligations under the Investment Management Agreement, including all fees
payable to the Sub-Adviser, executive salaries and expenses of the Trustees and
officers of the Trust who are employees of the Investment Manager or its
affiliates and office rent of the Trust. The Sub-Adviser pays all of its
expenses arising from the performance of its obligatoins under the sub-advisory
agreement (the "Sub-Advisory Agreement").
Subject to shareholder approval, the Trust's Board of Trustees has
approved Aeltus Investment Management, Inc. ("Aeltus") to serve as the
Sub-Adviser to the Trust effective August 18, 2003.
The Sub-Advisory Agreement may be terminated without payment of any
penalties by the Investment Manager, the Trustees, on behalf of the Trust, or
the shareholders of the Trust upon 60 days' prior written notice, or by the
Sub-Adviser upon three (3) months' written notice unless the Trust or the
Investment Manager requests additional time, which cannot extend beyond three
(3) months of the original three (3) month notice period to find a replacement
for the Sub-Adviser. Otherwise, the Sub-Advisory Agreement will remain in effect
for two years and will, thereafter, continue in effect from year to year,
subject to the annual appoval of the Board of Trustees, on behalf of the Trust,
or the vote of a majority of the outstanding voting securities, and the vote,
cast in person at a meetnig duly called and held, of a majority of the Trustees,
on behalf of the Trust, who are not parties to the Sub-Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of any such party.
Pursuant to a proposed Sub-Advisory Agreement between ING Investments
and Aeltus, Aeltus will act as Sub-Adviser to the Trust. In this capacity,
Aeltus, subject to the supervision and control of ING Investments and the
Trustees of the Trust, will manage the Trust's portfolio investments,
consistently with its investment objective, and execute any of the Trust's
investment policies that it deems appropriate to utilize from time to time. Fees
payable under the Sub-Advisory Agreement are based on an annual fee as disclosed
below and are paid monthly in arrears by ING Investments.
27
Aeluts is an indirect wholly owned subsidiary of ING Groep, and is an
affiliate of ING Investments. Aeltus is a Connecticut Corporation formed in
1972. Its principal office is located at 10 State House Square, Hartford,
Connecticut 06103.
As of May 31, 2003, Aeltus had assets under management of over $______
billion.
For its services, Aeltus will be entitled to receive a sub-advisory fee
of 0.36% from the Trust, expressed as an annual rate based on the average daily
assets of the Trust.
THE ADMINISTRATOR
The Administrator of the Trust is ING Funds Services, LLC (the
"Administrator" or "ING Funds Services") which is an affiliate of the Investment
Manager. In connection with its administration of the corporate affairs of the
Trust, the Administrator bears the following expenses: the salaries and expenses
of all personnel of the Trust and the Administrator except for the fees and
expenses of Trustees not affiliated with the Administrator or the Investment
Manager; costs to prepare information; determination of daily NAV by the
recordkeeping and accounting agent; expenses to maintain certain of the Trust's
books and records that are not maintained by the Investment Manager, the
custodian, or transfer agent; costs incurred to assist in the preparation of
financial information for the Trust's income tax returns, proxy statements,
quarterly, semi-annual, and annual shareholder reports; costs of providing
shareholder services in connection with any tender offers or to shareholders
proposing to transfer their shares to a third party; providing shareholder
services in connection with the dividend reinvestment plan; and all expenses
incurred by the Administrator or by the Trust in connection with administering
the ordinary course of the Trust's business other than those assumed by the
Trust, as described below.
Except as indicated immediately above and under "The Investment
Manager," the Trust is responsible for the payment of its expenses including:
the fees payable to the Investment Manager; the fees payable to the
Administrator; the fees and certain expenses of the Trust's custodian and
transfer agent, including the cost of providing records to the Administrator in
connection with its obligation of maintaining required records of the Trust; the
charges and expenses of the Trust's legal counsel and independent accountants;
commissions and any issue or transfer taxes chargeable to the Trust in
connection with its transactions; all taxes and corporate fees payable by the
Trust to governmental agencies; the fees of any trade association of which the
Trust is a member; the costs of share certificates representing Common Shares of
the Trust; organizational and offering expenses of the Trust and the fees and
expenses involved in registering and maintaining registration of the Trust and
its Common Shares with the Commission, including the preparation and printing of
the Trust's registration statement and prospectuses for such purposes; allocable
communications expenses with respect to investor services, and all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders; the cost of
insurance; and litigation and indemnification expenses and extraordinary
expenses not incurred in the ordinary course of the Trust's business.
For the fiscal years ended February 28, 2003, February 28, 2002 and
February 28, 2001 the Administrator was paid $________, $4,637,682 and
$4,077,743, respectively, for services rendered to the Trust.
PORTFOLIO TRANSACTIONS
The Trust will generally have at least 80% of its Managed Assets
invested in Senior Loans. The remaining assets of the Trust will generally
consist of short-term debt instruments with remaining maturities of 120 days or
less, longer-term debt securities, certain other instruments such as
subordinated loans up to a maximum of 5% of the Trust's net assets, unsecured
loans, interest rate swaps, caps and
28
floors, repurchase agreements, reverse repurchase agreements and equity
securities acquired in connection with investments in loans. The Trust will
acquire Senior Loans from and sell Senior Loans to banks, insurance companies,
finance companies, and other investment companies and private investment funds.
The Trust may also purchase Senior Loans from and sell Senior Loans to U.S.
branches of foreign banks which are regulated by the Federal Reserve System or
appropriate state regulatory authorities. The Trust's interest in a particular
Senior Loan will terminate when the Trust receives full payment on the loan or
sells a Senior Loan in the secondary market. Costs associated with purchasing or
selling investments in the secondary market include commissions paid to brokers
and processing fees paid to agents. These costs are allocated between the
purchaser and seller as agreed between the parties.
Purchases and sales of short-term debt and other financial instruments
for the Trust's portfolio usually are principal transactions, and normally the
Trust will deal directly with the underwriters or dealers who make a market in
the securities involved unless better prices and execution are available
elsewhere. Such market makers usually act as principals for their own account.
On occasion, securities may be purchased directly from the issuer. Short-term
debt instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of portfolio securities
transactions of the Trust that are not transactions with principals will consist
primarily of brokerage commissions or dealer or underwriter spreads between the
bid and asked price, although purchases from underwriters may involve a
commission or concession paid by the issuer.
In placing portfolio transactions, the Investment Manager will use its
best efforts to choose a broker capable of providing the brokerage services
necessary to obtain the most favorable price and execution available. The full
range and quality of brokerage services available will be considered in making
these determinations, such as the size of the order, the difficulty of
execution, the operational facilities of the firm involved, the firm's risk in
positioning a block of securities and other factors. While the Investment
Manager seeks to obtain the most favorable net results in effecting transactions
in the Trust's portfolio securities, brokers or dealers who provide research
services may receive orders for transactions by the Trust. Such research
services ordinarily consist of assessments and analyses of the business or
prospects of a company, industry, or economic sector. The Investment Manager is
authorized to pay spreads or commissions to brokers or dealers furnishing such
services which are in excess of spreads or commissions that other brokers or
dealers not providing such research may charge for the same transaction, even if
the specific services were not imputed to the Trust and were useful to the
Investment Manager in advising other clients. Information so received will be in
addition to, and not in lieu of, the services required to be performed by the
Investment Manager under the Investment Management Agreement between the
Investment Manager and the Trust. The expenses of the Investment Manager will
not necessarily be reduced as a result of the receipt of such supplemental
information. The Investment Manager may use any research services obtained in
providing investment advice to its other investment advisory accounts.
Conversely, such information obtained by the placement of business for the
Investment Manager or other entities advised by the Investment Manager will be
considered by and may be useful to the Investment Manager in carrying out its
obligations to the Trust. As permitted by Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") the Investment Manager may
cause the Trust to pay a broker-dealer which provides "brokerage and research
services" (as defined in the 1934 Act) to the Investment Manager an amount of
disclosed commissions for effecting a securities transaction for the Trust in
excess of the commission which another broker-dealer would have charged for
effecting the transaction.
The Trust does not intend to effect any brokerage transaction in its
portfolio securities with any broker-dealer affiliated directly or indirectly
with the Investment Manager, except for any sales of portfolio securities
pursuant to a tender offer, in which event the Investment Manager will offset
against the management fee a part of any tender fees which legally may be
received by such affiliated broker-dealer. To the extent certain services which
the Trust is obligated to pay for under the Investment
29
Management Agreement are performed by the Investment Manager, the Trust will
reimburse the Investment Manager for the costs of personnel involved in placing
orders for the execution of portfolio transactions.
There were no brokerage commissions paid by the Trust for the previous
fiscal years.
PORTFOLIO TURNOVER RATE
The annual rate of the Trust's total portfolio turnover for the years
ended February 28, 2003, February 28, 2002 and February 28, 2001 was ___%, 53%
and 46% respectively. The annual turnover rate of the Trust is generally
expected to be between 50% and 100%, although as part of its investment
policies, the Trust places no restrictions on portfolio turnover and the Trust
may sell any portfolio security without regard to the period of time it has been
held. The annual turnover rate of the Trust also includes Senior Loans on which
the Trust has received full or partial payment. The Investment Manager believes
that full and partial payments on loans generally comprise approximately 25% to
75% of the Trust's total portfolio turnover each year.
NET ASSET VALUE
The NAV per Common Share of the Trust is determined once daily at the
close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time) on each
day the NYSE is open. The NAV per Common Share is determined by dividing the
value of the Trust's loan assets plus all cash and other assets (including
interest accrued but not collected) less all liabilities (including accrued
expenses but excluding capital and surplus) by the number of Common Shares
outstanding. The NAV per Common Share is made available for publication.
VALUATION OF THE TRUST'S ASSETS
The assets in the Trust's portfolio are valued daily in accordance with
the Trust's Loan Valuation Procedures adopted by the Board of Trustees. A
majority of the Trust's assets are valued using quotations supplied by a third
party loan pricing service. However, the loans in which the Trust invests are
not listed on any securities exchange or board of trade. Some loans are traded
by institutional investors in an over-the-counter secondary market that has
developed in the past several years. This secondary market generally has fewer
trades and less liquidity than the secondary markets for other types of
securities. Some loans have few or no trades. Accordingly, determinations of the
value of loans may be based on infrequent and dated trades. Because there is
less reliable, objective market value data available, elements of judgment may
play a greater role in valuation of loans than for other types of securities.
Loans are normally valued on the basis of one or more quotations obtained from a
pricing service or other sources believed to be reliable. Loans for which
reliable quotations are not available from a pricing service 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. The Trust has engaged an independent pricing service to
provide quotations from dealers in loans and to calculate values under this
"proxy" procedure. Loans are valued at the mean between bid and asked
quotations.
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It is expected that most of the loans held by the Trust will be valued
with reference to quotations from the independent pricing service or with
reference to the "proxy" procedure described above. The Investment Manager may
believe that the price for a loan derived from 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 it 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
under procedures established by the Trust's Board of Trustees, and in accordance
with the provisions of the 1940 Act.
Under these procedures, fair value is determined by the Investment
Manager and monitored by the Trust's Board of Trustees through its Valuation
Committee. In fair valuing a loan, consideration is given to several factors,
which may include, among others, the following: (i) the characteristics of and
fundamental analytical data relating to the loan, including the cost, size,
current interest rate, period until the next interest rate reset, maturity and
base lending rate of the loan, the terms and conditions of the loan and any
related agreements, and the position of the loan in the borrower's debt
structure; (ii) the nature, adequacy and value of the collateral, including the
Trust's rights, remedies and interests with respect to the collateral; (iii) the
creditworthiness of the borrower and the cash flow coverage of outstanding
principal and interest, based on an evaluation of its financial condition,
financial statements and information about the borrower's business, cash flows,
capital structure and future prospects; (iv) information relating to the market
for the loan, including price quotations for, and trading in, the loan and
interests in similar loans and the market environment and investor attitudes
towards the senior loan and interests in similar senior loans; (v) the
reputation and financial condition of the agent of the loan and any intermediate
participants in the loans; (vi) the borrower's management; and (vii) the general
economic and market conditions affecting the fair value of the loan.
Securities for which the primary market is a national securities
exchange or the NASDAQ National Market System are stated at the last reported
sale price on the day of valuation. Securities reported by NASDAQ National
Market System will be valued at the NASDAQ Official Closing Price on the
valuation day. Debt and equity securities traded in the over-the-counter market
and listed securities for which no sale was reported on that date are valued at
the mean between the last reported bid and asked price. Valuation of short term
cash equivalent investments are at amortized cost.
PLANS OF DISTRIBUTION
DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement with ING Funds
Distributor, LLC. ("ING Funds Distributor") which has been filed as an exhibit
to the Registration Statement. The summary of the Distribution Agreement
contained herein is qualified by reference to the Distribution Agreement.
Subject to the terms and conditions of the Distribution Agreement, the Trust may
issue and sell Common Shares of the Trust from time to time through ING Funds
Distributor, which is the principal underwriter of the Common Shares, through
certain broker-dealers which have entered into selected dealer agreements with
ING Funds Distributor.
The Common Shares will only be sold on such days as shall be agreed to
by the Trust and ING Funds Distributor. The Common Shares will be sold at market
prices, which shall be determined with reference to trades on the NYSE, subject
to a minimum price to be established each day by the Trust. The minimum price on
any day will not be less than the current NAV per Common Share plus the per
share amount of the commission to be paid to ING Funds Distributor. The Trust
and ING Funds Distributor will suspend the sale of Common Shares if the per
share price of the Common Shares is less than the minimum price.
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The compensation to ING Funds Distributor with respect to the Common
Shares will be at a fixed commission rate of 4% of the gross sales price per
share of the Common Shares sold. ING Funds Distributor will compensate
broker-dealers participating in this offering at a rate of 3% of the gross sales
price per share of the Common Shares purchased from the Trust by such
broker-dealer. Dealer reallowance may be changed by ING Funds Distributor from
time to time.
Settlements of sales of Common Shares will occur on the third business
day following the date on which any such sales are made. Unless otherwise
indicated in a further prospectus supplement, ING Funds Distributor as
underwriter will act as underwriter on a reasonable efforts basis.
In connection with the sale of the Common Shares on behalf of the
Trust, ING Funds Distributor may be deemed to be an underwriter within the
meaning of the 1940 Act, and the compensation of ING Funds Distributor may be
deemed to be underwriting commissions or discounts. As described below, ING
Funds Distributor also serves as distributor for the Trust in connection with
the sale of Common Shares of the Trust pursuant to privately negotiated
transactions and pursuant to optional cash investments in excess of $5,000. In
addition, ING Funds Distributor provides administrative services in connection
with a separate at-the-market offering of Common Shares of the Trust.
The offering of Common Shares pursuant to the Distribution Agreement
will terminate upon the earlier of (i) the sale of all Common Shares subject
thereto or (ii) termination of the Distribution Agreement. The Trust and ING
Funds Distributor each have the right to terminate the Distribution Agreement in
its discretion at any time.
SHAREHOLDER INVESTMENT PROGRAM
The Trust maintains a Shareholder Investment Program (the "Program"),
which allows participating shareholders to reinvest all dividends and capital
gain distributions ("Dividends") in additional Common Shares of the Trust. The
Program also allows participants to purchase additional Common Shares through
optional cash investments in amounts ranging from a minimum of $100 to a maximum
of $5,000 per month. Subject to the permission of the Trust, participating
shareholders may also make optional cash investments in excess of the monthly
maximum. Common Shares may be issued by the Trust under the Program only if the
Trust's Common Shares are trading at a premium to net asset value. If the
Trust's Common Shares are trading at a discount to net asset value, Common
Shares purchased under the Program will be purchased on the open market.
Shareholders may elect to participate in the Program by telephoning the
Trust or submitting a completed Participation Form to DST Systems, Inc. ("DST"),
the Program administrator. DST will credit to each participant's account funds
it receives from: (a) Dividends paid on Trust Common Shares registered in the
participant's name and (b) optional cash investments. DST will apply all
Dividends and optional cash investments received to purchase Common Shares as
soon as practicable beginning on the relevant Investment Date (as described
below) and not later than six business days after the investment Date, except
when necessary to comply with applicable provisions of the federal securities
laws. For more information on distribution policy, see "Dividends and
Distributions" in the Trust's Prospectus.
In order for participants to purchase Common Shares through the Program
in any month, the Administrator must receive from the participant any optional
cash investment not exceeding $5,000 by the OCI Payment Due Date and any
optional cash investment exceeding $5,000 by the Waiver Payment Due Date. The
"DRIP Investment Date" will be the date upon which Dividends will be reinvested
in additional Common Shares of the Trust, which will be on the Dividend Payment
Date. The "OCI Investment Date" will be the date, set in advance by the Trust,
upon which optional cash investments not exceeding $5,000, are first applied by
DST to the purchase of Common Shares. The "Waiver Investment
32
Date" will be the date, set in advance by the Trust, upon which optional cash
investments exceeding $5,000, which have been approved by the Trust, are first
applied by the Administrator to the purchase of Common Shares. Participants may
obtain a schedule of upcoming OCI Payment Due Dates, Waiver Payment Due Dates
and Investment Dates by referring to the Summary Program Description or calling
the Trust at (800) 992-0180.
If the Market Price (the volume-weighted average sales price, per
share, as reported on the New York Stock Exchange Composite Transaction Tape as
shown daily on Bloomberg's AQR screen) plus estimated commissions for Common
Shares of the Trust is less than the net asset value on the Valuation Date
(defined below), DST will purchase Common Shares on the open market through a
bank or securities broker as provided herein. Open market purchases may be
effected on any securities exchange on which Common Shares of the Trust trade or
in the over-the-counter market. If the Market Price, plus estimated commissions,
exceeds the net asset value before DST has completed its purchases, DST will use
reasonable efforts to cease purchasing Common Shares, and the Trust shall issue
the remaining Common Shares. If the Market Price, plus estimated commissions, is
equal to or exceeds the net asset value on the Valuation Date, the Trust will
issue the Common Shares to be acquired by the Program. The "Valuation Date" is a
date preceding the DRIP Investment Date, OCI Investment Date, and Waiver
Investment Date on which it is determined, based on the Market Price and net
asset value of Common Shares of the Trust, whether DST will purchase Common
Shares on the open market or the Trust will issue the Common Shares for the
Program. The Trust may, without prior notice to participants, determine that it
will not issue new Common Shares for purchase pursuant to the Program, even when
the Market Price plus estimated commissions equals or exceeds net asset value,
in which case DST will purchase Common Shares on the open market.
With the exception of Common Shares purchased in connection with
optional cash investments in excess of $5,000, Common Shares issued by the Trust
under the Program will be issued commission free. Common Shares purchased for
the Program directly from the Trust in connection with the reinvestment of
Dividends will be acquired on the DRIP Investment Date at the greater of (i) NAV
at the close of business on the Valuation Date or (ii) the average of the daily
Market Price of the shares during the "DRIP Pricing Period," minus a discount of
5%. The "DRIP Pricing Period" for a dividend reinvestment is the Valuation Date
and the prior Trading Day. A "Trading Day" means any day on which trades of the
Common Shares of the Trust are reported on the NYSE.
Except in the case of cash investments made pursuant to Requests for
Waiver (as discussed below), Common Shares purchased directly from the Trust
pursuant to optional cash investments will be acquired on an OCI Investment Date
at the greater of (i) net asset value at the close of business on the Valuation
Date or (ii) the average of the daily Market Price of the shares during the OCI
Pricing Period minus a discount, determined at the sole discretion of the Trust
and announced in advance, ranging from 0% to 5%. The "OCI Pricing Period" for an
OCI Investment Date means the period beginning four Trading Days prior to the
Valuation Date through and including the Valuation Date. The discount for
optional cash investments is set by the Trust and may be changed or eliminated
by the Trust without prior notice to participants at any time. The discount for
optional cash investments is determined on the last business day of each month.
In all instances, however, the discount on Common Shares issued directly by the
Trust shall not exceed 5% of the market price, and Common Shares may not be
issued at a price less than net asset value without prior specific approval of
shareholders or of the Commission. Optional cash investments received by DST no
later than 4:00 p.m. Eastern time on the OCI payment Due Date to be invested on
the relevant OCI Investment Date.
Optional cash investments in excess of $5,000 per month may be made
only pursuant to a Request for Waiver accepted in writing by the Trust. A
Request for Waiver must be received by the Trust no later than 4:00 p.m. Eastern
time on the Request for Waiver Deadline date. Good funds on all
33
approved Requests For Waiver must be received by DST not later than 4:00 P.M.
Eastern time on the Waiver Payment Due Date in order for such funds to be
invested on the relevant Waiver Investment Date.
It is solely within the Trust's discretion as to whether approval for
any cash investments in excess of $5,000 will be granted. In deciding whether to
approve a Request for Waiver, the Trust will consider relevant factors
including, but not limited to, whether the Program is then acquiring newly
issued Common Shares directly from the Trust or acquiring Common Shares from
third parties in the open market, the Trust's need for additional funds, the
attractiveness of obtaining such additional funds through the sale of Common
Shares as compared to other sources of funds, the purchase price likely to apply
to any sale of Common Shares under the Program, the participant submitting the
request, the extent and nature of such participant's prior participation in the
Program, the number of Common Shares held by such participant and the aggregate
amount of cash investments for which Requests for Waiver have been submitted by
all participants. If such requests are submitted for any Waiver Investment Date
for an aggregate amount in excess of the amount the Trust is then willing to
accept, the Trust may honor such requests in order of receipt, pro rata or by
any other method that the Trust determines in its sole discretion to be
appropriate.
Common Shares purchased directly from the Trust in connection with
approved Requests for Waiver will be acquired on the Waiver Investment Date at
the greater of (i) net asset value at the close of business on the Valuation
Date, or (ii) the average of the daily Market Price of the shares for the Waiver
Pricing Period minus the pre-announced Waiver Discount (as defined below), if
any, applicable to such shares. The "Waiver Pricing Period" for a Waiver
Investment Date means the period beginning four Trading Days prior to the
Valuation Date through and including the Valuation Date. The Trust may establish
a discount applicable to cash investments exceeding $5,000 (the "Waiver
Discount") on the last business day of each month. The Waiver Discount, which
may vary each month between 0% and 5%, will be established in the Trust's sole
discretion after a review of current market conditions, the level of
participation in the Program and current and projected capital needs of the
Trust. The Waiver Discount will apply only to Common Shares purchased directly
from the Trust.
The Trust may establish for each Waiver Pricing Period a minimum price
applicable to the purchase of newly issued Common Shares through Requests for
Waiver, which will be a stated dollar amount that the Market Price of the Common
Shares for a Trading Day of the Waiver Pricing Period must equal or exceed. In
the event that such minimum price is not satisfied for a Trading Day of the
Waiver Pricing Period, then such Trading Day and the trading prices for that day
will be excluded from (i) the Waiver pricing Period and (ii) the determination
of the purchase price of the Common Shares for all cash investments made
pursuant to Requests for Waiver approved by the Trust. The minimum price shall
apply only to cash investments made pursuant to Requests for Waiver approved by
the Trust and not to the reinvestment of Dividends or optional cash investments
that do not exceed $5,000. No Common Shares will be issued and funds submitted
pursuant to Requests for Waiver will be returned to the participant if the
minimum price is not obtained for at least three of the five Trading Days.
Participants will pay a pro rata share of brokerage commissions with
respect to DST's open market purchases in connection with the reinvestment of
Dividends or purchases made with optional cash investments.
From time to time, financial intermediaries, including brokers and
dealers, and other persons may wish to engage in positioning transactions in
order to benefit from the discount from market price of the Common Shares
acquired under the Program. Such transactions could cause fluctuations in the
trading volume and price of the Common Shares. The difference between the price
such owners pay to the Trust for Common Shares acquired under the Program, after
deduction of the applicable discount from the
34
market price, and the price at which such Common Shares are resold, may be
deemed to constitute underwriting commissions received by such owners in
connection with such transactions.
Subject to the availability of Common Shares registered for issuance
under the Program, there is no total maximum number of Common Shares that can be
issued pursuant to the Program.
The Program is intended for the benefit of investors in the Trust and
not for persons or entities who accumulate accounts under the Program over which
they have control for the purpose of exceeding the $5,000 per month maximum
without seeking the advance approval of the Trust or who engage in transactions
that cause or are designed to cause aberrations in the price or trading volume
of the Common Shares. Notwithstanding anything in the Program to the contrary,
the Trust reserves the right to exclude from participation, at any time, (i)
persons or entities who attempt to circumvent the Program's standard $5,000
maximum by accumulating accounts over which they have control or (ii) any other
persons or entities, as determined in the sole discretion of the Trust.
Currently, persons who are not Shareholders of the Trust may not
participate in the Program. The Board of Trustees of the Trust may elect to
change this policy at a future date, and permit non-Shareholders to participate
in the Program.
Shareholders may request to receive their Dividends in cash at any time
by giving DST written notice or by contacting the Trust's Shareholder Services
Department at (800) 992-0180. Shareholders may elect to close their account at
any time by giving DST written notice. When a participant closes their account,
the participant upon request will receive a certificate for full Common Shares
in the Account. Fractional Common Shares will be held and aggregated with other
Fractional Common Shares being liquidated by DST as agent of the Program and
paid for by check when actually sold.
The automatic reinvestment of Dividends does not affect the tax
characterization of the Dividends (i.e., capital gains and income are realized
even though cash is not received). If Common Shares are issued pursuant to the
Program's dividend reinvestment provisions or cash purchase provisions at a
discount from market price, participants may have income equal to the discount.
Additional information about the Program may be obtained from the
Trust's Shareholder Services Department at (800) 992-0180.
See "Federal Taxation--Distributions" for a discussion of the federal
income tax ramifications of obtaining Common Shares under the Program.
PRIVATELY NEGOTIATED TRANSACTIONS
The Common Shares may also be offered pursuant to privately negotiated
transactions between the Trust and specific investors. The terms of such
privately negotiated transactions will be subject to the discretion of the
management of the Trust. In determining whether to sell Common Shares pursuant
to a privately negotiated transaction, the Trust will consider relevant factors
including, but not limited to, the attractiveness of obtaining additional funds
through the sale of Common Shares, the purchase price to apply to any such sale
of Common Shares and the person seeking to purchase the Common Shares.
Common Shares issued by the Trust in connection with privately
negotiated transactions will be issued at the greater of (1) NAV per Common
Share of the Trust's Common Shares or (ii) at a discount ranging from 0% to 5%
of the average of the daily market price of the Trust's Common Shares at the
close of business on the two business days preceding the date upon which Common
Shares are sold
35
pursuant to the privately negotiated transaction. The discount to apply to such
privately negotiated transactions will be determined by the Trust with regard to
each specific transaction.
FEDERAL TAXATION
The following is only a summary of certain U.S. federal income tax
considerations generally affecting the Trust and its shareholders. No attempt is
made to present a detailed explanation of the tax treatment of the Trust or its
shareholders, and the following discussion is not intended as a substitute for
careful tax planning. Shareholders should consult with their own tax advisers
regarding the specific federal, state, local, foreign and other tax consequences
of investing in the Trust.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Trust will elect each year to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code"). As a
regulated investment company, the Trust generally will not be subject to federal
income tax on the portion of its investment company taxable income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses,
and net short-term capital gains in excess of long-term capital losses) and net
capital gain (i.e., the excess of net long-term capital gains over the sum of
net short-term capital losses and capital loss carryovers from prior years) that
it distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below.
In addition to satisfying the Distribution Requirement and an asset
diversification requirement discussed below, a regulated investment company must
derive at least 90% of its gross income for each taxable year from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies and other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies.
In addition to satisfying the requirements described above, the Trust
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Trust's
taxable year, at least 50% of the value of the Trust's assets must consist of
cash and cash items (including receivables), U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Trust has not invested more than 5% of the value of the
Trust's total assets in securities of any such issuer and as to which the Trust
does not hold more than 10% of the outstanding voting securities of any such
issuer), and no more than 25% of the value of its total assets may be invested
in the securities of any one issuer (other than U.S. government securities and
securities of other regulated investment companies), or in two or more issuers
which the Trust controls and which are engaged in the same or similar trades or
businesses.
In general, gain or loss recognized by the Trust on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Trust at a market discount
(generally at a price less than its principal amount) other than at the original
issue will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Trust held the debt
obligation.
In general, investments by the Trust in zero coupon or other original
issue discount securities will result in income to the Trust equal to a portion
of the excess of the face value of the securities over their issue price (the
"original issue discount") each year that the Trust holds the securities, even
though the
36
Trust receives no cash interest payments. This income is included in determining
the amount of income which the Trust must distribute to maintain its status as a
regulated investment company and to avoid federal income and excise taxes.
If for any taxable year the Trust does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Trust's current and accumulated earnings
and profits. Such distributions generally would be eligible for the
dividends-received deduction in the case of corporate shareholders.
If the Fund fails to qualify as a regulated investment company in any year, it
must pay out its earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. Moreover, if the Fund failed to
qualify as a regulated investment company for a period greater than one taxable
year, the Fund may be required to recognize any net built-in gains with respect
to certain of its assets (the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized if the Fund had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to the
sum of (1) 98% of its ordinary taxable income for the calendar year, (2) 98% of
its capital gain net income (i.e., capital gains in excess of capital losses)
for the one-year period ended on October 31 of such calendar year, and (3) any
ordinary taxable income and capital gain net income for previous years that was
not distributed or taxed to the regulated investment company during those years.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by the Trust in October, November or December with a
record date in such a month and paid by the Trust during January of the
following calendar year. Such distributions will be taxed to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
The Trust intends to make sufficient distributions or deemed
distributions (discussed below) of its ordinary taxable income and capital gain
net income to avoid liability for the excise tax.
HEDGING TRANSACTIONS
The Trust has the ability, pursuant to its investment objectives and
policies, to hedge its investments in a variety of transactions, including
interest rate swaps and the purchase or sale of interest rate caps and floors.
The treatment of these transactions for federal income tax purposes may in some
instances be unclear, and the regulated investment company qualification
requirements may limit the extent to which the Trust can engage in hedging
transactions.
Under certain circumstances, the Trust may recognize gain from a
constructive sale of an appreciated financial position. If the Trust enters into
certain transactions in property while holding substantially identical property,
the Trust would be treated as if it had sold and immediately repurchased the
property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
Trust's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the Trust's holding period and the application of various loss
deferral provisions in the Code. Constructive sale treatment does not apply to
transactions closed in the 90-day period ending with the 30th day after the
close of the taxable year, if certain conditions are met.
37
DISTRIBUTIONS
The Trust anticipates distributing all or substantially all of its
investment company taxable income for the taxable year. Such distributions will
be taxable to shareholders as ordinary income. If a portion of the Trust's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Trust may be eligible for the corporate dividends received
deduction.
The Trust may either retain or distribute to shareholders its net
capital gain for each taxable year. The Trust currently intends to distribute
any such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will generally be taxable to shareholders at a maximum federal
tax rate of 20%. Distributions are subject to these capital gains rates
regardless of the length of time the shareholder has held his shares.
Conversely, if the Trust elects to retain its net capital gain, the Trust will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the applicable corporate tax rate. In such event, it is expected that the
Trust also will elect to treat such gain as having been distributed to
shareholders. As a result, each shareholder will be required to report his pro
rata share of such gain on his tax return as long-term capital gain, will be
entitled to claim a tax credit for his pro rata share of tax paid by the Trust
on the gain, and will increase the tax basis for his shares by an amount equal
to the deemed distribution less the tax credit.
Distributions by the Trust in excess of the Trust's earnings and
profits will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his shares; any such return of
capital distributions in excess of the shareholder's tax basis will be treated
as gain from the sale of his shares, as discussed below.
Distributions by the Trust will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Trust. If the NAV at the time a shareholder purchases
shares of the Trust reflects undistributed income or gain, distributions of such
amounts will be taxable to the shareholder in the manner described above, even
though such distributions economically constitute a return of capital to the
shareholder.
The Trust will be required in certain cases to withhold and remit to
the U.S. Treasury 30% of all dividends and redemption proceeds payable to any
shareholder (1) who fails to provide the Trust with a certified, correct
identification number or other required certifications, or (2) if the Internal
Revenue Service notifies the Trust that the shareholder is subject to backup
withholding. Corporate shareholders and other shareholders specified in the Code
are exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability if the appropriate information is provided to the IRS.
SALE OF COMMON SHARES
A shareholder will recognize gain or loss on the sale or exchange of
shares of the Trust in an amount generally equal to the difference between the
proceeds of the sale and the shareholder's adjusted tax basis in the shares. In
general, any such gain or loss will be considered capital gain or loss if the
shares are held as capital assets, and gain or loss will be long-term or
short-term, depending upon the shareholder's holding period for the shares.
However, any capital loss arising from the sale of shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed (or deemed distributed) with respect to such shares.
Also, any loss realized on a sale or exchange of shares will be disallowed to
the extent the shares disposed of are replaced (including shares acquired
through the Shareholder Investment Program within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed of. In such
case, the tax basis of the acquired shares will be adjusted to reflect the
disallowed loss.
38
FOREIGN SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder") depends, in part, on whether the
shareholder's income from the Trust is "effectively connected" with a U.S. trade
or business carried on by such shareholder.
If the income from the Trust is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, distributions of
investment company taxable income will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate). Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the sale or exchange
of shares of the Trust, capital gain dividends, and amounts retained by the
Trust that are designated as undistributed capital gains.
If the income from the Trust is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then distributions of
investment company taxable income, capital gain dividends, amounts retained by
the Trust that are designated as undistributed capital gains and any gains
realized upon the sale or exchange of shares of the Trust will be subject to
U.S. federal income tax at the rates applicable to U.S. citizens or domestic
corporations. Such shareholders that are classified as corporations for U.S. tax
purposes also may be subject to a branch profits tax.
In the case of foreign noncorporate shareholders, the Trust may be
required to withhold U.S. federal income tax at a rate of 30% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Trust with proper notification of
their foreign status. See "Distributions."
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Trust, including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; OTHER TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this SAI. Future legislative or administrative
changes or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
Income received by the Trust from foreign sources may be subject to
withholding and other taxes imposed by such foreign jurisdictions, absent treaty
relief. Distributions to shareholders also may be subject to state, local and
foreign taxes, depending upon each shareholder's particular situation.
Shareholders are urged to consult their tax advisers as to the particular
consequences to them of an investment in the Trust.
ADVERTISING AND PERFORMANCE DATA
ADVERTISING
From time to time, advertisements and other sales materials for the
Trust may include information concerning the historical performance of the
Trust. Any such information may include trading volume of
39
the Trust's Common Shares, the number of Senior Loan investments, annual total
return, aggregate total return, distribution rate, average compounded
distribution rates and yields of the Trust for specified periods of time, and
diversification statistics. Such information may also include rankings, ratings
and other information from independent organizations such as Lipper Analytical
Services, Inc. ("Lipper"), Morningstar, Value Line, Inc., CDA Technology, Inc.,
Standard & Poor's, Portfolio Management Data (a division of Standard & Poor's),
Moody's, Bloomberg or other industry publications. These rankings will typically
compare the Trust to all closed-end Funds, to other Senior Loan funds, and/or
also to taxable closed-end fixed income funds. Any such use of rankings and
ratings in advertisements and sales literature will conform with the guidelines
of the NASD approved by the Commission. Ranking comparisons and ratings should
not be considered representative of the Trust's relative performance for any
future period.
Reports and promotional literature may also contain the following
information: (i) number of shareholders; (ii) average account size; (iii)
identification of street and registered account holdings; (iv) lists or
statistics of certain of the Trust's holdings including, but not limited to,
portfolio composition, sector weightings, portfolio turnover rates, number of
holdings, average market capitalization and modern portfolio theory statistics
alone or in comparison with itself (over time) and with its peers and industry
group; (v) public information about the assets class; and (vi) discussions
concerning coverage of the Trust by analysts.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, ING Groep, the Portfolio Managers, the
Administrator or affiliates of the Trust including (i) performance rankings of
other funds managed by the Investment Manager, or the individuals employed by
the Investment Manager who exercise responsibility for the day-to-day management
of the Trust, including rankings and ratings of investment companies published
by Lipper, Morningstar, Inc., Value Line, Inc., CDA Technologies, Inc., or other
rating services, companies, publications or other persons who rank or rate
investment companies or other investment products on overall performance or
other criteria; (ii) lists of clients, the number of clients, or assets under
management; (iii) information regarding the acquisition of the ING Funds by ING
Capital; (iv) the past performance of ING Capital and ING Funds Services; (v)
the past performance of other funds managed by the Investment Manager; (vi)
quotes from a portfolio manager of the Trust or industry specialists; and (vii)
information regarding rights offerings conducted by closed-end funds managed by
the Investment Manager.
The Trust may compare the frequency of its reset period to the
frequency which LIBOR changes. Further, the Trust may compare its yield to (i)
LIBOR, (ii) the federal funds rate, (iii) the Prime Rate, quoted daily in the
Wall Street Journal as the base rate on corporate loans at large U.S. money
center commercial banks, (iv) the average yield reported by the Bank Rate
Monitor National Index for money market deposit accounts offered by the 100
leading banks and thrift institutions in the ten largest standard metropolitan
statistical areas, (v) yield data published by Lipper, Bloomberg or other
industry sources, or (vi) the yield on an investment in 90-day Treasury bills on
a rolling basis, assuming quarterly compounding. Further, the Trust may compare
such other yield data described above to each other. The Trust may also compare
its total return, NAV stability and yield to fixed income investments. As with
yield and total return calculations, yield comparisons should not be considered
representative of the Trust's yield or relative performance for any future
period.
The Trust may provide information designed to help individuals
understand their investment goals and explore various financial strategies. Such
information may include information about current economic, market and political
conditions; materials that describe general principles of investing, such as
asset allocation, diversification, risk tolerance, and goal setting; worksheets
used to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment alternatives.
Materials may also include discussion of other investment companies in the ING
Funds,
40
products and services, and descriptions of the benefits of working with
investment professionals in selecting investments.
PERFORMANCE DATA
The Trust may quote annual total return and aggregate total return
performance data. Total return quotations for the specified periods will be
computed by finding the rate of return (based on net investment income and any
capital gains or losses on portfolio investments over such periods) that would
equate the initial amount invested to the value of such investment at the end of
the period. On occasion, the Trust may quote total return calculations published
by Lipper, a widely recognized independent publication that monitors the
performance of both open-end and closed-end investment companies.
The Trust's distribution rate is calculated on a monthly basis by
annualizing the dividend declared in the month and dividing the resulting
annualized dividend amount by the Trust's corresponding month-end net asset
value (in the case of NAV) or the last reported market price (in the case of
Market). The distribution rate is based solely on the actual dividends and
distributions, which are made at the discretion of management. The distribution
rate may or may not include all investment income, and ordinarily will not
include capital gains or losses, if any.
Total return and distribution rate and compounded distribution rate
figures utilized by the Trust are based on historical performance and are not
intended to indicate future performance. Distribution rate, compounded
distribution rate and NAV per share can be expected to fluctuate over time.
Total return will vary depending on market conditions, the Senior Loans, and
other securities comprising the Trust's portfolio, the Trust's operating
expenses and the amount of net realized and unrealized capital gains or losses
during the period.
GENERAL INFORMATION
CUSTODIAN
State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas
City, Missouri 64105 has been retained to act as the custodian for the Trust.
State Street Bank and Trust Company does not have any part in determining the
investment policies of the Trust or in determining which portfolio securities
are to be purchased or sold by the Trust or in the declaration of dividends and
distributions.
LEGAL COUNSEL
Legal matters for the Trust are passed upon by Dechert LLP, 1775 I
Street, NW, Washington, DC 20006.
INDEPENDENT AUDITORS
KPMG LLP, 355 South Grand Avenue, Los Angeles, California 90071, has
been selected as independent auditors for the Trust for the fiscal year ending
February 29, 2004.
FINANCIAL STATEMENTS
The Financial Statements and the independent auditors' reports thereon,
appearing in the Trust's Annual Report for the period ending February 28, 2003
are incorporated by reference in this Statement. The Trust's Annual and
Semi-Annual Reports are available at 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258, upon request and without charge by calling 1-800-
992-0180.
41
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements
Contained in Part A:
Financial Highlights for the years ended February 28, 2003, 2002,
2001; February 29, 2000; February 28, 1999, 1998, 1997; February 29,
1996; February 28, 1995 and 1994.
Financial Statements are incorporated in Part B by reference to
Registrant's February 28, 2003 Annual Report (audited).
2. Exhibits
(a) (i) Agreement and Declaration of Trust(1)
(ii) Amendment to the Agreement and Declaration of Trust dated
March 26, 1996 and effective April 12, 1996(1)
(iii) Amendment to the Agreement and Declaration of Trust dated
October 23, 1998 and effective November 16, 1998(7)
(iv) Amendment to the Agreement and Declaration of Trust dated
October 20, 2000 and effective October 20, 2000(9)
(v) Amendment to the Agreement and Declaration of Trust dated
February 20, 2002 and effective March 1, 2002(10)
(b) (i) By-Laws(2)
(ii) Amendment to By-Laws(2)
(iii) Amendment to By-Laws(8)
(iv) Amendment to By-Laws(9)
(c) Not Applicable
(d) (i) Certificate of Designation for Preferred Shares(9)
(ii) Form of Share Certificate
C-1
(e) Form of Shareholder Investment Program(5)
(f) Not Applicable
(g) (i) Form of Amended and Restated Investment Management
Agreement(3)
(ii) Form of Amendment to Investment Management Agreement(6)
(iii) Amended and Restated Investment Management Agreement(8)
(iv) Form of Amendment to the Amended and Restated Investment
Management Agreement(8)
(v) Investment Management Agreement(9)
(h) (i) Form of Distribution Agreement(5)
(ii) Form of Underwriting Agreement for the Preferred Shares(9)
(i) Not Applicable
(j) (i) Form of Custody Agreement(3)
(ii) Form of Custody and Investment Accounting Agreement
between Registrant and State Street Bank and Trust
Company(10)
(k) (i) Form of Amended and Restated Administration Agreement(8)
(ii) Amendment to the Amended and Restated Administration
Agreement(10)
(iii) Form of Recordkeeping Agreement(3)
(iv) Form of Revolving Loan Agreement between ING Prime Rate
Trust and Citibank - to be filed by Amendment
(v) Form of Credit Agreement(7)
(vi) Form of Auction Agency Agreement(9)
(vii) Form of Broker-Dealer Agreement(9)
(viii) Form of DTC Letter of Representations as to Preferred
Shares(9)
(l) Opinion of Dechert Price & Rhoads(7)
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(m) Not Applicable
(n) (i) Consent of Dechert LLP, to be filed by Amendment
(ii) Consent of KPMG LLP, to be filed by Amendment
(o) Not Applicable
(p) Certificate of Initial Capital(4)
(q) Not Applicable
(r) (i) Pilgrim Group Funds Code of Ethics(8)
(ii) Aeltus Investment Management, Inc. Code of Ethics, to be
filed by Amendment
----------
(1) Incorporated herein by reference to Amendment No. 20 to Registrant's
Registration Statement under the Investment Company Act of 1940 (the "1940
Act") on Form N-2 (File No. 811-5410), filed on September 16, 1996.
(2) Incorporated herein by reference to Amendment No. 24 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on November 7, 1997.
(3) Incorporated herein by reference to Amendment No. 22 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on June 23, 1997.
(4) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's initial registration statement on form N-2 (File No.
33-18886), filed on January 22, 1988.
(5) Incorporated herein by reference to Amendment No. 27 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on May 15, 1998.
(6) Incorporated herein by reference to Amendment No. 28 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on August 19, 1998.
(7) Incorporated herein by reference to Amendment No. 29 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on December 2, 1998.
(8) Incorporated herein by reference to Amendment No. 33 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on May 9, 2000.
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(9) Incorporated herein by reference to Amendment No. 38 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on October 23, 2000.
(10) Incorporated herein by reference to Amendment No. 45 to Registrant's
Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
filed on April 30, 2002.
ITEM 25. MARKETING AGREEMENTS
Not Applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth expenses incurred or estimated to be
incurred in connection with the offering described in the Registration
Statement.
Registration Fees..................................................... $ --
Trustee Fees.......................................................... $ --
Rating Agency Fees.................................................... $ --
Printing Expenses..................................................... $ --
Legal Fees............................................................ $ --
Accounting Fees and Expenses.......................................... $ --
Miscellaneous Expenses................................................ $ --
-------
Total........................................................ $ --
=======
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not Applicable.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
(1) Title of Class (2) Number of Record Holders
------------------ ----------------------------
Auction Rate Cumulative Preferred Shares ______ as of June 16, 2003
of beneficial interest, par value $0.01 per
share, Series M, T, W, Th and F
Common Shares of beneficial interest, ______ as of June 16, 2003
par value $0.01 per share
C-4
ITEM 29. INDEMNIFICATION
Registrant's Agreement and Declaration of Trust generally provides that the
Trust shall indemnify each of its Trustees and officers (including persons who
serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) ("Covered Persons") against all liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, by reason of being or having been such a Covered Person except with
respect to any matter as to which such Covered Person shall have been finally
adjudicated (a) not to have acted in good faith in the reasonable belief that
such Covered Person's action was in the best interest of the Trust or (b) to be
liable to the Trust or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties involved in the conduct
of such Covered Person's office.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment of the Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will submit, unless in the opinion of its counsel the
matter has been settled by controlling precedent, to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information as to the Trustees and officers of the Adviser, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by the directors and officers of the Adviser in
the last two years, is included in its application for registration as an
investment adviser on Form ADV (File No. 801-48282) filed under the Investment
Advisers Act of 1940, as amended ("Advisers Act"), and is incorporated herein by
reference thereto.
C-5
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The amounts and records of the Registrant will be maintained at its office
at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258 and at the office of
its custodian, State Street Bank & Trust - Kansas City, 801 Pennsylvania, Kansas
City, Missouri 64105.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend the Offer until the prospectus is
amended if (1) subsequent to the effective date of this registration statement,
the net asset value declines more than ten percent from its net asset value as
of the effective date of this registration statement or (2) the net asset value
increases to an amount greater than the net proceeds as stated in the prospectus
included in this registration statement.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. a. The Registrant undertakes that for the purpose of determining any
liability under the 1933 Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the 1933 Act [17 CFR 230.497(h)] shall be deemed to
be part of this Registration Statement as of the time it was declared
effective; and
b. that for the purpose of determining any liability under the 1933
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale
and State of Arizona on the 30th day of April, 2003.
ING PRIME RATE TRUST
By: /s/ Michael J. Roland
-----------------------------------------------------
Michael J. Roland
Executive Vice President, Chief Financial Officer and
Assistant Secretary
Pursuant to the requirements of the 1933 Act, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Trustee and Chairman April 30, 2003
-------------------------------------------------
John G. Turner*
President and Chief Executive
------------------------------------------------- Officer April 30, 2003
James M. Hennessy*
/s/ MICHAEL J. ROLAND Executive Vice President, Chief April 30, 2003
------------------------------------------------- Financial Officer and
Michael J. Roland Assistant Secretary
Trustee April 30, 2003
-------------------------------------------------
Paul S. Doherty*
Trustee April 30, 2003
-------------------------------------------------
J. Michael Earley*
Trustee April 30, 2003
-------------------------------------------------
R. Barbara Gitenstein*
C-7
Trustee April 30, 2003
-------------------------------------------------
Walter H. May, Jr.*
Trustee April 30, 2003
-------------------------------------------------
Thomas J. McInerney*
Trustee April 30, 2003
-------------------------------------------------
Jock Patton*
Trustee April 30, 2003
-------------------------------------------------
David W.C. Putnam*
Trustee April 30, 2003
-------------------------------------------------
Blaine E. Rieke*
Trustee April 30, 2003
-------------------------------------------------
Roger B. Vincent*
Trustee April 30, 2003
-------------------------------------------------
Richard A. Wedemeyer*
*By: /s/ MICHAEL J. ROLAND
---------------------
Michael J. Roland
Attorney-in-Fact**
** Pursuant to Powers of Attorney filed previously in Amendment No. 45 to the
Registrant's Registration Statement under the 1940 Act on Form N-2 (File No.
811-5410) on April 30, 2002, and incorporated herein by reference.
C-8