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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-5710
ING VP Natural Resources Trust
(Exact name of registrant as specified in charter)
7337 E. Doubletree Ranch Rd., Scottsdale, AZ |
| 85258 |
(Address of principal executive offices) |
| (Zip code) |
CT Corporation System, 101 Federal Street, Boston, MA 02110
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-800-992-0180
Date of fiscal year end: | December 31 |
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Date of reporting period: | December 31, 2004 |
Item 1. Reports to Stockholders.
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Act (17 CFR 270.30e-1):
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Annual Report
December 31, 2004
ING VP Natural Resources Trust
This report is submitted for general information to shareholders of the ING Funds. It is not authorized for distribution to prospective shareholders unless accompanied or preceded by a prospectus which includes details regarding the funds’ investment objectives, risks, charges, expenses and other information. This information should be read carefully. |
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TABLE OF CONTENTS
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PROXY VOTING INFORMATION
A description of the policies and procedures that the Registrant uses to determine how to vote proxies related to portfolio securities is available (1) without charge, upon request, by calling Shareholder Services toll-free at 800-992-0180; (2) on the Registrant’s website at www.ingfunds.com and (3) on the SEC’s website at www.sec.gov. Information regarding how the Registrant voted proxies related to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Registrant’s website at www.ingfunds.com and on the SEC’s website at www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS
The Registrant files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Registrant’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Registrant’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330; and is available upon request from the Registrant by calling Shareholder Services toll-free at 800-992-0180.
(THIS PAGE INTENTIONALLY LEFT BLANK)
Dear Shareholder: | |
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The past year has brought about numerous changes in the mutual funds industry, including requests for additional disclosures. I would like to draw your attention to some additional information you will now see in the reports due, in part, to these new requirements: | |
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• You will see a new section entitled “Shareholder Expense Examples”. These examples are intended to illustrate for you the ongoing costs of investing in a mutual fund and to provide a method to compare those costs with the ongoing costs of investing in other mutual funds. | |
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• In addition to the normal performance tables included in the Portfolio Managers’ Reports, there are now additional graphical or tabular presentations, which illustrate the current holdings of the funds as of the period-end. |
• Each fund now also files its complete schedule of portfolio holdings with the Securities Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. These Forms are available for shareholders to view on the SEC’s website at www.sec.gov.
We welcome these changes and believe that they will provide valuable information to our shareholders. We hope you will find these additional disclosures beneficial and easy to understand.
On behalf of ING Funds, I thank you for your continued support and confidence and look forward to serving you in 2005 and beyond.
Sincerely,
James M. Hennessy
President
ING Funds
January 25, 2005
1
MARKET PERSPECTIVE: YEAR ENDED DECEMBER 31, 2004
In our semi-annual report, we referred to sharp swings in sentiment as investors took stock after the handsome gains of 2003. By the middle of the year, the markets had not done much of anything; however, over the next six months sentiment would change twice more and in the end major asset classes posted respectable returns for the year, if not better.
Global equities gained 10.8% in the six months ended December 31, 2004, according to the Morgan Stanley Capital International (“MSCI”) World Index(1), including net reinvested dividends, and 14.7% for entire year. Nearly one quarter of the annual gain was due to dollar weakness, the main story in the currency markets. The dollar was ahead for most of the year, but by mid October had succumbed to continuing concern over the United States twin budget and trade deficits and whether overseas investors would continue to finance them, raising the nightmare of a disorderly slide in the dollar. In 2004, the euro gained 7.6%, a new record. The yen rose 4.5% to a level not seen since early 2000, while the pound stood 7.4% higher, at a remarkable 12-year peak.
Perhaps the most notable feature in investment grade U.S. fixed income markets in the second six months was the curious “curve flattening” trend. Short-term interest rates drifted up as the Federal Open Market Committee (“FOMC”) raised the Federal Funds rate four times, by 1% in all, while bond yields ignored this and fell in the face of weak economic data and continued foreign central bank purchases. Contrary to earlier fears, tame inflation was a backdrop throughout, while the influential employment reports were weak in July, August, October and December. On December 15, the spread between the yields on the 10-year Note and the 90-day Treasury Bill fell to a three-year low. For the six months, the yield on 10-year Treasury Notes fell by 40 basis points to 4.22%, but the yield on 13-week Treasury Bills soared 88 basis points to 2.18%. More broadly, the Lehman Brothers Aggregate Bond Index(2) gained 4.18% for the six months. For the whole year, the Index returned 4.34%, underscoring the dominance of the second half in driving market movement, and implying not much underlying price change over the year.
Prices rose on riskier asset classes, however, as investors chased more attractive returns than investment grade bonds were offering. The Lehman Brothers U.S. Corporate High Yield Bond Index(3) for example, returned a robust 9.64% in the six months through December and 11.13% for the year.
U.S. equities in the form of the Standard & Poor’s (“S&P”) 500 Index(4), rose 7.2% including dividends for the six months ended December 31, 2004, breaching and holding levels not seen since before September 11, 2001. By year end, the market was trading at a price to earnings level of just under 161/2 times 2005 estimated earnings. For the entire year, the Index returned 10.88%. From the middle of the year, equity investors were disappointed by the weak employment reports referred to above and distracted by surging oil prices as well as bad news affecting individual stocks. The market reached its lowest point in mid-August. But after oil prices climbed over $56 per barrel on October 22, and then slumped, equities squeezed out a narrow gain for the month in the last few days. In November, oil prices continued their retreat and the market powered ahead, cheered by this, the clear presidential election result, perceived as business and shareholder friendly, and at last a powerful employment report. By month end, sentiment was further bolstered by an upward revision to third quarter gross domestic product (“GDP”) growth to 4%, which was doubtless encouraging. But the data released also showed that the engine of growth, the U.S. consumer, was only saving at the rate of 0.5% per annum, which many regard as unsustainable. In addition, the rate of corporate profits growth was already falling and in 2005 may not reach double digits. It is hard to see then what dynamic propelled the S&P 500 Index to another 3.5% gain in December. And while many commentators celebrated this break out and the fact that smaller-cap indices had by then scaled all-time high levels, others feared a reversal before 2005 was very old.
International markets had mixed returns in the second half, but all were inflated in dollar terms by the weakness of that currency. Nonetheless even in local currency terms, Europe’s markets regained mid-2002 levels. Japan equities rose 4.6% in dollar terms during the period, based on the MSCI Japan Index(5) plus net dividends, but fell 1.7% in yen. For the year, Japan returned 15.9% in dollars. First half optimism about GDP growth was dashed as growth collapsed or was revised down as the year wore on.
European excluding (“ex”) UK markets advanced 18.2% in the second half of 2004, according to the MSCI Europe ex UK Index(6) (in dollars including net dividends), about one third due to currency. For all of 2004, the region returned 21.6% in dollars. Profits did grow strongly and markets remain cheap, but given all the issues surrounding low domestic demand,
2
MARKET PERSPECTIVE: YEAR ENDED DECEMBER 31, 2004
unemployment at 8.9% for the last 20 months and inflexible labor markets, arguably they deserve to be.
The UK market returned 15.7% in the six months through December, based on the MSCI UK Index(7) including net dividends, about 40% due to currency. For the whole year, the UK rose 19.6% in dollars. Contrary to the rest of Europe, the Bank of England has been trying to cool consumer demand and a property boom with five interest rate increases in 12 months. They seem to be succeeding for the most part.
(1) The MSCI World Index measures the performance of over 1,400 securities listed on exchanges in the United States, Europe, Canada, Australia, New Zealand and the Far East.
(2) The Lehman Brothers Aggregate Bond Index is composed of securities from the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment.
(3) The Lehman Brothers U.S. Corporate High Yield Bond Index is generally representative of corporate bonds rated below investment-grade.
(4) The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
(5) The MSCI Japan Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Japan.
(6) The MSCI Europe ex UK Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe, excluding the UK.
(7) The MSCI UK Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in the UK.
All indices are unmanaged and investors cannot invest directly in an index.
Past performance does not guarantee future results. The performance quoted represents past performance. Investment return and principal value of an investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The Trust’s performance is subject to change since the period’s end and may be lower or higher than the performance data shown. Please call (800) 366-0066 or log on to www.ingfunds.com to obtain performance data current to the most recent month end.
Market Perspective reflects the views of the Chief Investment Risk Officer only through the end of the period, and is subject to change based on market and other conditions.
3
ING VP NATURAL RESOURCES TRUST |
Industry Allocation*
as of December 31, 2004
(as a percent of net assets)
* Excludes other assets and liabilities of -0.3% of net assets.
Portfolio holdings are subject to change daily.
The ING VP Natural Resources Trust (the “Trust”) seeks long-term growth of capital through investment primarily in common stocks of companies that own or develop natural resources and other basic commodities or supply goods and services to such companies. The Portfolio is managed by a team of investment specialists led by James A. Vail, Senior Vice President and Portfolio Manager, ING Investment Management Co. — the Sub-Adviser.
Performance: For the year ended December 31, 2004, the Portfolio provided a total return of 12.66% compared to 10.88% for the Standard & Poor’s (“S&P”) 500 Index(1) and 22.62% for the Goldman Sachs Natural Resources Index(2).
Portfolio Specifics: The Trust underperformed primarily due to an underweight in energy and overweight in the materials sector. Within energy, our underweight positions in Exxon Mobil Corp. and ChevronTexaco Corp. negatively impacted results. Schlumberger Ltd. and previously held Anadarko Petroleum Corp. detracted from performance, as these stocks represent 44% of the blended S&P 500 Index and Goldman Sachs Natural Resources Index benchmark, but only 4% of the Trust. Several names not in the Index, but in the Trust, such as Hornbeck Offshore Services, Inc. and Global Industries Ltd., which were held during the period, and Smith Intl., Inc., also hurt performance. Within materials, specific disappointments were US Steel Corp., Barrick Gold Corp., and Mvelapanda Resources Ltd., all of which were previously held. While US Steel Corp. is in the Index, the rest are not. The poorest performing stock was Minera Resources Ltd., followed by Sons of Gwalia Ltd., both of which were previously held.
Current Strategy and Outlook: The U.S. dollar appears to have stabilized at current levels and may be on the verge of a near-term rally against other currencies. If this occurs, we could see near-term price pressure on a broad array of commodities. We have already seen this in energy with declining prices for crude oil and natural gas; ferrous and non-ferrous metals have also retreated. Precious metals have also fallen, retracing much of their fourth-quarter advances as the dollar rallied early in 2005.
We remain encouraged by the outlook for commodities going forward. Despite near-term pricing volatility, global demand should continue as the economies of China, and Asia in general, India and Eastern Europe improve their infrastructures and their economies become more urbanized.
The Trust will continue to seek natural resource producers, demonstrating improving production profiles with attractive cash flow growth potentials. We intend to pursue a wide approach both by geography and sectors as we search for attractive opportunities.
Top Ten Holdings
as of December 31, 2004
(as a percent of net assets)
Input/Output, Inc. | 5.9 | % |
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Cameco Corp. | 4.5 | % |
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First Quantum Minerals, Ltd. | 4.4 | % |
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BJ Services Co. | 4.4 | % |
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Phelps Dodge Corp. | 4.2 | % |
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Weatherford Intl., Ltd. | 3.8 | % |
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Cooper Cameron Corp. | 3.7 | % |
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Chesapeake Energy Corp. | 3.5 | % |
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Schlumberger, Ltd. | 3.1 | % |
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Transocean, Inc. | 3.0 | % |
Portfolio holdings are subject to change daily.
4
PORTFOLIO MANAGERS’ REPORT | ING VP NATURAL RESOURCES TRUST |
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Average Annual Total Returns for the Years Ended December 31, 2004 | |||||||
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| 1 Year |
| 5 Year |
| 10 Year |
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ING VP Natural Resources Trust |
| 12.66 | % | 7.46 | % | 7.64 | % |
S&P 500 Index(1) |
| 10.88 | % | (2.30 | )% | 12.07 | % |
Goldman Sachs Natural Resources Index(2) |
| 22.62 | % | 5.55 | % | N/A | (3) |
Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING VP Natural Resources Trust against the S&P 500 Index and the Goldman Sachs Natural Resources Index. The Indices are unmanaged, have no cash in their portfolio, impose no sales charges and incur no operating expenses. An investor cannot invest directly in an index. The Trust’s performance is shown without the imposition of any expenses or charges which are, or may be, imposed under your annuity contract. Total returns would have been lower if such expenses or charges were included.
The performance graph and table do not reflect the deduction of taxes that a shareholder will pay on Trust distributions or the redemption of Trust shares.
Total returns reflect that the Investment Manager may have waived or recouped fees and expenses otherwise payable by the Trust.
The performance update illustrates performance for a variable investment option available through a variable annuity contract. The performance shown indicates past performance and is not a projection or prediction of future results. Actual investment returns and principal value will fluctuate so that shares and/or units, at redemption, may be worth more or less than their original cost. Please call (800) 366-0066 to get performance through the most recent month end.
This report contains statements that may be “forward-looking” statements. Actual results may differ materially from those projected in the “forward-looking” statements.
The views expressed in this report reflect those of the portfolio managers, only through the end of the period as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions.
Trust holdings are subject to change daily.
(1) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets.
(2) The Goldman Sachs Natural Resources Index is a market-capitalization-weighted index of 112 stocks designed to measure the performance of companies in the natural resources sector, which includes energy, precious metals, timber, and other sub-sectors.
(3) The Index commenced in August 1996.
5
SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED)
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution [and/or service] (12b–1) fees; and other Fund expenses. These Examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.
Actual Expenses
The first section of the table shown, “Actual Fund Return”, provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return”, provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the hypothetical lines of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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| Expenses Paid |
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Actual |
| $1,000.00 |
| $1,142.40 |
| $7.54 |
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Hypothetical (5% return before expenses) |
| $1,000.00 |
| $1,018.10 |
| $7.10 |
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* | Expenses are equal to the Fund’s annualized expense ratios of 1.40%; multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
ING VP Natural Resources Trust
We have audited the accompanying statement of assets and liabilities of ING VP Natural Resources Trust, including the portfolio of investments, as of December 31, 2004, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2004 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of ING VP Natural Resources Trust as of December 31, 2004, the results of its operations, the changes in its net assets, and the financial highlights for the periods specified in the first paragraph above, in conformity with accounting principles generally accepted in the United States of America.
Boston, Massachusetts
February 11, 2005
7
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2004
ASSETS: |
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Investments in securities at value* |
| $ | 30,936,959 |
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Repurchase agreement |
| 4,139,000 |
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Cash |
| 957 |
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Dividends and interest receivable |
| 12,143 |
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Prepaid expenses |
| 101 |
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Total assets |
| 35,089,160 |
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LIABILITIES: |
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Payable to affiliates |
| 31,863 |
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Payable for trustee fees |
| 43,212 |
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Payable for professional fees |
| 15,095 |
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Payable for shareholder reporting expense |
| 7,920 |
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Other accrued expenses and liabilities |
| 7,984 |
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Total liabilities |
| 106,074 |
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NET ASSETS (equivalent to $17.65 per share on 1,982,311 shares outstanding) |
| $ | 34,983,086 |
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NET ASSETS WERE COMPRISED OF: |
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Paid-in capital |
| $ | 26,959,738 |
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Accumulated net realized gain on investments and foreign currency related transactions |
| 2,416,427 |
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Net unrealized appreciation on investments and foreign currency related transactions |
| 5,606,921 |
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NET ASSETS |
| $ | 34,983,086 |
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* Cost of investments in securities |
| $ | 25,330,063 |
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See Accompanying Notes to Financial Statements
8
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME: |
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Dividends, net of foreign taxes withheld* |
| $ | 146,714 |
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Interest |
| 27,311 |
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Total investment income |
| 174,025 |
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EXPENSES |
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Investment management fees |
| 268,712 |
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Transfer agent fees |
| 5,940 |
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Administrative service fees |
| 26,871 |
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Shareholder reporting expense |
| 28,333 |
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Professional fees |
| 12,483 |
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Custody and accounting expense |
| 10,292 |
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Trustee fees |
| 1,789 |
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Miscellaneous expense |
| 2,713 |
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Total expenses |
| 357,133 |
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Net investment loss |
| (183,108 | ) | |
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND |
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Net realized gain (loss) on: |
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Investments |
| 2,662,398 |
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Foreign currency related transactions |
| (20,949 | ) | |
Net realized gain on investments and foreign currency related transactions |
| 2,641,449 |
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Net change in unrealized appreciation or depreciation on: |
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Investments |
| 1,013,409 |
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Foreign currency related transactions |
| 18 |
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Net realized gain on investments and foreign currency related transactions |
| 1,013,427 |
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Net realized and unrealized gain on investments and foreign currency related transactions |
| 3,654,876 |
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Increase in net assets resulting from operations |
| $ | 3,471,768 |
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*Foreign taxes withheld |
| $ | 2,149 |
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See Accompanying Notes to Financial Statements
9
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FROM OPERATIONS: |
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Net investment loss |
| $ | (183,108 | ) | $ | (120,567 | ) |
Net realized gain on investments and foreign currency related transactions |
| 2,641,449 |
| 1,409,063 |
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Net change in unrealized appreciation or depreciation on investments and |
| 1,013,427 |
| 4,436,012 |
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| 3,471,768 |
| 5,724,508 |
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FROM DISTRIBUTIONS TO SHAREHOLDERS: |
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Net investment income |
| (249,957 | ) | — |
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Total distributions |
| (249,957 | ) | — |
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FROM CAPITAL SHARE TRANSACTIONS: |
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Net proceeds from sale of shares |
| 14,449,413 |
| 4,418,070 |
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Dividends reinvested |
| 249,957 |
| — |
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Cost of shares redeemed |
| (7,673,468 | ) | (6,643,754 | ) | ||
Net increase (decrease) in net assets resulting from capital share transactions |
| 7,025,902 |
| (2,225,684 | ) | ||
Net increase in net assets |
| 10,247,713 |
| 3,498,824 |
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NET ASSETS: |
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Beginning of year |
| 24,735,373 |
| 21,236,549 |
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End of year |
| $ | 34,983,086 |
| $ | 24,735,373 |
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Undistributed net investment income at end of year |
| $ | — |
| $ | 249,924 |
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See Accompanying Notes to Financial Statements
10
ING VP NATURAL RESOURCES TRUST |
Selected data for a share of beneficial interest outstanding throughout each period.
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| Year Ended December 31, |
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| 2004 |
| 2003 |
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| 2001 |
| 2000(1) |
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Per Share Operating Performance: |
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Net asset value, beginning of year | $ | 15.82 |
| 12.12 |
| 12.40 |
| 14.75 |
| 12.51 |
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Income (loss) from investment operations: |
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Net investment income (loss) | $ | (0.10 | ) | (0.08 | ) | (0.05 | ) | 0.03 |
| (0.07 | ) |
Net realized and unrealized gain (loss) on investments | $ | 2.09 |
| 3.78 |
| (0.21 | ) | (2.38 | ) | 2.36 |
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Total income (loss) from investment operations | $ | 1.99 |
| 3.70 |
| (0.26 | ) | (2.35 | ) | 2.29 |
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Less distributions from: |
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Net investment income | $ | 0.16 |
| — |
| 0.02 |
| — |
| 0.05 |
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Total distributions | $ | 0.16 |
| — |
| 0.02 |
| — |
| 0.05 |
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Net asset value, end of year | $ | 17.65 |
| 15.82 |
| 12.12 |
| 12.40 |
| 14.75 |
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Total Return(2) | % | 12.66 |
| 30.53 |
| (2.10 | ) | (15.93 | ) | 18.37 |
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Ratios and Supplemental Data: |
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Net assets, end of year (000s) | $ | 34,983 |
| 24,735 |
| 21,237 |
| 23,741 |
| 32,291 |
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Ratio to average net assets: |
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Expenses | % | 1.33 |
| 1.61 |
| 1.64 |
| 1.35 |
| 1.66 |
|
Net investment income (loss) | % | (0.68 | ) | (0.58 | ) | (0.41 | ) | 0.17 |
| (0.53 | ) |
Portfolio turnover rate | % | 106 |
| 121 |
| 80 |
| 85 |
| 72 |
|
(1) Effective July 26, 2000, ING Investments, LLC, became the Investment Manager to the Trust.
(2) Total return is calculated assuming reinvestment of all dividend and capital gain distributions at net asset value and does not reflect the effect of insurance contract charges.
See Accompanying Notes to Financial Statements.
11
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004
NOTE 1 — ORGANIZATION
Organization. ING VP Natural Resources Trust (the “Trust”) is an open-end, non-diversified management investment company registered under the Investment Company Act of 1940, as amended. The Trust was organized as a Massachusetts business trust on November 15, 1988 and commenced operation in 1991.
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Trust in the preparation of its financial statements and such policies are in conformity with accounting principals generally accepted in the United States of America for investment companies:
A. Security Valuation. Investments in equity securities traded on a national securities exchange are valued at the last reported sale price. Securities reported by NASDAQ are valued at the NASDAQ official closing prices. Securities traded on an exchange or NASDAQ for which there has been no sale and equity securities traded in the over-the-counter-market are valued at the mean between the last reported bid and ask prices. All investments quoted in foreign currencies will be valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at that time. Debt securities are valued at prices obtained from independent services or from one or more dealers making markets in the securities and may be adjusted based on the Trust’s valuation procedures. U.S. Government obligations are valued by using market quotations or independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics.
Securities and assets for which market quotations are not readily available (which may include certain restricted securities which are subject to limitations as to their sale) are valued at their fair values as determined in good faith by or under the supervision of the Trust’s Board of Trustees (“Board”), in accordance with methods that are specifically authorized by the Board. Securities traded on exchanges, including foreign exchanges, which close earlier than the time that the Trust calculates its net asset value may also be valued at their fair values as determined in good faith by or under the supervision of the Trust’s Board, in accordance with methods that are specifically authorized by the Board. If a significant event which is likely to impact the value of one or more foreign securities held by the Trust occurs after the time at which the foreign market for such security(ies) closes but before the time that the Trust’s net asset value is calculated on any business day, such event may be taken into account in determining the fair value of such security(ies) at the time the Trust calculates its net asset value. For these purposes, significant events after the close of trading on a foreign market may include, among others, securities trading in the U.S. and other markets, corporate announcements, natural and other disasters, and political and other events. Among other elements of analysis, the Board has authorized the use of one or more research services to assist with the determination of the fair value of foreign securities. Research services use statistical analyses and quantitative models to help determine fair value as of the time the Trust calculates its net asset value. Unlike the closing price of a security on an exchange, fair value determinations employ elements of judgment, and the fair value assigned to a security may not represent the actual value that the Trust could obtain if it were to sell the security at the time of the close of the NYSE. Investments in securities maturing in 60 days or less are valued at amortized cost, which, when combined with accrued interest, approximates market value.
B. Security Transactions and Revenue Recognition. Securities transactions are accounted for on the trade date. Realized gains and losses are reported on the basis of identified cost of securities sold. Interest income is recorded on an accrual basis except when collection is not expected. Dividend income is recorded on the ex-dividend date, or for certain foreign securities, when the information becomes available to the Trust. Premium amortization and discount accretion are determined by the effective yield method.
C. Federal Income Taxes. It is the policy of the Trust to comply with subchapter M of the Internal Revenue Code and related excise tax provisons applicable to regulated investment companies and to distribute substantially all of its net investment income and any net realized capital gains to its shareholders. Therefore, no federal income tax provision is required. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
D. Distributions to Shareholders. Dividends from net investment income and net realized gains, if any are declared and paid annually by the Trust.
12
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 (CONTINUED)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)
Distributions are determined annually in accordance with federal tax principles which may differ from accounting principles generally accepted in the United States of America for investment companies. The Trust may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code. Distributions are recorded on the ex-dividend date.
E. Use of Estimates. Management of the Trust has made certain estimates and assumptions relating to the reporting of assets, liabilities, income, and expenses to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America for investment companies. Actual results could differ from these estimates.
F. Foreign Currency Translation. The books and records of the Trust are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and liabilities — at the exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and expenses — at the rates of exchange prevailing on the respective dates of such transactions.
Although the net assets and the market values are presented at the foreign exchange rates at the end of the day, the Trust does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments. For securities which are subject to foreign withholding tax upon disposition, liabilities are recorded on the Statement of Assets and Liabilities for the estimated tax withholding based on the securities current market value. Upon disposition, realized gains or losses on such securities are recorded net of foreign withholding tax.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Trust’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at period end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. Government securities. These risks include, but are not limited to, revaluation of currencies and future adverse political and economic developments which could cause securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and U.S. Government securities.
G. Forward Foreign Currency Contracts. The Trust may enter into forward foreign currency contracts primarily to hedge against foreign currency exchange rate risks on their non-U.S. dollar denominated investment securities. When entering into a currency forward contract, the Trust agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. These contracts are valued daily and the Trust’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included on the Statement of Assets and Liabilities. Realized and unrealized gains and losses are included on the Statement of Operations. These instruments involve market and/or credit risk in excess of the amount recognized on the Statement of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. At December 31, 2004, the Trust did not have any open forward foreign currency contracts.
H. Repurchase Agreements. The Trust may invest in repurchase agreements only with government securities dealers recognized by the Board of Governors of the Federal Reserve System. Under such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase
13
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 (CONTINUED)
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)
agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. The Trust will receive as collateral securities acceptable to it whose market value is equal to at least 100% of the carrying amount of the repurchase agreements, plus accrued interest, being invested by the Trust. The underlying collateral is valued daily on a mark to market basis to assure that the value, including accrued interest, is at least equal to the repurchase price. If the seller defaults, the Trust might incur a loss or delay in the realization of proceeds if the value of the security collateralizing the repurchase agreement declines, and it might incur disposition costs in liquidating the collateral.
NOTE 3 — INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
The Trust pays an investment management fee to ING Investments, LLC (the “Investment Manager”), at an annual rate of 1.00% of the Trust’s average daily net assets.
The Investment Manager has entered into an Expense Limitation Agreement with the Trust, under which it will limit expenses of the Trust to the extent of 2.50% of the value of the Trust’s average daily net assets, excluding interest, taxes, brokerage and extraordinary expenses. Fee waivers and/or reimbursements by the Investment Manager may vary in order to achieve such contractually obligated expense limit.
The Expense Limitation Agreement is contractual and shall renew automatically for one-year terms unless ING Investments provides written notice of the termination of the Expense Limitation Agreement within 90 days of the end of the then current term.
The Investment Manager may at a later date recoup from the Trust for management fees waived and other expenses assumed by the Investment Manager during the previous 36 months, but only if, after such reimbursement, the Trust’s expense ratio does not exceed the percentage described above.
Effective January 1, 2005, pursuant to a side agreement, the Investment Manager has lowered the expense limit for the Fund to 1.18% through at least December 31, 2005. There is no guarantee that this side agreement will continue after that date. The side agreement will only renew if the Investment Manager elects to renew it. If after December 31, 2005, the Investment Manager elects not to renew the side agreement, the expense limit will revert to the limitation under the Fund’s expense limitation agreement of 2.50%. Any fees waived pursuant to the side agreement shall not be eligible for recoupment.
The Investment Manager has entered into a Sub-Advisory Agreement with ING Investment Management Co. (“ING IM”).
ING Funds Services, LLC (the “Administrator”) serves as Administrator to the Trust. The Trust pays the Administrator a fee calculated at an annual rate of 0.10% of the Trust’s average daily net assets.
The Investment Manager, ING IM and the Administrator are indirect wholly-owned subsidiaries of ING Groep N.V., a global financial institution active in the fields of banking, insurance and asset management.
NOTE 4 — OTHER TRANSACTIONS WITH AFFILIATED AND RELATED PARTIES
At December 31, 2004, the Trust had the following amounts recorded in payable to affiliates on the accompanying Statement of Assets and Liabilities:
Accrued |
| Accrued |
| Total |
|
$28,967 |
| $2,896 |
| $31,863 |
|
The Trust has adopted a Retirement Policy covering all independent trustees of the Trust who will have served as an independent trustee for at least five years at the time of retirement. Benefits under this plan are based on an annual rate as defined in the plan agreement.
NOTE 5 — INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments for the year ended December 31, 2004, excluding short-term securities, were $30,474,408 and $27,288,953, respectively.
NOTE 6 — CONCENTRATION OF INVESTMENT RISKS
Foreign Securities. The Trust may invest in foreign securities and has a policy of investing in the securities of companies that own or develop natural resources and other basic commodities, or supply goods and services to such companies. There are certain risks involved in investing in foreign securities or concentrating in specific industries such as natural resources that are in addition to the usual risks inherent in domestic investments. These risks include those resulting from future adverse political and economic developments, as well as the possible
14
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 (CONTINUED)
NOTE 6 — CONCENTRATION OF INVESTMENT RISKS (continued)
imposition of foreign exchange or other foreign governmental restrictions or laws, all of which could affect the market and/or credit risk of the investments.
Non-Diversified. The Portfolio is classified as a non-diversified investment company under the Investment Company Act, which means that the Trust is not limited in the proportion of its assets in a single issuer. The investment of a large percentage of a Trust’s assets in the securities of a small number of issuers may cause the Trust’s share price to fluctuate more than that of a diversified investment company.
NOTE 7 — LINE OF CREDIT
The Trust, in addition to certain other funds managed by the Investment Manager, have entered into an unsecured committed revolving line of credit agreement (the “Credit Agreement”) with The Bank of New York for an aggregate amount of $125,000,000.
The proceeds may be used to: (1) temporarily finance the purchase and sale of securities; (2) finance the redemption of shares of an investor in the funds; and (3) enable the funds to meet other emergency expenses as defined in the Credit Agreement. The funds to which the line of credit is available pay a commitment fee equal to 0.09% per annum on the daily unused portion of the committed line amount payable quarterly in arrears. The Trust utilized the line of credit for six days during the year ended December 31, 2004, with an approximate average daily balance of $585,000 and an approximate weighted average interest rate of 1.65%.
NOTE 8 — CAPITAL SHARE TRANSACTIONS
Transaction in capital shares and dollars were as follows:
|
| Year Ended |
| Year Ended |
| ||||
|
| Shares |
| Dollars |
| Shares |
| Dollars |
|
Shares sold |
| 882,300 |
| $14,449,413 |
| 352,152 |
| $ 4,418,070 |
|
Dividends reinvested |
| 15,701 |
| 249,957 |
| — |
| — |
|
Shares redeemed |
| (479,037 | ) | (7,673,468 | ) | (540,397 | ) | (6,643,754 | ) |
Net increase (decrease) |
| 418,964 |
| $ 7,025,902 |
| (188,245 | ) | $(2,225,684 | ) |
NOTE 9 — FEDERAL INCOME TAXES
The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America for investment companies. These book/tax differences may be either temporary or permanent. Permanent differences are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences are not reclassified. Key differences include the treatment of short-term capital gains, foreign currency transactions, and wash sale deferrals. Distributions in excess of available earnings and profits, current and accumulated, for tax purposes are reported as distributions of paid-in capital.
The following permanent tax differences have been reclassified as of December 31, 2004:
Undistributed |
| Accumulated |
|
$183,141 |
| $(183,141) |
|
The tax composition of dividends and distributions to shareholders was as follows:
Year Ended |
| Year Ended |
|
Ordinary Income |
| Ordinary Income |
|
$249,957 |
| $— |
|
The tax-basis components of distributable earnings and the expiration dates of the capital loss carryforwards which may be used to offset future realized capital gains for federal income tax purposes as of December 31, 2004 are as follows:
Undistributed |
| Undistributed |
| Unrealized |
|
$568,901 |
| $1,847,525 |
| $5,606,921 |
|
NOTE 10 — INFORMATION REGARDING TRADING OF ING’S U.S. MUTUAL FUNDS
ING Investments, LLC (“Investments”), the adviser to the ING Funds, has reported to the Boards of Directors/Trustees (the “Board”) of the ING Funds that, like many U.S. financial services companies, Investments and certain of its U.S. affiliates have received informal and formal requests for information since September 2003 from various governmental and self-regulatory agencies in connection with investigations related to mutual funds and variable insurance products. Investments has advised the Board that it and its affiliates have cooperated fully with each request.
15
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 (CONTINUED)
NOTE 10 — INFORMATION REGARDING TRADING OF ING’S U.S. MUTUAL FUNDS (continued)
In addition to responding to regulatory and governmental requests, Investments reported that management of U.S. affiliates of ING Groep N.V., including Investments (collectively, “ING”), on their own initiative, have conducted, through independent special counsel and a national accounting firm, an extensive internal review of trading in ING insurance, retirement, and mutual fund products. The goal of this review was to identify any instances of inappropriate trading in those products by third parties or by ING investment professionals and other ING personnel. ING’s internal review related to mutual fund trading is now substantially completed. ING has reported that, of the millions of customer relationships that ING maintains, the internal review identified several isolated arrangements allowing third parties to engage in frequent trading of mutual funds within ING’s variable insurance and mutual fund products, and identified other circumstances where frequent trading occurred, despite measures taken by ING intended to combat market timing. ING further reported that each of these arrangements has been terminated and fully disclosed to regulators. The results of the internal review were also reported to the independent members of the Board.
Investments has advised the Board that most of the identified arrangements were initiated prior to ING’s acquisition of the businesses in question in the U.S. Investments further reported that the companies in question did not receive special benefits in return for any of these arrangements, which have all been terminated. Based on the internal review, Investments has advised the Board that the identified arrangements do not represent a systemic problem in any of the companies that were involved.
More specifically, Investments reported to the Board that, at this time, these instances include the following:
• ING has identified three arrangements, dating from 1995, 1996 and 1998, under which the administrator to the then-Pilgrim Funds, which subsequently became part of the ING Funds, entered formal and informal arrangements that permitted frequent trading. ING Funds Distributor, LLC (“IFD”) has received a notice from the staff of the NASD informing IFD that it has made a preliminary determination to recommend that disciplinary action be brought against IFD and one of its registered persons for violations of the NASD Conduct Rules and certain provisions of the federal securities laws in connection with these arrangements.
• Aeltus Investment Management, Inc. (a predecessor entity to ING Investment Management Co.) has identified two investment professionals who engaged in extensive frequent trading in certain ING Funds. One was subsequently terminated for cause and incurred substantial financial penalties in connection with this conduct and the second has been disciplined.
• ReliaStar Life Insurance Company (“ReliaStar”) entered into agreements seven years ago permitting the owner of policies issued by the insurer to engage in frequent trading and to submit orders until 4pm Central Time. In 2001 ReliaStar also entered into a selling agreement with a broker-dealer that engaged in frequent trading. Employees of ING affiliates were terminated and/or disciplined in connection with these matters.
• In 1998, Golden American Life Insurance Company entered into arrangements permitting a broker-dealer to frequently trade up to certain specific limits in a fund available in an ING variable annuity product. No employee responsible for this arrangement remains at the company.
For additional information regarding these matters, you may consult the Form 8-K for each of four life insurance companies, ING USA Annuity and Life Insurance Company, ING Life Insurance and Annuity Company, ING Insurance Company of America, and ReliaStar Life Insurance Company of New York, each filed with the Securities and Exchange Commission (the “SEC”) on September 9, 2004. These Forms 8-K can be accessed through the SEC’s Web site at http://www.sec.gov. Despite the extensive internal review conducted through independent special counsel and a national accounting firm, there can be no assurance that the instances of inappropriate trading reported to the Board are the only instances of such trading respecting the ING Funds. Investments reported to the Board that ING is committed to conducting its business with the highest standards of ethical conduct with zero tolerance for noncompliance.
Accordingly, Investments advised the Board that ING management was disappointed that its voluntary internal review identified these situations. Viewed in the context of the breadth and magnitude of its U.S. business as a whole, ING management does not believe that ING’s acquired companies had systemic ethical or compliance issues in these areas. Nonetheless, Investments reported that given ING’s refusal to tolerate any lapses, it has taken the steps noted below, and will continue to seek opportunities to further strengthen the internal controls of its affiliates.
• ING has agreed with the ING Funds to indemnify and hold harmless the ING Funds from all damages
16
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 (CONTINUED)
NOTE 10 — INFORMATION REGARDING TRADING OF ING’S U.S. MUTUAL FUNDS (continued)
resulting from wrongful conduct by ING or its employees or from ING’s internal investigation, any investigations conducted by any governmental or self-regulatory agencies, litigation or other formal proceedings, including any proceedings by the Securities and Exchange Commission. Investments reported to the Board that ING management believes that the total amount of any indemnification obligations will not be material to ING or its U.S. business.
• ING updated its Code of Conduct for employees reinforcing its employees’ obligation to conduct personal trading activity consistent with the law, disclosed limits, and other requirements.
• The ING Funds, upon a recommendation from ING, updated their respective Codes of Ethics applicable to investment professionals with ING entities and certain other fund personnel, requiring such personnel to pre-clear any purchases or sales of ING Funds that are not systematic in nature (i.e., dividend reinvestment), and imposing minimum holding periods for shares of ING Funds.
• ING instituted excessive trading policies for all customers in its variable insurance and retirement products and for shareholders of the ING Funds sold to the public through financial intermediaries. ING does not make exceptions to these policies.
• ING reorganized and expanded its U.S. Compliance Department, and created an Enterprise Compliance team to enhance controls and consistency in regulatory compliance.
17
| |
ING VP NATURAL RESOURCES TRUST | AS OF DECEMBER 31, 2004 |
Shares |
|
|
|
|
|
|
| Value |
|
COMMON STOCK: 88.5% |
|
|
|
|
|
| |||
|
|
|
| Coal: 2.3% |
|
|
|
|
|
10,000 |
|
|
| Peabody Energy Co. |
|
|
| $ 809,100 |
|
|
|
|
|
|
|
|
| 809,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Iron/Steel: 2.9% |
|
|
|
|
|
25,000 |
| @ |
| International Steel Group, Inc. |
|
|
| 1,014,000 |
|
|
|
|
|
|
|
|
| 1,014,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Metal Fabricate/Hardware: 3.6% |
|
|
|
|
|
22,000 |
| @ |
| Maverick Tube Co. |
|
|
| 666,600 |
|
30,000 |
| @@ |
| Norddeutsche Affinerie AG |
|
|
| 577,562 |
|
|
|
|
|
|
|
|
| 1,244,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mining: 20.4% |
|
|
|
|
|
45,000 |
| @,@@ |
| Cameco Co. |
|
|
| 1,575,555 |
|
950,000 |
| @,@@ |
| Equinox Minerals, Ltd. |
|
|
| 475,733 |
|
100,000 |
| @,@@ |
| First Quantum Minerals, Ltd. |
|
|
| 1,556,566 |
|
14,000 |
|
|
| Freeport-McMoRan Copper & Gold, Inc. |
|
|
| 535,220 |
|
175,000 |
| @,@@ |
| Frontera Copper Co. |
|
|
| 270,208 |
|
150,000 |
| @,@@ |
| Northern Orion Resources, Inc. |
|
|
| 436,500 |
|
15,000 |
|
|
| Phelps Dodge Co. |
|
|
| 1,483,800 |
|
43,500 |
| @@ |
| Placer Dome, Inc. |
|
|
| 820,410 |
|
|
|
|
|
|
|
|
| 7,153,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Oil and Gas: 27.4% |
|
|
|
|
|
15,000 |
|
|
| Burlington Resources, Inc. |
|
|
| 652,500 |
|
74,900 |
|
|
| Chesapeake Energy Co. |
|
|
| 1,235,850 |
|
10,000 |
|
|
| ChevronTexaco Co. |
|
|
| 525,100 |
|
10,000 |
|
|
| Exxon Mobil Co. |
|
|
| 512,600 |
|
12,000 |
| @ |
| Houston Exploration Co. |
|
|
| 675,720 |
|
12,000 |
|
|
| Murphy Oil Co. |
|
|
| 965,400 |
|
20,400 |
| @,@@ |
| Nabors Industries, Ltd. |
|
|
| 1,046,316 |
|
13,000 |
| @ |
| Noble Co. |
|
|
| 646,620 |
|
35,300 |
|
|
| Patterson-UTI Energy, Inc. |
|
|
| 686,585 |
|
50,000 |
| @ |
| Pioneer Drilling Co. |
|
|
| 504,500 |
|
26,200 |
| @ |
| Pride Intl., Inc. |
|
|
| 538,148 |
|
20,000 |
| @ |
| Rowan Cos., Inc. |
|
|
| 518,000 |
|
25,000 |
| @ |
| Transocean, Inc. |
|
|
| 1,059,750 |
|
|
|
|
|
|
|
|
| 9,567,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Oil and Gas Services: 31.9% |
|
|
|
|
|
24,000 |
|
|
| Baker Hughes, Inc. |
|
|
| 1,024,080 |
|
33,000 |
| @ |
| BJ Services Co. |
|
|
| 1,535,820 |
|
24,000 |
| @ |
| Cooper Cameron Co. |
|
|
| 1,291,440 |
|
18,000 |
|
|
| Halliburton Co. |
|
|
| 706,320 |
|
235,000 |
| @ |
| Input/Output, Inc. |
|
|
| 2,077,400 |
|
30,000 |
| @ |
| National-Oilwell, Inc. |
|
|
| 1,058,700 |
|
16,000 |
|
|
| Schlumberger, Ltd. |
|
|
| 1,071,200 |
|
19,000 |
| @ |
| Smith Intl., Inc. |
|
|
| 1,033,790 |
|
26,000 |
| @ |
| Weatherford Intl., Ltd. |
|
|
| 1,333,800 |
|
|
|
|
|
|
|
|
| 11,132,550 |
|
|
|
|
| Total Common Stock |
|
|
| 30,920,893 |
|
|
|
|
|
|
|
|
|
|
|
WARRANTS: 0.0% |
|
|
|
|
|
|
| ||
|
|
|
| Mining: 0.0% |
|
|
|
|
|
87,500 |
| @,@@ |
| Frontera Copper Corp. |
|
|
| 16,066 |
|
|
|
|
| Total Warrants (Cost $—) |
|
|
| 16,066 |
|
|
|
|
|
|
|
|
|
|
|
Principal Amount |
|
|
|
|
|
|
| Value |
|
SHORT-TERM INVESTMENTS: 11.8% |
|
|
|
|
| ||||
|
|
|
| Repurchase Agreement: 11.8% |
|
|
|
|
|
$4,139,000 |
|
|
| Morgan Stanley Repurchase Agreement dated 12/31/04, 2.200%, due 01/03/05, $4,139,759 to be received upon repurchase (Collateralized by $3,395,000 Fed Farm Credit Bureau, 9.800%, Market Value plus accrued interest $4,374,246 due 07/20/09) |
|
|
| $ 4,139,000 |
|
|
|
|
| Total Short-Term Investments |
|
|
| 4,139,000 |
|
|
|
|
| Total Investments In Securities (Cost $29,469,063)* |
| 100.3 | % | $35,075,959 |
|
|
|
|
| Other Assets and Liabilities-Net |
| (0.3 | ) | (92,873 | ) |
|
|
|
| Net Assets |
| 100.0 | % | $34,983,086 |
|
@ | Non-income producing security |
@@ | Foreign issuer |
* | Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: |
|
|
|
| Gross Unrealized Appreciation |
|
|
| $ 5,921,385 |
|
|
|
|
| Gross Unrealized Depreciation |
|
|
| (314,489 | ) |
|
|
|
| Net Unrealized Appreciation |
|
|
| $ 5,606,896 |
|
See Accompanying Notes to Financial Statements
18
TAX INFORMATION (Unaudited)
Dividends paid during the year ended December 31, 2004 were as follows:
Fund Name |
|
| Type |
| Per Share Amount |
|
VP Natural Resources Trust |
| NII |
| $0.1564 |
|
NII — Net investment income
Of the ordinary distributions made during the fiscal year ended December 31, 2004, the following percentage qualifies for the dividends received deduction available to corporate shareholders:
VP Natural Resources Trust: |
| 69.39% |
Above figures may differ from those cited elsewhere in this report due to differences in the calculation of income and gains under accounting principles generally accepted in the United States of America (book) purposes and Internal Revenue Service (tax) purposes.
Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investments in the Funds. In January, shareholders, excluding corporate shareholders, receive an IRS 1099-DIV regarding the federal tax status of the dividends and distributions they received in the calendar year.
19
TRUSTEE AND OFFICER INFORMATION (UNAUDITED)
The business and affairs of the Trust is managed under the direction of the Trust’s Board of Trustees. A Trustee who is not an interested person of the Trust, as defined in the 1940 Act, is an independent trustee (“Independent Trustee”). The Trustees and Officers of the Trust are listed below. The Statement of Additional Information includes additional information about trustees of the Registrant and is available, without charge, upon request at 1-800-992-0180.
Name, Address |
| Position(s) |
| Term of |
| Principal |
| Number of |
| Other |
Independent Trustees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul S. Doherty(2) |
| Trustee |
| July 2000 - December 2004 |
| President and Partner, Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys (1996 - Present). |
| 113 |
| University of Massachusetts Foundation Board (April 2004 - Present). |
|
|
|
|
|
|
|
|
|
|
|
J. Michael Earley(3) |
| Trustee |
| February 2002 - Present |
| President and Chief Executive Officer, Bankers Trust Company, N.A. (1992 - Present). |
| 113 |
| None |
|
|
|
|
|
|
|
|
|
|
|
R. Barbara Gitenstein(2) |
| Trustee |
| February 2002 - Present |
| President, College of New Jersey (1999 - Present). |
| 113 |
| New Jersey Resources (September 2003 - Present). |
|
|
|
|
|
|
|
|
|
|
|
Walter H. May(2) |
| Trustee |
| July 2000 - Present |
| Retired. Formerly, Managing Director and Director of Marketing, Piper Jaffray, Inc. |
| 113 |
| Trustee, BestPrep Charitable Organization |
|
|
|
|
|
|
|
|
|
|
|
Jock Patton(2) |
| Trustee |
| July 2000 - Present |
| Private Investor |
| 113 |
| Director, Hypercom, Corp. (January 1999 - Present); JDA Software Group, Inc. (January 1999 - Present); Swift Transportation Co. (March 2004 - Present). |
|
|
|
|
|
|
|
|
|
|
|
David W.C. Putnam(3) |
| Trustee |
| July 2000 - Present |
| President and Director, F.L. Putnam Securities Company, Inc. and its affiliates; President, Secretary and Trustee, The Principled Equity Market Fund. |
| 113 |
| Progressive Capital Accumulation Trust (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). Formerly, Anchor International Bond Trust (December 2000 - 2002). |
20
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) (CONTINUED)
Name, Address |
| Position(s) |
| Term of |
| Principal |
| Number of |
| Other |
Blaine E. Rieke(3) |
| Trustee |
| February 2001 - December 2004 |
| General Partner, Huntington Partners (January 1997 - Present). Chairman of the Board and Trustee of each of the funds managed by ING Investment Management Co. LLC (November 1998 - February 2001). |
| 113 |
| Trustee, Morgan Chase Trust Co. (January 1998 - Present); Director, Members Trust Co. (November 2003 - Present). |
|
|
|
|
|
|
|
|
|
|
|
Roger B. Vincent(3) |
| Trustee |
| February 2002 - Present |
| President, Springwell Corporation (1989 - Present). Formerly, Director Tatham Offshore, Inc. (1996 - 2000). |
| 113 |
| Director, AmeriGas Propane, Inc. (1998 - Present). |
|
|
|
|
|
|
|
|
|
|
|
Richard A. Wedemeyer(2) |
| Trustee |
| February 2001 - Present |
| Retired. Formerly Vice President - Finance and Administration, Channel Corporation (June 1996 - April 2002); and Trustee of each of the funds managed by ING Management Co. LLC (1998 - 2001). |
| 113 |
| Director, Touchstone Consulting Group (1997 - Present); Trustee, Jim Henson Legacy (1994 - Present). |
|
|
|
|
|
|
|
|
|
|
|
Trustees who are “Interested Persons”: |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
Thomas J. McInerney(4) |
| Trustee |
| February 2001 - Present |
| Chief Executive Officer, ING U.S. Financial Services (September 2001 - Present); Member ING Americas Executive Committee (2001 - Present); ING Aeltus Holding Company, Inc. (2000 - Present), ING Retail Holding Company (1998 - Present), and ING Retirement Holdings, Inc. (1997 - Present). Formerly, President, ING Life Insurance Annuity Company (September 1997 - November 2002), President, Chief Executive Officer and Director of Northern Life Insurance Company (March 2001 - October 2002); General Manager and Chief Executive Officer, ING Worksite Division (December 2000 - October 2001), President ING-SCI, Inc. (August 1997 - December 2000); President, Aetna Financial Services (August 1997 - December 2000). |
| 161 |
| Director, Equitable Life Insurance Co., Golden American Life Insurance Co., Life Insurance Company of Georgia, Midwestern United Life Insurance Co., ReliaStar Life Insurance Co., Security Life of Denver, Security Connecticut Life Insurance Co., Southland Life Insurance Co., USG Annuity and Life Company, and United Life and Annuity Insurance Co. Inc (March 2001 - Present); Member of the Board, Bushnell Performing Arts Center; St. Francis Hospital; National Conference of Community Justice; and Metro Atlanta Chamber of Commerce. |
21
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) (CONTINUED)
Name, Address |
| Position(s) |
| Term of |
| Principal |
| Number of |
| Other |
John G. Turner(5) |
| Trustee |
| July 2000 - Present |
| Chairman, Hillcrest Capital Partners (May 2002 - Present); Formerly, Vice Chairman of ING Americas (2000 - 2002); Chairman and Chief Executive Officer of ReliaStar Financial Corp. and ReliaStar 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 - 1998); 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). |
| 113 |
| Director, Hormel Foods Corporation (March 2000 - Present); Shopko Stores, Inc. (August 1999 - Present); and M.A. Mortenson Company (March 2002 - Present); Conseco, Inc. (September 2003 - Present). |
(1) | Trustees serve until their successors are duly elected and qualified, subject to the Board’s retirement policy. On December 31, 2004, Paul S. Doherty and Blaine E. Rieke retired as Directors/Trustees. Effective January 1, 2005, John V. Boyer and Patrick W. Kenny joined as Directors/Trustees. |
(2) | Valuation and Proxy Voting Committee member. |
(3) | Audit Committee member. |
(4) | Mr. McInerney is an “interested person,” as defined under the 1940 Act, because of his affiliation with ING Groep N.V., the parent corporation of the Investment Manager, ING Investments, LLC and the Distributor, ING Funds Distributor, LLC. |
(5) | Mr. Turner is an “interested person,” as defined under the 1940 Act, because of his affiliation with ING Groep N.V., the parent corporation of the Investment Manager, ING Investments, LLC and the Distributor, ING Funds Distributor, LLC. |
22
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) (CONTINUED)
Name, Address |
| Position(s) |
| Term of Office and |
| Principal Occupation(s) during the |
Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
James M. Hennessy |
| President and Chief Executive Officer |
| February 2001 - Present |
| President and Chief Executive Officer, ING Investments, LLC (December 2000 - Present). Formerly, Senior Executive Vice President and Chief Operating Officer, ING Investments, LLC (April 1995 - December 2000); and Executive Vice President, ING Investments, LLC (May 1998 - June 2000). |
|
|
|
|
|
|
|
Michael J. Roland |
| Executive Vice President and Assistant Secretary |
| February 2002 - Present |
| Executive Vice President, Chief Financial Officer and Treasurer, (December 2001 - Present) and Chief Compliance Officer (October 2004 - Present), ING Investments, LLC. Formerly, Senior Vice President, ING Investments, LLC (June 1998 - December 2001). |
|
|
|
|
|
|
|
Stanley D. Vyner |
| Executive Vice President |
| February 2002 - Present |
| Executive Vice President, ING Investments, LLC (July 2000 - Present) and Chief Investment Risk Officer (January 2003 - Present); Formerly, Chief Investment Officer of the International Portfolios, ING Investments, LLC (August 2000 - January 2003); and Chief Executive Officer, ING Investments, LLC (August 1996 - August 2000). |
|
|
|
|
|
|
|
Joseph M. O’Donnell |
| Chief Compliance Officer |
| November 2004 - Present |
| Chief Compliance Officer of the ING Funds (November 2004 - Present). Formerly, Vice President, Chief Legal Counsel, Chief Compliance Officer and Secretary of Atlas Securities, Inc., Atlas Advisers, Inc. and Atlas Funds (October 2001 - October 2004); and Chief Operating Officer and General Counsel of Matthews International Capital Management LLC and Vice President and Secretary of Matthews International Funds (August 1999 - May 2001). |
|
|
|
|
|
|
|
Robert S. Naka |
| Senior Vice President and Assistant Secretary |
| July 2000 - Present |
| Senior Vice President and Assistant Secretary, ING Funds Services, LLC (October 2001 - Present). Formerly, Senior Vice President, ING Funds Services, LLC (August 1999 - October 2001). |
|
|
|
|
|
|
|
Kimberly A. Anderson |
| Senior Vice President |
| November 2003 - Present |
| Senior Vice President, ING Investments, LLC (October 2003 - Present). Formerly, Vice President and Assistant Secretary, ING Investments, LLC (October 2001 - October 2003); Assistant Vice President, ING Funds Services, LLC (November 1999 - January 2001). |
|
|
|
|
|
|
|
Robyn L. Ichilov |
| Vice President and Treasurer |
| July 2000 - Present |
| Vice President, ING Funds Services, LLC (October 2001 - Present) and ING Investments, LLC (August 1997 - Present). |
|
|
|
|
|
|
|
Lauren D. Bensinger |
| Vice President |
| February 2003 - Present |
| Vice President and Chief Compliance Officer, ING Funds Distributor, LLC (July 1995 - Present) and Vice President ING Investments, LLC, (February 1996 - Present). Formerly, Chief Compliance Officer (October 2001 - October 2004), ING Investments, LLC. |
|
|
|
|
|
|
|
Todd Modic |
| Vice President |
| August 2003 - Present |
| Vice President, Financial Reporting, Fund Accounting, ING Funds Services, LLC (September 2002 - Present). Formerly, Director of Financial Reporting, ING Investments, LLC (March 2001 - September 2002); Director of Financial Reporting, Axient Communications, Inc. (May 2000 - January 2001); and Director of Finance, Rural/Metro Corporation (March 1995 - May 2000). |
23
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) (CONTINUED)
Name, Address |
| Position(s) |
| Term of Office and |
| Principal Occupation(s) during the |
Huey P. Falgout, Jr. |
| Secretary |
| August 2003 - Present |
| Chief Counsel, ING U.S. Legal Services (September 2003 - Present). Formerly, Counsel, ING U.S. Legal Services (November 2002 - September 2003); and Associate General Counsel of AIG American General (January 1999 - November 2002). |
|
|
|
|
|
|
|
Maria M. Anderson |
| Vice President |
| September 2004 - Present |
| Vice President, ING Funds Services, LLC (September 2004 - Present). Formerly, Assistant Vice President, ING Funds Services, LLC (October 2001 - September 2004); and Manager of Fund Accounting and Fund Compliance, ING Investments, LLC (September 1999 - October 2001). |
|
|
|
|
|
|
|
Susan P. Kinens |
| Assistant Vice President |
| February 2003 - Present |
| Assistant Vice President, ING Funds Services, LLC (December 2002 - Present); and has held various other positions with ING Funds Services, LLC for more than the last five years. |
|
|
|
|
|
|
|
Kimberly K. Palmer |
| Assistant Vice President |
| September 2004 - Present |
| Assistant Vice President, ING Funds Services, LLC (August 2004 - Present). Formerly, Manager, Registration Statements, ING Funds Services, LLC (May 2003 - August 2004); Associate Partner, AMVESCAP PLC (October 2000 - May 2003); Director of Federal Filings and Blue Sky Filings, INVESCO Funds Group, Inc. (March 1994 - May 2003). |
|
|
|
|
|
|
|
Theresa Kelety |
| Assistant Secretary |
| August 2003 - Present |
| Counsel, ING U.S. Legal Services (April 2003 - Present). Formerly, Senior Associate with Shearman & Sterling (February 2000 - April 2003); and Associate with Sutherland Asbill & Brennan (1996 - February 2000). |
|
|
|
|
|
|
|
Robin R. Nesbitt |
| Assistant Secretary |
| September 2004 - Present |
| Supervisor, Board Operations, ING Funds Services, LLC (August 2003 - Present). Formerly, Senior Legal Analyst, ING Funds Services, LLC (August 2002 - August 2003); Associate, PricewaterhouseCoopers (January 2001 - August 2001); and Paralegal, McManis, Faulkner & Morgan (May 2000 - December 2000). |
(1) The officers hold office until the next annual meeting of the Trustees and until their successors have been elected and qualified.
24
(THIS PAGE INTENTIONALLY LEFT BLANK)
(THIS PAGE INTENTIONALLY LEFT BLANK)
Investment Manager
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
Administrator
ING Funds Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
Distributor
ING Funds Distributor, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
1-800-334-3444
Transfer Agent
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141
Custodian
The Bank of New York
100 Colonial Center Parkway, Suite 300
Lake Mary, Florida 32746
Legal Counsel
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006
Independent Registered Public Accounting Firm
KPMG LLP
99 High Street
Boston, Massachusetts 02110
Before investing, carefully consider the investment objectives, risks, charges and expenses of the variable annuity contract and the underlying variable investment options. This and other information is contained in the prospectus for the variable annuity contract and the underlying variable investment options. Obtain these prospectuses from your agent/registered representative and read them carefully before investing. Information regarding how the Trust voted proxies related to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Trust’s website at www.ingfunds.com and on the SEC’s website at www.sec.gov.
VPAR-UFNRT | (1204-022205) |
Item 2. Code of Ethics.
As of the end of the period covered by this report, Registrant had adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to the Registrant’s principal executive officer and principal financial officer. There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code during the period covered by this report. The code of ethics is filed herewith pursuant to Item 10(a)(1), Exhibit 99.CODE ETH.
Item 3. Audit Committee Financial Expert.
The Board of Trustees has determined that David Putnam is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Putnam is “independent” for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees: The aggregate fees billed for each of the last two fiscal years for professional services rendered by KPMG LLP (“KPMG”), the principal accountant for the audit of the registrant’s annual financial statements, for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $16,750 for year ended December 31, 2004 and $15,000 for year ended December 31, 2003.
(b) Audit-Related Fees: The aggregate fees billed in each of the last two fiscal years for assurance and related services by KPMG that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item.
None
(c) Tax Fees: The aggregate fees billed in each of the last two fiscal years for professional services rendered by KPMG for tax compliance, tax advice, and tax planning were $3,802 in the year ended December 31, 2004 and $3,500 in the year ended December 31, 2003. Such services included review of excise distribution calculations (if applicable), preparation of the Funds’ federal, state and excise tax returns, tax services related to mergers and routine consulting.
(d) All Other Fees: The aggregate fees billed in each of the last two fiscal years for products and services provided by KPMG, other than the services reported in paragraphs (a) through (c) of this Item.
None
(e) (1) Audit Committee Pre-Approval Policies and Procedures
2
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY
I. Statement of Principles
Under the Sarbanes-Oxley Act of 2002 (the “Act”), the Audit Committee of the Board of Directors or Trustees (the “Committee”) of the ING Funds (each a “Fund,” collectively, the “Funds”) set out on Exhibit A to this Audit and Non-Audit Services Pre-Approval Policy (“Policy”) is responsible for the oversight of the work of the Funds’ independent auditors. As part of its responsibilities, the Committee must pre-approve the audit and non-audit services performed by the auditors in order to assure that the provision of these services does not impair the auditors’ independence from the Funds. The Committee has adopted, and the Board has ratified, this Policy, which sets out the procedures and conditions under which the services of the independent auditors may be pre-approved.
Under Securities and Exchange Commission (“SEC”) rules promulgated in accordance with the Act, the Funds may establish two different approaches to pre-approving audit and non-audit services. The Committee may approve services without consideration of specific case-by-case services (“general pre-approval”) or it may pre-approve specific services (“specific pre-approval”). The Committee believes that the combination of these approaches contemplated in this Policy results in an effective and efficient method for pre-approving audit and non-audit services to be performed by the Funds’ independent auditors. Under this Policy, services that are not of a type that may receive general pre-approval require specific pre-approval by the Committee. Any proposed services that exceed pre-approved cost levels or budgeted amounts will also require the Committee’s specific pre-approval.
For both types of approval, the Committee considers whether the subject services are consistent with the SEC’s rules on auditor independence and that such services are compatible with maintaining the auditors independence. The Committee also considers whether a particular audit firm is in the best position to provide effective and efficient services to the Funds. Reasons that the auditors are in the best position include the auditors’ familiarity with the Funds’ business, personnel, culture, accounting systems, risk profile, and other factors, and whether the services will enhance the Funds’ ability to manage and control risk or improve audit quality. Such factors will be considered as a whole, with no one factor being determinative.
The appendices attached to this Policy describe the audit, audit-related, tax-related, and other services that have the Committee’s general pre-approval. For any service that has been approved through general pre-approval, the general pre-approval will remain in place for a period 12 months from the date of pre-approval, unless the Committee determines that a different period is appropriate. The Committee will annually review and pre-approve the services that may be provided by the independent auditors without specific pre-approval. The Committee will revise the list of services subject to general pre-approval as appropriate. This Policy does not serve as a delegation to Fund management of the Committee’s duty to pre-approve services performed by the Funds’ independent auditors.
II. Audit Services
The annual audit services engagement terms and fees are subject to the Committee’s specific pre-approval. Audit services are those services that are normally provided by auditors in connection with statutory and regulatory filings or engagements or those that generally only independent auditors can reasonably provide. They include the Funds’ annual financial statement audit and procedures that the independent auditors must perform in order to form an opinion on the Funds’ financial statements (e.g., information systems and procedural reviews and testing). The Committee will monitor the audit services engagement and approve any changes in terms, conditions or fees deemed by the Committee to be necessary or appropriate.
The Committee may grant general pre-approval to other audit services, such as statutory audits and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or issued in connection with securities offerings.
The Committee has pre-approved the audit services listed on Appendix A. The Committee must specifically approve all audit services not listed on Appendix A.
III. Audit-related Services
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or the review of the Funds’ financial statements or are traditionally performed by the independent auditors. The Committee believes that the provision of audit-related services will not impair the independent auditors’ independence, and therefore may grant pre-approval to audit-related services. Audit-related services include accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services;” assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures relating to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Form N-SAR or Form N-CSR.
The Committee has pre-approved the audit-related services listed on Appendix B. The Committee must specifically approve all audit-related services not listed on Appendix B.
IV. Tax Services
The Committee believes the independent auditors can provide tax services to the Funds, including tax compliance, tax planning, and tax advice, without compromising the auditors’ independence. Therefore, the Committee may grant general pre-approval with respect to tax services historically provided by the Funds’ independent auditors that do not, in the Committee’s view, impair auditor independence and that are consistent with the SEC’s rules on auditor independence.
The Committee will not grant pre-approval if the independent auditors initially recommends a transaction the sole business purpose of which is tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Committee may consult
2
outside counsel to determine that tax planning and reporting positions are consistent with this Policy.
The Committee has pre-approved the tax-related services listed on Appendix C. The Committee must specifically approve all tax-related services not listed on Appendix C.
V. Other Services
The Committee believes it may grant approval of non-audit services that are permissible services for independent auditors to a Fund. The Committee has determined to grant general pre-approval to other services that it believes are routine and recurring, do not impair auditor independence, and are consistent with SEC rules on auditor independence.
The Committee has pre-approved the non-audit services listed on Appendix D. The Committee must specifically approve all non-audit services not listed on Appendix D.
A list of the SEC’s prohibited non-audit services is attached to this Policy as Appendix E. The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of these impermissible services and the applicability of exceptions to certain of the SEC’s prohibitions.
VI. Pre-approval of Fee levels and Budgeted Amounts
The Committee will annually establish pre-approval fee levels or budgeted amounts for audit, audit-related, tax and non-audit services to be provided to the Funds by the independent auditors. Any proposed services exceeding these levels or amounts require the Committee’s specific pre-approval. The Committee considers fees for audit and non-audit services when deciding whether to pre-approve services. The Committee may determine, for a pre-approval period of 12 months, the appropriate ratio between the total amount of fees for the Fund’s audit, audit-related, and tax services (including fees for services provided to Fund affiliates that are subject to pre-approval), and the total amount of fees for certain permissible non-audit services for the Fund classified as other services (including any such services provided to Fund affiliates that are subject to pre-approval).
VII. Procedures
Requests or applications for services to be provided by the independent auditors will be submitted to management. If management determines that the services do not fall within those services generally pre-approved by the Committee and set out in the appendices to these procedures, management will submit the services to the Committee or its delagee. Any such submission will include a detailed description of the services to be rendered. Notwithstanding this paragraph, the Committee will, on a quarterly basis, receive from the independent auditors a list of services provided for the previous calendar quarter on a cumulative basis by the auditors during the Pre-Approval Period.
3
VIII. Delegation
The Committee may delegate pre-approval authority to one or more of the Committee’s members. Any member or members to whom such pre-approval authority is delegated must report any pre-approval decisions, including any pre-approved services, to the Committee at its next scheduled meeting. The Committee will identify any member to whom pre-approval authority is delegated in writing. The member will retain such authority for a period of 12 months from the date of pre-approval unless the Committee determines that a different period is appropriate. The period of delegated authority may be terminated by the Committee or at the option of the member.
IX. Additional Requirements
The Committee will take any measures the Committee deems necessary or appropriate to oversee the work of the independent auditors and to assure the auditors’ independence from the Funds. This may include reviewing a formal written statement from the independent auditors delineating all relationships between the auditors and the Funds, consistent with Independence Standards Board No. 1, and discussing with the auditors their methods and procedures for ensuring independence.
4
Appendix A
Pre-Approved Audit Services for the Pre-Approval Period June 1, 2004 through December 31, 2004
Service
|
| The Fund(s) |
| Fee Range |
|
|
|
|
|
Statutory audits or financial audits (including tax services associated with audit services) |
| ü |
| As presented to Audit Committee(1) |
|
|
|
|
|
Services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., consents), and assistance in responding to SEC comment letters. |
| ü |
| Not to exceed $8,500 per filing |
|
|
|
|
|
Consultations by Fund management with respect to accounting or disclosure treatment of transactions or events and/or the actual or potential effect of final or proposed rules, standards or interpretations by the SEC, Financial Accounting Standards Board, or other regulatory or standard setting bodies. |
| ü |
| Not to exceed $8,000 during the Pre-Approval Period |
(1) For new Funds launched during the Pre-Approval Period, the fee ranges pre-approved will be the same as those for existing Funds, pro-rated in accordance with inception dates as provided in the auditors’ Proposal or any Engagement Letter covering the period at issue. Fees in the Engagement Letter will be controlling.
5
Appendix B
Pre-Approved Audit-Related Services for the Pre-Approval Period June 1, 2004 through December 31, 2004
Service
|
| The Fund(s) |
| Fund Affiliates |
| Fee Range |
|
|
|
|
|
|
|
Services related to Fund mergers |
| ü |
| ü |
| Not to exceed $10,000 per merger |
|
|
|
|
|
|
|
Consultations by Fund management with respect to accounting or disclosure treatment of transactions or events and/or the actual or potential effect of final or proposed rules, standards or interpretations by the SEC, Financial Accounting Standards Board, or other regulatory or standard setting bodies. [Note: Under SEC rules some consultations may be “audit” services and others may be “audit-related” services.] |
| ü |
|
|
| Not to exceed $5,000 per occurrence during the Pre-Approval Period |
|
|
|
|
|
|
|
Review of the Funds’ semi-annual financial statements |
| ü |
|
|
| Not to exceed $5,000 for each set of financial statements |
|
|
|
|
|
|
|
Reports to regulatory or government agencies related to the annual engagement |
| ü |
|
|
| Up to $5,000 per occurrence during the Pre-Approval Period |
|
|
|
|
|
|
|
Regulatory compliance assistance |
| ü |
| ü |
| Not to exceed $5,000 per quarter |
|
|
|
|
|
|
|
Training courses |
| ü |
| ü |
| Not to exceed $2,000 per course |
|
|
|
|
|
|
|
For Prime Rate Trust, agreed upon procedures for quarterly reports to rating agencies |
| ü |
|
|
| Not to exceed $9,000 per quarter |
6
Appendix C
Pre-Approved Tax Services for the Pre-Approval Period June 1, 2004 through December 31, 2004
Service
|
| The Fund(s) |
| Fund |
| Fee Range |
|
|
|
|
|
|
|
Preparation of federal and state income tax returns and federal excise tax returns for the Funds including assistance and review with excise tax distributions. |
| ü |
|
|
| As presented to Audit Committee(2) |
|
|
|
|
|
|
|
Review of IRC Sections 851(b) and 817(h) diversification testing on a real-time basis |
| ü |
|
|
| As presented to Audit Committee(2) |
|
|
|
|
|
|
|
Review of year-end reporting for 1099’s |
| ü |
|
|
| As presented to Audit Committee(2) |
|
|
|
|
|
|
|
Tax assistance and advice regarding statutory, regulatory or administrative developments |
| ü |
| ü |
| Not to exceed $5,000 for the Funds or for the Funds’ investment adviser during the Pre-Approval Period |
|
|
|
|
|
|
|
International tax services (e.g., Taiwan and India) |
| ü |
|
|
| Not to exceed $5,000 per Fund during the Pre-Approval Period |
(2) For new Funds launched during the Pre-Approval Period, the fee ranges pre-approved will be the same as those for existing Funds, pro-rated in accordance with inception dates as provided in the auditors’ Proposal or any Engagement Letter covering the period at issue. Fees in the Engagement Letter will be controlling.
7
|
| The Fund(s) |
| Fund |
| Fee Range |
|
|
|
|
|
|
|
Tax training courses |
| ü |
| ü |
| Not to exceed $2,000 per course during the Pre-Approval Period |
Tax services associated with Fund mergers |
| ü |
|
|
| Not to exceed $8,000 per merger during the Pre-Approval Period |
|
|
|
|
|
|
|
Tax services related to the preparation of annual PFIC statements and annual Form 5471(Controlled Foreign Corporation) for structured finance vehicles |
| ü |
|
|
| Not to exceed $18,000 during the Pre-Approval Period |
|
|
|
|
|
|
|
Tax services related to CLOs and CBOs |
| ü |
|
|
| Not to exceed $15,000 per quarter |
|
|
|
|
|
|
|
Loan Staff Services |
| ü |
| ü |
| Not to exceed $15,000 during the Pre-Approval Period |
|
|
|
|
|
|
|
Other tax-related assistance and consultation, including, without limitation, assistance in evaluating the tax treatment of swaps, swaptions, mortgage-backed securities and other derivatives. |
| ü |
|
|
| Not to exceed $50,000 during the Pre-Approval Period |
|
|
|
|
|
|
|
8
Appendix D
Pre-Approved Other Services for the Pre-Approval Period June 1, 2004 through December 31, 2004
Service
|
| The Fund(s) |
| Fund Affiliates |
| Fee Range |
|
|
|
|
|
|
|
Agreed-upon procedures for Class B share 12b-1 programs |
|
|
| ü |
| Not to exceed $25,000 during the Pre-Approval Period |
|
|
|
|
|
|
|
Security counts performed pursuant to Rule 17f-2 of the 1940 Act (i.e., counts for Funds holding securities with affiliated sub-custodians) |
| ü |
|
|
| Not to exceed $5,000 per Fund during the Pre-Approval Period |
9
Appendix E
Prohibited Non-Audit Services
Dated: 2004
• Bookkeeping or other services related to the accounting records or financial statements of the Funds
• Financial information systems design and implementation
• Appraisal or valuation services, fairness opinions, or contribution-in-kind reports
• Actuarial services
• Internal audit outsourcing services
• Management functions
• Human resources
• Broker-dealer, investment adviser, or investment banking services
• Legal services
• Expert services unrelated to the audit
• Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible
10
EXHIBIT A
ING INVESTORS TRUST (formerly, THE GCG TRUST)
ING EQUITY TRUST
ING FUNDS TRUST
ING INVESTMENT FUNDS, INC.
ING MAYFLOWER TRUST
ING MUTUAL FUNDS
ING PRIME RATE TRUST
ING SENIOR INCOME FUND
ING VARIABLE INSURANCE TRUST
ING VARIABLE PRODUCTS TRUST
ING VP EMERGING MARKETS FUND, INC.
ING VP NATURAL RESOURCES TRUST
USLICO SERIES FUND
(e) (2) Percentage of services referred to in 4(b) — (4)(d) that were approved by the audit committee
100% of the services were approved by the audit committee.
(f) Percentage of hours expended attributable to work performed by other than full time employees of KPMG if greater than 50%.
Not applicable.
(g) Non-Audit Fees: The non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were $431,132 for year ended December 31, 2004 and $344,373 for fiscal year ended December 31, 2003.
(h) Principal Accountants Independence: The Registrant’s Audit committee has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining KPMG’s independence.
3
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
Schedule is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
The Board has a Nominating Committee (“Committee”) for the purpose of considering and presenting to the Board candidates it proposes for nomination to fill Trustee vacancies on the Board. The Committee currently consists of four Trustees of the Board, none of whom are considered “interested persons” of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act of 1940. The Committee has adopted a written charter that sets forth the policies and procedures of the Committee. The Committee will accept referrals for potential candidates from Board members, Fund shareholders, legal counsel to the disinterested Trustees or such other sources as the Committee deems appropriate. Shareholders can submit recommendations in writing to the attention of the Chairperson of the Committee at an address to be maintained by Fund management for this purpose. In order for the Committee to consider a potential candidate, the Committee initially must receive at least the following information regarding such person: (1) name; (2) date of birth; (3) education; (4) business, professional or other relevant experience and areas of expertise; (5) current business, professional or other relevant experience and areas of expertise; (6) current business and home addresses and contact information; (7) other board positions or prior experience; and (8) any knowledge and experience relating to investment companies and investment company governance.
Item 10. Controls and Procedures.
(a) Based on our evaluation conducted within 90 days of the filing date, hereof, the design and operation of the registrant’s disclosure controls and procedures are effective to ensure that material information relating to the registrant is made known to the certifying officers by others within the appropriate entities, particularly during the period in which Forms N-CSR are being prepared, and the registrant’s disclosure controls and procedures allow timely preparation and review of the information for the registrant’s Form N-CSR and the officer certifications of such Form N-CSR.
(b) There were no significant changes in the registrant’s internal controls that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 11. Exhibits.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as
EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2) is attached hereto as EX-99.CERT.
(b) The officer certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as EX-99.906CERT.
(3) Not applicable.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ING VP Natural Resources Trust
By | /s/ James M. Hennessy |
| James M. Hennessy |
| President and Chief Executive Officer |
Date: March 7, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By | /s/ James M. Hennessy |
| James M. Hennessy |
| President and Chief Executive Officer |
Date: March 7, 2005
By | /s/ Michael J. Roland |
| Michael J. Roland |
| Executive Vice President and Chief Financial Officer |
Date: March 7, 2005
5