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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 811-2361
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ING VP Bond Portfolio
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(Exact name of registrant as specified in charter)
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258
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(Address of principal executive offices) (Zip code)
CT Corporation System, 101 Federal Street, Boston, MA 02110
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(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 992-0180
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Date of fiscal year end: December 31
Date of reporting period: December 31, 2002
ITEM 1. REPORTS TO STOCKHOLDERS.
The following is a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1):
ANNUAL REPORT
(PHOTO OF COMPASS)
December 31, 2002
Classes R and S
ING VARIABLE PRODUCT PORTFOLIOS
INTERNATIONAL EQUITY PORTFOLIO
ING VP International Equity Portfolio
DOMESTIC EQUITY GROWTH PORTFOLIOS
ING VP Growth Portfolio
ING VP Small Company Portfolio
ING VP Technology Portfolio
DOMESTIC EQUITY VALUE PORTFOLIO
ING VP Value Opportunity Portfolio
DOMESTIC EQUITY AND INCOME PORTFOLIOS
ING VP Balanced Portfolio
ING VP Growth and Income Portfolio
FIXED INCOME PORTFOLIOS
ING VP Bond Portfolio
ING VP Money Market Portfolio
(ING FUNDS LOGO)
TABLE OF CONTENTS
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<Table>
President's Letter...................................... 1
Portfolio Managers' Reports:
International Equity Portfolio........................ 2
Domestic Equity Growth Portfolios..................... 4
Domestic Equity Value Portfolio....................... 10
Domestic Equity and Income Portfolios................. 12
Fixed Income Portfolios............................... 16
Index Descriptions...................................... 19
Independent Auditors' Report............................ 20
Statements of Assets and Liabilities.................... 21
Statements of Operations................................ 23
Statements of Changes in Net Assets..................... 25
Financial Highlights.................................... 30
Notes to Financial Statements........................... 39
Portfolios of Investments............................... 49
Shareholder Meeting Information......................... 79
Tax Information......................................... 80
Trustee and Officer Information......................... 81
</Table>
(THIS PAGE INTENTIONALLY LEFT BLANK)
PRESIDENT'S LETTER
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Dear Shareholder:
We are pleased to present the December 31, 2002 Annual Report for the ING
Variable Product Portfolios.
The year ended December 31, 2002 proved to be a difficult year as a weak economy
and continued accounting scandals in the corporate sector took their toll on the
U.S. equity markets. While stocks in developed markets generally declined during
the year, returns were mixed for emerging markets.
Amid the difficulties of the past year, we were successful in integrating the
operations of various mutual fund groups that have been acquired by ING Groep
N.V. over the past two years. The ING Funds family now offers more than 100
open- and closed-end funds and variable products with a wide range of investment
objectives and styles.
At ING Funds, we are dedicated to providing core investments for serious
investors. Our goal is to understand and anticipate your needs and objectives,
and manage our products accordingly. We greatly appreciate your continued
investment in the ING Funds.
Sincerely,
(/s/ James M. Hennessy)
James M. Hennessy
President
ING Funds Services, LLC
January 15, 2003
1
ING VP INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
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PORTFOLIO MANAGER: Vince Fioramonti, Portfolio Manager, Aeltus Investment
Management, Inc.
GOAL: The ING VP International Equity Portfolio (the "Portfolio") seeks
long-term growth of capital through investment in equity equivalents of
companies outside the United States.
MARKET OVERVIEW: Despite a strong recovery rally in the final quarter of 2001
and a promising start to the year, international markets declined significantly
for the year as a whole. The benchmark MSCI EAFE Index lost 15.66% for the year,
which result was cushioned by a significantly weaker U.S. Dollar. Pan-Europe,
accounting for almost 70% of the benchmark, was the worst performing region with
a decline of 18.1%. The Japanese market (-10.1%) and Developed Asia/Australia
(-5.7%) proved relatively defensive.
A number of factors contributed to this disappointing outcome. Earnings
forecasts in Europe were under sustained pressure due to the weak European
economy and a declining U.S. Dollar. While the accounting fraud and manipulation
issues were not as prevalent as in the U.S., all markets were affected. The
escalating geo-political risks also served to undermine investor sentiment. The
third quarter was particularly brutal, with most markets experiencing one of
their worst ever quarters. Taking their lead from the U.S. market, international
markets recovered somewhat in the fourth quarter. Japan declined against this
trend as the much hoped for Japanese recovery was once again postponed.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, returned -26.68% compared to MSCI EAFE Index,
which returned -15.66% for the same period.
PORTFOLIO SPECIFICS: The Portfolio's strong growth orientation proved to be
problematical in the first half of the year. The bulk of the Portfolio's
underperformance was concentrated in this period, due largely to adverse stock
selection particularly in Europe and, to a lesser extent, in Japan. Rapid
declines in the value of four securities had an especially significant negative
impact in this period. Two of these stocks were in the consumer discretionary
sector. Vivendi Universal (Europe: multi-media and environmental) was impacted
by poor management and debt issues, while Fast Retail, a Japanese apparel
retailer, misread the fashion market in a slowing Japanese economy. In the
healthcare sector, Shire Pharmaceuticals (United Kingdom-drugs) fell sharply
when management announced a reduced outlook due to higher new product
introduction costs and fiercer than expected competition from generic drug
producers. Further, the underperformance in the telecommunication sector was due
to Telewest (United Kingdom-cable TV). Telewest, a well-ranked cable operator,
fell sharply after competitors applied for debt renegotiations.
The ongoing market volatility and disproportionate risks associated with
individual stock bets indicated a need for increased diversification.
Accordingly, the number of securities was increased from 83 at the start of the
year to 102 by mid-year, and to 125 by the end of the third quarter. The
Portfolio's underperformance was markedly reduced in the third quarter, and was
largely attributable to a further decline of Vivendi (resignation of the CEO)
before the stock was sold, and a sharp decline in the stock price of Swedish
publisher Enrico on the back of an earnings warning. The portfolio
underperformed marginally in the fourth quarter, with the negative contribution
from the utilities, consumer discretionary and healthcare sectors slightly
outweighing the strong contribution from the European telecommunications
holdings.
MARKET OUTLOOK: Investors in Europe are clearly concerned about the economic
outlook and profits. However, these risks are clearly recognized by the market
and are largely priced in. With the support of low bond yields and further
monetary easing, we expect the focus in 2003 to be increasingly on recovery and
restructuring potential, as reflected in our overweight in technology and
telecom. For Japan the economic scenario remains drab and the market currently
lacks strong catalysts to inspire foreigners to enter the market. We overweight
information technology, consumer discretionary and healthcare, balanced by
underweight in consumer staples, materials and utilities. In Australia we
balance a cyclical exposure in materials with a defensive one in consumer
staples. In other areas of Asia we favor companies with established franchises,
in particular those that benefit from stronger global economic growth.
2
ING VP INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
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[LINE GRAPH]
<Table>
<Caption>
ING VP INTERNATIONAL EQUITY
PORTFOLIO - CLASS R MSCI EAFE INDEX
--------------------------- ---------------
12/22/1997 10000 10000
12/31/1998 12213 12033
12/31/1999 18756 15318
12/31/2000 14943 13180
12/31/2001 11375 10385
12/31/2002 8341 8759
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
----------------------------------------------------
SINCE INCEPTION SINCE INCEPTION
OF CLASS R OF CLASS S
1 YEAR 5 YEAR 12/22/97 11/01/01
------ ------ -------- --------
Class R -26.68% -4.08% -3.54% --
Class S -26.84% -- -- -19.50%
MSCI EAFE Index -15.66% -2.61% -2.61%(1) -10.40%
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP International Equity Portfolio against the MSCI EAFE
Index. The Index has an inherent performance advantage over the Portfolio since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and operating expenses otherwise payable by the Portfolio, subject to
possible later reimbursement during a three-year period. Total returns would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
(1) Since inception performance for the index is shown from 01/01/98.
PRINCIPAL RISK FACTOR(S): Price volatility and other risks that accompany an
investment in foreign equities. Sensitive to currency exchange rates,
international political and economic conditions and other risks that affect
foreign securities.
See accompanying index descriptions on page 19.
3
ING VP GROWTH PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
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PORTFOLIO MANAGEMENT: Kenneth H. Bragdon, Portfolio Manager, Aeltus Investment
Management, Inc.
GOAL: The ING VP Growth Portfolio (the "Portfolio") seeks growth of capital
primarily through investment in a diversified portfolio of common stocks and
securities convertible into common stock.
MARKET OVERVIEW: The S&P 500 Index (S&P 500) posted a loss of 22.10% in 2002,
its worst calendar year performance since 1974. Concerns about the integrity of
corporate accounting, the strength of the U.S. economic rebound, and
international hostilities consistently weighed on the market all year.
The year ended with a rally in the fourth quarter, which was sustained by the
Federal Reserve's ("Fed") surprise 50 basis point rate cut on November 6th.
Evidencing a significant change in investor sentiment, the rally occurred
primarily in sectors like telecommunication services and information technology,
which had suffered the worst performance in the first nine months of the year.
In terms of market capitalization, the smallest stocks within the S&P 500
outperformed the largest stocks due in part to investors' accounting and
valuation fears, which were primarily related to larger cap stocks.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, provided a total return of -28.94% compared to
the Russell 1000 Growth Index, which returned -27.88% for the same period.
PORTFOLIO SPECIFICS: Our performance was negatively impacted by our underweight
position in the consumer staples sector. While many consumer staples stocks
appeared expensive relative to historic valuation ranges, it was one of the few
sectors that showed positive, albeit modest, EPS growth during the year.
Investors seeking a relative safe haven in a declining market were drawn to the
sector making it one of the top performing groups in the index. We believe it
may be difficult for these stocks to show the same relative earnings momentum in
2003, and we remain underweight the sector.
Poor stock selection in the consumer discretionary sector also hurt the
Portfolio's relative performance. Retailing stocks were weak during the second
half of the year reflecting investors' concerns over declining consumer
confidence and its potential impact on consumer spending. Our holdings in
retailers such as the Home Depot and Dollar Tree Stores were particularly hard
hit on these concerns.
On the positive side, strong stock selection in the healthcare and technology
sectors helped the Portfolio's relative performance. In the healthcare sector,
our holdings in drug maker Forest Laboratories rose sharply following the
successful launch of Lexapro, the company's newest anti-depressant drug. Shares
of Varian Medical Systems also performed exceptionally well during the year
driven by accelerating demand for its oncology treatment equipment. We also
avoided several high-profile disappointments in the sector such as Tenet
Healthcare and Bristol-Myers Squibb, which declined significantly during the
period. In the technology sector, our holdings in Intuit and Dell Computer
significantly outperformed both the technology sector and the broader market.
Intuit's earnings growth rate accelerated over the course of the year driven by
strong sales of its consumer software packages and improved penetration and
pricing among small and mid-sized business customers. Meanwhile, Dell's low-cost
business model enables it to gain significant market share in the personal
computer and server markets.
MARKET OUTLOOK: While U.S. economic data has been mixed recently, we see a
number of encouraging signs, which suggest the economy may be improving, albeit
at a modest pace. Weekly jobless claims have declined, and there were also
positive surprises in personal consumption and durable goods orders during the
quarter as well as a positive revision to third quarter GDP. These data points,
combined with the recent 50 basis point cut in the Fed Funds target rate, set a
positive backdrop for the equity markets. We continue to focus on companies with
positive business momentum, sustainable growth prospects and attractive
valuation.
4
ING VP GROWTH PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
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[LINE GRAPH]
<Table>
<Caption>
ING VP GROWTH PORTFOLIO - CLASS
R RUSSELL 1000 GROWTH INDEX
------------------------------- -------------------------
12/13/1996 10000 10000
12/31/1997 13505 13048
12/31/1998 18593 18099
12/31/1999 25095 24101
12/31/2000 22095 18697
12/31/2001 16115 14878
12/31/2002 11451 10729
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
---------------------------------------------------
SINCE INCEPTION SINCE INCEPTION
OF CLASS R OF CLASS S
1 YEAR 5 YEAR 12/13/96 11/01/01
------ ------ -------- --------
Class R -28.94% -3.24% 2.27% --
Class S -29.08% -- -- -22.26%
Russell 1000 Growth Index -27.88% -3.84% 0.84%(1) -18.39%
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP Growth Portfolio against the Russell 1000 Growth
Index. The Index has an inherent performance advantage over the Portfolio since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and operating expenses otherwise payable by the Portfolio, subject to
possible later reimbursement during a three-year period. Total returns would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
(1) Since inception performance for the index is shown from 12/01/96.
PRINCIPAL RISK FACTOR(S): Price volatility and other risks that accompany an
investment in growth-oriented equity securities.
See accompanying index descriptions on page 19.
5
ING VP SMALL COMPANY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
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PORTFOLIO MANAGER: Carolie Burroughs, Vice-President and Equity Portfolio
Manager, Aeltus Investment Management, Inc.
GOAL: The ING VP Small Company Portfolio (the "Portfolio") seeks growth of
capital primarily through investment in a diversified portfolio of common stocks
and securities convertible into common stocks of companies with smaller market
capitalizations corresponding to the Russell 2000 Index.
MARKET OVERVIEW: The U.S. equities market was highly volatile in 2002,
experiencing a massive sell-off followed by a highly speculative rally. As
evidenced by the major indices, large capitalization and growth-oriented stocks
had the most difficulty. For the calendar year ending December 31, 2002, the S&P
500 Index was down 22.10%, the Russell 1000 Index was down 21.65%, the NASDAQ
was down 31.26%, while the S&P 400 Index was down 14.51% and the S&P 600 Index
was down 14.62%.
Smaller capitalization stocks outperformed their large cap counterparts during
this volatile market. For the twelve months ending December 31, 2002, the
Russell 2000 Index returned -20.48%. The financial services sector provided the
largest positive contribution to the Index's return, while the technology sector
provided the largest negative contribution. During this period, the Russell 2000
Value Index beat the Russell 2000 Growth Index by almost 1,900 basis points.
2002 was a year of high anxiety for investors -- corporate malfeasance, an
uncertain economic recovery, geopolitical risks. The equity risk premium became
too great for investors. The market started to decline during the second quarter
as funds flowed out of the U.S. equities markets.
As we entered the third quarter, the equities market experienced a massive
sell-off. Investors, who had poured money into equities through their 401K plans
and other retail accounts during the bull market, capitulated and moved their
money to fixed income, real estate, or cash. This outflow of liquidity continued
throughout the quarter. From trough to peak, volatility in the market increased
over 100%.
The market continued its sell-off into the fourth quarter. On October 9th, the
U.S. equities market reached its lowest level year-to-date -- a level not seen
for almost five years. The market then did the unexpected. After months of
anxiety over corporate fraud, earnings quality, and appropriate disclosure in
corporate financial reporting, the market engaged in a highly speculative rally,
while the better quality stocks continued to sell-off. For most of the fourth
quarter, the best performing stocks in the Russell 2000 Index were those with
high multiples, negative earnings, high betas, lower earnings visibility, and
low stock prices (less than $8 per share). Most of the Index's performance came
from technology, telecommunications, and technology-like stocks. However, the
micro cap end of the Russell 2000 Index -- stocks with market capitalizations
less than $300 million -- significantly outperformed the rest of the Index, even
after excluding technology and telecommunications stocks. The speculative rally
became subdued in the tail end of the quarter as the market began to broaden and
reward companies with better fundamentals.
PERFORMANCE: For the year ended December 31, 2002, the Class R shares, excluding
any charges, returned -23.23% compared to the Russell 2000 Index, which returned
- -20.48% for the same period.
PORTFOLIO SPECIFICS: Stock selection in the healthcare sector was the largest
positive contributor to performance. Stock selection in the materials and
processing sector was the largest negative contributor to performance. A
significant underweight position in the financial services sector early in the
year hurt performance. A slight overweight in the technology sector also hurt
performance.
The largest individual positive contributors to performance during the period
were Charles River Laboratories, Cognizant Technology Solutions, and Corinthian
Colleges. The largest negative contributors were ESS Technology, Transkaryotic
Therapies, and Action Performance Companies.
MARKET OUTLOOK: We expect smaller capitalization stocks to perform strongly as
we enter 2003. First, the better earnings visibility of small cap stocks will
likely become more apparent to investors as the fourth quarter 2002 earnings
season gets underway. Second, economic data continue to validate the recovery,
and, historically, small cap stocks outperform during post-recession recovery
periods. Finally, as investor anxiety over the economy and the geopolitical
environment subsides and market volatility gradually declines, small cap stocks
should continue to outperform their large cap counterparts.
6
ING VP SMALL COMPANY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
ING VP SMALL COMPANY PORTFOLIO
-CLASS R RUSSELL 2000 INDEX
------------------------------ ------------------
12/27/1996 10000 10000
12/31/1997 13549 12236
12/31/1998 13698 11924
12/31/1999 17923 14459
12/31/2000 19128 14022
12/31/2001 19893 14371
12/31/2002 15272 11427
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
---------------------------------------------------
SINCE INCEPTION SINCE INCEPTION
OF CLASS R OF CLASS S
1 YEAR 5 YEAR 12/27/96 11/01/01
------ ------ -------- --------
Class R -23.23% 2.42% 7.30% --
Class S -23.45% -- -- -13.15%
Russell 2000 Index -20.48% -1.36% 2.25%(1) -7.80%
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP Small Company Portfolio against the Russell 2000
Index. The Index has an inherent performance advantage over the Portfolio since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and operating expenses otherwise payable by the Portfolio, subject to
possible later reimbursement during a three-year period. Total returns would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
(1) Since inception performance for the index is shown from 01/01/97.
PRINCIPAL RISK FACTOR(S): Price volatility and other risks that accompany an
investment in growth-oriented and small-sized companies. Particularly sensitive
to price swings during periods of economic uncertainty.
See accompanying index descriptions on page 19.
7
ING VP TECHNOLOGY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Ronald E. Elijah and Roderick R. Berry, AIC Asset
Management, LLC.
GOAL: The ING VP Technology Portfolio (the "Portfolio") seeks long-term capital
appreciation by investing at least 80% of its assets in common stocks and
securities convertible into common stock of companies in the information
technology industry sector.
MARKET OVERVIEW: In 2002, the financial markets suffered through yet another
down year, with all of the major indices losing ground for the third straight
year. The steady market sell-off during the first half of the year was largely
driven by the uncertainty created by geopolitical turmoil as well as a continued
unwinding of excess capacity. Although evidence was emerging that suggested the
U.S. economy was moving in the right direction, investor concerns easily
overshadowed the economic advancements.
Entering the second half of 2002 the U.S. markets began to exhibit an increase
in volatility that typically characterizes a market capitulation bottom.
Weighing heavily on the market during the second half of the year, were
deteriorating economic data-points that again raised the specter of a double-dip
recession. To date, the consumer has largely been credited with initiating the
current recovery, however, evidence emerged in the fall that suggested this
engine of economic growth might be tiring. To begin with, we saw a rapid decline
in the widely watched University of Michigan's Consumer Confidence index that
declined to a nine-year low of 80.6 in October. In addition, we saw weekly
jobless claims move back over 400,000 for much of the months of September and
October.
The other key component to economic growth, and arguably the more important
driver for the technology sector, is capital expenditures by corporations.
During the months of September and October we also saw negative economic data
points in this area, as the Institute for Supply Management reported readings of
U.S. factory business that were below 50. A reading below 50 signals contraction
in manufacturing activity. Of course, the continuing uncertain geopolitical
environment certainly contributed to management decisions to restrict capacity
expansion.
These data abruptly ended the brief summer rally in the NASDAQ Composite on
August 22 and sent the index through the mid-summer lows of July before settling
at an October 9 closing low of 1114.11. This rapid sell-off took the NASDAQ down
over 21%. In addition to nervous investors who have suffered during this bear
market, we believe that financial institutions worldwide significantly
contributed to the sell-off, as they struggled to maintain required capital
levels.
We believe that the market sell-off, which reached a fevered pitch in September,
marked a capitulation bottom. Since the October market bottom, we have seen the
markets begin to respond more favorably to improving economic and company
specific data-points.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding charges, returned -41.28% compared to the Goldman Sachs
Technology Industry Composite Index, which returned -40.27% for the same period.
PORTFOLIO SPECIFICS: Relative to the NASDAQ 100, the Portfolio slightly
underperformed for the year largely due to a semiconductor portfolio weighting
in excess of 35%. While the NASDAQ 100 posted a loss of 37.6%, the Portfolio
lost 41.3% for the year. During the early fall market sell-off, the higher beta
semiconductor stocks bore the brunt of the selling pressure. In contrast, the
semiconductor sector also soared over 35% from the October market bottom through
the end of the year. However, the semiconductor sector, as measured by the PHLX
Semiconductor Index, fell 44.6% for the total year.
Offsetting the weakness in the semiconductor sector was the Portfolio's
weighting in the software sector during the second half of the year. During the
second half of the year, the software sector, as measured by the GSTI Software
Index, declined just 7.7%. At the end of the year, the portfolio had a 21%
weighting in software.
As we move into 2003 we have not made any significant sector shifts within the
Portfolio. We enter the new-year with the Portfolio's largest weightings in the
semiconductor and software sectors. At this time, the Portfolio has a 38%
weighting in semiconductor and semiconductor equipment companies and a 20%
weighting in software. We believe that improvements in end-market demand coupled
with rising capacity utilization rates may contribute to a semiconductor
industry recovery in 2003. We are also seeing companies begin to implement new
software projects as they strive to remain competitive through the productivity
gains made possible by infrastructure and application software.
MARKET OUTLOOK: In response to the economic "soft spot" that was evident during
September and October, the Federal Reserve Board ("Fed") weighed in with a 50
basis-point rate reduction. Clearly, one of the Fed's greatest concerns at this
time is the potential of deflation. We therefore believe that we can expect a
favorable rate environment for some time to come. We also believe that the gains
made by the Republican Party during the recent mid-term elections may improve
the likelihood of further fiscal stimulus through the recently proposed tax-cut
and government spending programs. Although a portion of this stimulus will
likely be offset by increases in state and local taxes, we believe the net
effect should be further economic stimulus.
As we exited the economic soft spot referred to by the Fed in early November, we
have begun to see some favorable economic data that point toward renewed
expansion. At the end of November, third-quarter GDP was revised up to 4.0%, a
significant improvement from the second-quarter's 1.3%. We have also seen a
renewed surge in productivity gains in the third quarter. A 5.1% productivity
gain was posted, raising the prior year's total productivity gain to 5.6%, the
highest level in 29 years. This data-point may prove to be an important
ingredient in expanding the profitability of U.S. corporations, which should in
turn stimulate corporate expenditures. Finally, we are now beginning to see the
economic activity readings for the manufacturing and non-manufacturing sectors
reaccelerate.
8
ING VP TECHNOLOGY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
In their latest report, the Institute for Supply Management showed the
manufacturing index improving to 54.7 in December from 49.2 in November. In the
non-manufacturing sector, December's index held above 50 with a 54.7 reading.
Once again, a reading over 50 is an indication of expansion.
The Portfolio continues to be populated with the large capitalization leaders of
the technology sector. Although the recent economic downturn has negatively
impacted the growth rates and profitability of many of the companies we invest
in, the negative impact has been far greater on their smaller competitors. As we
have highlighted in other recent communications, many of the leaders we invest
in have taken considerable market share during the downturn. For instance, in
their most recently reported quarter, Cisco Systems recorded $1.04 billion in
profits while their ten closest competitors lost a cumulative $2.4 billion.
Intel is another example of a technology leader that has taken the opportunity
during the economic downturn to put more distance between itself and its nearest
competitors. In the most recent quarter, Intel out-spent Advanced Micro Devices
in research and development, by almost a five to one margin. In terms of capital
expenditures, Intel out-spent AMD by an equally impressive six to one ratio.
We remain confident that the economic recovery remains intact and that the
technology sector leaders that comprise the Portfolio are well positioned to
take market share and expand profitability as capital spending continues toward
more normalized levels. In addition, we believe that the current valuation of
the market presents patient investors with a tremendous opportunity to invest in
one of the greatest growth sectors at a reasonable price.
[LINE GRAPH]
<Table>
<Caption>
ING VP TECHNOLOGY PORTFOLIO - GOLDMAN SACHS TECHNOLOGY
CLASS R INDUSTRY COMPOSITE INDEX
----------------------------- ------------------------
5/1/2000 10000 10000
12/31/2000 5880 6608
12/31/2001 4530 4729
12/31/2002 2660 2825
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
----------------------------------------------
SINCE INCEPTION SINCE INCEPTION
OF CLASS R OF CLASS S
1 YEAR 05/01/00 11/01/01
------ -------- --------
Class R -41.28% -39.10% --
Class S -41.50% -- -30.70%
Goldman Sachs Technology Industry Composite Index -40.27% -40.34% -27.53%
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP Technology Portfolio against the Goldman Sachs
Technology Industry Composite Index. The Index has an inherent performance
advantage over the Portfolio since it has no cash in its portfolio, imposes no
sales charges and incurs no operating expenses. An investor cannot invest
directly in an index. The Portfolio's performance is shown without the
imposition of any expenses or charges which are, or may be, imposed under your
annuity contract or life insurance policy. Total returns would have been lower
if such expenses or charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and operating expenses otherwise payable by the Portfolio, subject to
possible later reimbursement during a three-year period. Total returns would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
PRINCIPAL RISK FACTOR(S): Price volatility and other risks that accompany an
investment in equity securities and maintaining a non-diversified portfolio.
See accompanying index descriptions on page 19.
9
ING VP VALUE OPPORTUNITY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: Donald E. Townswick, Portfolio Manager, Aeltus Investment
Management, Inc.
GOAL: The ING VP Value Opportunity Porftolio (the "Portfolio") seeks growth of
capital primarily through investment in a diversified portfolio of common stocks
and securities convertible into common stock.
MARKET OVERVIEW: The US Equity markets were very weak throughout the first nine
months of 2002, driven primarily by downward pressure on corporate earnings
engendered by US economic weakness.
Through the first nine months in 2002, the S&P 500 was down 28.2%, the NASDAQ
was down 39.7%, and the Russell 2000 was down 25.1%. These returns represent one
of the worst nine-month periods for the U.S. equity markets in history. While
this represents a disturbing development in its face, the U.S. equity markets
still have excellent longer-term historical returns and, we believe the greatest
potential for return going forward as an investment option.
In fact, the U.S. equity markets may have found their legs during the fourth
quarter of 2002. During the quarter, the S&P 500 was up 8.4%, the NASDAQ was up
14.1%, and the Russell 2000 was up 6.2%. Speculative pressures were clearly
evident in this market turn, though, as stocks under $5 per share were the
stars. As a result, only 5% of large blend funds were able to outperform the S&P
500 in both the first nine months of 2002 and the last three months of 2002.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, returned -25.96% compared to the S&P 500, which
returned -22.10% over the same period.
PORTFOLIO SPECIFICS: The Portfolio weathered the market storm in the first nine
months of 2002 reasonably well. In a relative sense, the market rewarded quality
stocks (those with earnings, earnings growth, and established success) rather
than speculative stocks (those with no earnings, negative earnings growth, and
questionable futures) during the period. Since the Portfolio invests primarily
in quality stocks, with a secondary and small allocation to "broken growth"
stocks, the Portfolio benefited from its primary goal and was hurt a bit by its
secondary allocation.
Specifically, value was added by owning Lockheed Martin, a defense contractor
which is benefiting from increased defense spending. Owning shares of Circuit
City did not help though, as the company underperformed the market due to
growing weakness in the consumer electronics area. Virtually all excess return
during the period was added through stock selection, since all sector and
industry over/underweights were minimal.
The fourth quarter was very tough for the portfolio. As often happens at the
unpredictable point when a market begins to turn (either up or down),
fundamentals get thrown out the window. During the fourth quarter, the market
rewarded speculative stocks rather than quality stocks. We believe many of the
best 25 performers in the S&P 500 during the quarter (16 sold for less than
$5/share on 9/30/02) benefited from the lifting of a "bankruptcy discount" from
their share price, rather than any change in their fundamentals. The Portfolio
invests primarily in quality stocks, not speculative stocks, which contributed
to underperformance relative to the S&P 500 during the fourth quarter.
In specific, relative performance was hurt by owning quality healthcare stocks
(Humana, United Healthcare Group) which had performed well during the first nine
months of 2002, but underperformed during the speculative rally in the fourth
quarter. Positions in "broken growth" stocks such as QLogic and Cisco Systems
helped performance during the fourth quarter.
MARKET OUTLOOK: We believe that the market may be poised to have a good year in
2003. Low inflation, interest rates, and renewed economic growth should help to
buoy the markets to more appropriate valuation levels. In the short term,
though, uncertainty about war in Iraq may dampen investment enthusiasm, but we
believe the market will (in fact we believe it must) reward improved company
fundamentals in the medium-to long-term.
10
ING VP VALUE OPPORTUNITY PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
ING VP VALUE OPPORTUNITY
PORTFOLIO - CLASS R S&P 500 INDEX
------------------------ -------------
12/13/1996 10000 10000
12/31/1997 14235 13072
12/31/1998 17423 16808
12/31/1999 20834 20344
12/31/2000 22958 18491
12/31/2001 20751 16294
12/31/2002 15363 12692
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
---------------------------------------------------
SINCE INCEPTION SINCE INCEPTION
OF CLASS R OF CLASS S
1 YEAR 5 YEAR 12/13/96 07/16/01
------ ------ -------- --------
Class R -25.96% 1.54% 7.36% --
Class S -26.12% -- -- -23.67%
S&P 500 Index -22.10% -0.56% 4.03%(1) -18.92%(2)
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP Value Opportunity Portfolio against the S&P 500
Index. The Index has an inherent performance advantage over the Portfolio since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and operating expenses otherwise payable by the Portfolio, subject to
possible later reimbursement during a three-year period. Total returns would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
(1) Since inception performance for the index is shown from 12/01/96.
(2) Since inception performance for the index is shown from 08/01/01.
PRINCIPAL RISK FACTOR(S): Price volatility and other risks that accompany an
investment in equity securities.
See accompanying index descriptions on page 19.
11
ING VP BALANCED PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: Mary Ann Fernandez, Aeltus Investment Management, Inc.
GOAL: The ING VP Balanced Portfolio (the "Portfolio") seeks to maximize
investment return consistent with reasonable safety of principal, by investing
in a diversified portfolio of one or more of the following asset classes:
stocks, bonds and cash equivalents.
MARKET OVERVIEW: The S&P 500 posted a loss of 22.10% in 2002, its worst calendar
year performance since 1974. Concerns regarding the integrity of corporate
accounting, the strength of the U.S. economic rebound, and international
hostilities consistently weighed on the market all year. Bonds, on the other
hand, posted solid gains over the period with the Lehman Brothers Aggregate
Index up 10.26%.
The year ended with an equity rally in the fourth quarter, which was sustained
by the Fed's surprise 50 basis point rate cut on November 6th. Evidencing a
significant change in investor sentiment, the equity rally occurred primarily in
sectors like telecommunication services and information technology which had
suffered the worst performance in the first nine months of the year.
Interest rates across the yield curve declined significantly over the
year -- overall making bonds the place to be in 2002.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, returned -10.31% compared to the Composite Index
(60% S&P 500 Index/40% Lehman Brothers Aggregate Bond Index) which returned
- -16.37% over the same period.
PORTFOLIO SPECIFICS: Overall, large cap and mid cap stocks performed well over
the one year period. Most of the performance in large cap stocks was driven by
positive security selection in the industrial, healthcare and information
technology sectors. Offsetting some of this performance was an overweight in
consumer discretionary stocks and adverse security selection in this sector. In
SMID cap stocks, security selection in the healthcare and financial sectors led
the way while adverse security selection in consumer discretionary and
industrial sectors detracted from performance. Our fixed income investments
underperformed the Lehman Aggregate. With rates declining over the period, a
short duration relative to the index detracted from performance. However,
duration exposures were rebalanced to neutral throughout November. Asset
allocation decisions positively impacted the Portfolio especially due to an
underweight to credit and an overweight in treasuries. Security selection in the
credit sector detracted from performance during the first half of the year but
was partially offset by positive security selection in the last quarter.
Positions in non-dollar securities and Collateralized Mortgage Obligations'
added to performance while our high yield positions had an overall adverse
impact on the portfolio.
MARKET OUTLOOK The cumulative losses of the recent 3-year bear market in U.S.
large cap equities has only been exceeded since 1926 by the four year bear
market from 1929 to 1932. The 1929-32 bear market was accompanied by a 50%
decline in nominal Gross Domestic Product (GDP) and double-digit
unemployment -- neither of these traits occurs today. Each of the prior
multi-year bear markets in 1929 to 32, 1939 to 41, and 1973 to 74 were followed
by a period of abnormally high equity returns. Based on the historical
relationship between expected earnings and current interest rates, the U.S.
large cap market appears significantly undervalued now. While expected earnings
may not materialize and there is the ever-present risk of terrorism and war,
valuations and the length of the recent bear market suggest the outlook for U.S.
equity returns may be positive.
In 2003, the U.S. should continue to be the growth leader of the developed
economies. We expect GDP on a year over year basis to be in the 2.8-3% range,
with a gradual recovery. The U.S. continues to have very accommodative monetary
and fiscal policies and we expect inflation to remain tame. We think the Fed may
be reluctant to raise the Fed Funds rate prematurely, waiting for growth and
employment gains to be firmly established before raising rates.
12
ING VP BALANCED PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
COMPOSITE INDEX
(60% S&P 500/40%
LEHMAN BROTHERS LEHMAN BROTHERS
AGGREGATE BOND AGGREGATE BOND
ING LEGACY S&P 500 INDEX INDEX INDEX)
---------- ------------- --------------- ----------------
12/31/1992 10000.00 10000.00 10000.00 10000.00
12/31/1993 10990.00 11008.00 10975.00 10999.00
12/31/1994 10951.00 11153.00 10655.00 10963.00
12/31/1995 13933.00 15345.00 12623.00 14215.00
12/31/1996 16047.00 18868.00 13082.00 16343.00
12/31/1997 19655.00 25163.00 14345.00 20203.00
12/31/1998 22983.00 32353.00 15591.00 24443.00
12/31/1999 26110.00 39159.00 15463.00 27375.00
12/31/2000 25963.00 35594.00 17260.00 27103.00
12/31/2001 24871.00 31364.00 18718.00 26097.00
12/31/2002 22307.00 24431.00 20637.00 23533.00
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
----------------------------------------
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
Class R -10.31% 2.56% 8.35%
S&P 500 Index -22.10% -0.56% 9.37%
Lehman Brothers Aggregate Bond Index 10.25% 7.55% 7.51%
Composite Index (60% S&P 500 Index/
40% Lehman Brothers Aggregate Bond Index) -16.37% 0.99% 8.89%
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP Balanced Portfolio against the S&P 500 Index, Lehman
Brothers Aggregate Bond Index and Composite Index (60% S&P 500 Index, 40% Lehman
Brothers Aggregate Bond Index). The Indices have an inherent performance
advantage over the Portfolio since they have no cash in their portfolios, impose
no sales charges and incur no operating expenses. An investor cannot invest
directly in an index. The Portfolio's performance is shown without the
imposition of any expenses or charges which are, or may be, imposed under your
annuity contract or life insurance policy. Total returns would have been lower
if such expenses or charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
PRINCIPAL RISK FACTOR(S): Price volatility and other risks that accompany an
investment in equity securities. Credit, interest rate and other risks that
accompany an investment in debt securities.
See accompanying index descriptions on page 19.
13
ING VP GROWTH AND INCOME PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: Donald E. Townswick, Portfolio Manager, Aeltus Investment
Management, Inc.
GOAL: The ING VP Growth and Income Portfolio (the "Portfolio") seeks to maximize
the total return through investment in a diversified portfolio consisting
primarily of common stocks and securities convertible into common stock believed
to offer above-average growth potential.
MARKET OVERVIEW: The U.S. Equity markets were very weak throughout the first
nine months of 2002, driven down primarily by downward pressure on corporate
earnings engendered by U.S. economic weakness.
Through the first nine months in 2002, the S&P 500 was down 28.2%, the NASDAQ
was down 39.7%, and the Russell 2000 was down 25.1%. These returns represent one
of the worst nine-month periods for the U.S. equity markets in history. While
this represents a disturbing development, the U.S. equity markets still have
strong longer term historical returns and, we believe, the greatest potential
for return going forward as an investment option.
In fact, the U.S. equity markets may have found their legs during the fourth
quarter of 2002. During the quarter, the S&P 500 Index was up 8.4%, the NASDAQ
was up 14.1%, and the Russell 2000 was up 6.2%. Speculative pressures were
clearly evident in this market turn, though, as stocks under $5/sh were the
stars. As a result, only 5% of Large Blend Funds were able to outperform the S&P
500 in both the first nine months of 2002 and the last three months of 2002.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, returned -24.99% compared to the S&P 500 which
returned -22.10% over the same period.
PORTFOLIO SPECIFICS: The Portfolio weathered the market storm in the first nine
months of 2002 well. In a relative sense, the market rewarded quality stocks
(those with earnings, earnings growth, and established success) rather than
speculative stocks (those with no earnings, negative earnings growth, and
questionable futures) during the period.
Virtually all excess return during the period was added through stock selection,
since all sector and industry over/underweight were minimal. Specifically, the
Portfolio added value by owning Autozone, a retailer which benefits from an
increase in do-it-yourself auto mechanics, a hallmark of economic slowdowns.
Owning shares of TechData did not help, though, as the company underperformed
the market despite consistently positive earnings in the first nine months.
The fourth quarter was very tough for the Portfolio. As often happens at the
unpredictable point when a market begins to turn (either up or down),
fundamentals get thrown out the window. During the fourth quarter, the market
rewarded speculative stocks rather than quality stocks. We believe many of the
best 25 performers in the S&P 500 during the quarter (16 sold for less than
$5/share on 9/30/02) benefited from the lifting of a "bankruptcy discount" from
their share price, rather than any change in their fundamentals. The Portfolio
invests in quality stocks, not speculative stocks, which contributed to
underperformance relative to the S&P 500 during the fourth quarter.
In specific, performance was hurt by not owning Corning, Lucent, and Broadcom
during the quarter. In a dramatic illustration of the reversal between the first
nine months of 2002 and the last three, virtually nothing owned by the Portfolio
helped performance in the fourth quarter. Only a position in Pactiv added any
significant value during the period. Once again, virtually all excess return was
added thorough stock selection, and sector/industry weights played little to no
part in performance.
MARKET OUTLOOK: We believe that the market may be poised to have a good year in
2003. Low inflation, interest rates, and renewed economic growth should help to
buoy the markets to more appropriate valuation levels. In the short term,
though, uncertainty about war in Iraq may dampen investment enthusiasm, but we
believe the market will (in fact we believe it must) reward improved company
fundamentals in the medium-to long-term.
14
ING VP GROWTH AND INCOME PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
[LINE GRAPH]
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
----------------------------------------
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
Class R -24.99 -6.03% 5.17%
S&P 500 Index -22.10% -0.56% 9.37%
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP Growth and Income Portfolio against the S&P 500
Index. The Index has an inherent performance advantage over the Portfolio since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
PRINCIPAL RISK FACTOR(S): Price volatility and other risks that accompany an
investment in equity securities.
See accompanying index descriptions on page 19.
15
ING VP BOND PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: James B. Kauffmann, Aeltus Investment Management, Inc.
GOAL: The ING VP Bond Portfolio (the "Portfolio") seeks to maximize total return
consistent with reasonable risk, through investments in a diversified portfolio
consisting of debt securities. It is anticipated that capital appreciation and
investment income will both be major factors in achieving total return.
MARKET OVERVIEW: The year began with a Fed Funds target rate of 1.75% and a
market view that the Fed would raise rates by year-end. Expectations at the
beginning of the year were that the economy would recover by year-end led by a
tightening of historically wide corporate bond spreads. After a robust first
quarter of investment grade corporate issuance, supply dropped dramatically and
remained slow throughout the year.
Through third quarter, liquidity fears, accounting concerns, potential and
declared bankruptcies, downgrades, and disappointing earnings plagued the
markets. Worldcom, Quest, Tyco, Adelphia, Telus, Williams, and NRG, to name a
few in long lists of fallen angels, all contributed to the markets' volatility.
Sprint and Williams came to the brink of bankruptcy third quarter only to be
saved in the eleventh-hour as they were able to renegotiate their bank lines,
but at very unfavorable rates, and Household International narrowly escaped as
HSBC announced its intention to acquire the company. The airline industry
continued to struggle post September 11th with US Air and UAL declaring
bankruptcy. Finally, companies in the chemical, aerospace/defense,
wireless/wireline, utility, railroad, regional banks, and technology sectors all
missed their earning estimates and sighted poor expectations into early 2003.
In mid-October, the much awaited credit rally began and continued through
year-end turning what had been until then the worst year in history for credit.
The credit markets actually ended the year with +39 basis points of excess
return relative to like duration treasuries. Asset Backed Securities and
Collateralized Mortgage Backed Securities also had a positive year, as did
mortgages, which benefited from the low interest rate environment.
Clearly an expansionary fiscal policy, an accommodative monetary policy, a
weaker dollar, and a spendthrift consumer kept the U.S. out of a double-dip
recession, but these traditional sources of stimulus failed to break the
domestic economy out of its slow growth rut. The rally in the stock market was a
welcome relief, but the collapse in capital spending, and increasing joblessness
has hindered the economy. While the home mortgage refinancing wave and tax cuts
enabled the consumer to spend, the decline of state tax revenues, and corporate
de-levering took their toll. 2002 GDP is likely to come in between 2.5 and 3.0%
Finally, following a calamitous year of asset deflation both in equities and
corporate debt, the Federal Reserve signaled, at its November meeting, that
inflation is not their major concern, just yet, and surprised the markets by
easing the Fed Funds rate another 50 basis points.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, returned 8.33% compared to Lehman Brothers
Aggregate Bond Index, which returned 10.25% over the same period.
PORTFOLIO SPECIFICS: The Portfolio's underperformance can be attributed
primarily to sector and issuer selection and duration decisions made in the
first 10 months of the year. On October 1, 2002, the fixed income team lead by
James Kauffmann assumed responsibility for the management of the Portfolio.
Since that time, the managers have been repositioning the Portfolio and aligning
it to reflect current investment strategy for Portfolios with similar mandates.
This resulted in very strong performance in the fourth quarter as the
Portfolio's allocation to credit was increased and duration extended in time to
capture the rally in credit and benefit from the Fed's 50 basis point ease in
rates.
MARKET OUTLOOK: Our central scenario (for 2003) calls for the Fed and The Bush
administration to be ultimately successful in their attempts to stimulate the
economy. The Fed continues to inject massive amounts of liquidity into an
economy and banking system that has already begun to expand credit.
Additionally, unlike the past decade or so when the Central Bank relied
exclusively on monetary policy, The Fed has decided that additional policy
levers are acceptable in our nation's effort to ward off a double-dip recession
and deflation. We see evidence of this in the budget deficits, not to mention
President Bush's recent $670 billion 10-year stimulus plan, and the recent
changes in the White House administration that will likely lead to a weaker
dollar. The degree of the monetary, fiscal, dollar and tax stimuli is truly
staggering and every bit as extensive as Reagan's 1982-stimulus package. Even
though we look for economic growth to improve to 2.5-3.0% in 2003, it may be
subdued in the first half of the year, as the economy still needs to work off
excess capacity, reduce high debt levels and increase savings.
Given this scenario, the Portfolio will continue to overweight credit and will
look to increase exposure to the wireline telecom and insurance sectors as
business fundamentals are improving after a very difficult 2002.
Prepayment activity in the mortgage market continued to be heavy in the fourth
quarter, and will likely carry forward for several months. The cost of principal
paydowns at current rate levels is high tempering returns in the mortgage
market. As a result, the managers will look for cheap prepayment protections,
which include
16
ING VP BOND PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
low loan balance securities and mortgage product in geographical areas where
there is less opportunity or incentive to refinance -- for example, Georgia and
New York where refinancing is taxed. The managers are also aware of the
potential extension risk in the mortgage market given the current generational
lows in rates. During the quarter, the Portfolio's mortgage allocation was
reduced to neutral.
The Portfolio's duration will remain neutral for the near term as there has yet
to be any compelling evidence that would cause the Fed to change their interest
rate policy.
LOGO
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
-------------------------------------------
SINCE INCEPTION
OF CLASS S
1 YEAR 5 YEAR 10 YEAR 5/3/02
------ ------ ------- ------
Class R 8.33% 6.75% 6.85% --
Class S -- -- -- 7.45%
Lehman Brothers Aggregate Bond Index 10.25% 7.55% 7.51% 8.06%(1)
</Table>
Based upon a $10,000 initial investment, the table and graph above illustrate
the total return of ING VP Bond Portfolio against the Lehman Brothers Aggregate
Bond Index. The Index has an inherent performance advantage over the Portfolio
since it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Portfolio holdings are subject to change daily.
(1) Since inception performance for the index is shown from 5/1/02.
PRINCIPAL RISK FACTOR(S): Credit, interest rate, repayment and other risks that
accompany an investment in fixed income securities. May be sensitive to credit
risk during economic downturns.
See accompanying index descriptions on page 19.
17
ING VP MONEY MARKET PORTFOLIO
PORTFOLIO
MANAGER'S REPORT
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: Jennifer J. Thompson, CFA, Aeltus Investment Management,
Inc.
GOAL: The ING VP Money Market Portfolio (the "Portfolio") seeks to provide
investors with a high current return, consistent with the preservation of
capital and liquidity.
MARKET OVERVIEW: We began 2002 with a Fed Funds target rate of 1.75% and a
market view that the Federal Reserve Board's Federal Open Market Committee (the
"FOMC" or the "Fed") would lower rates once more on January 30th at its meeting.
However, views changed during the month and the Fed left rates alone. By the
Fed's mid-March meeting, economic numbers began to appear stronger than
anticipated and market participants fully changed their views to expectations of
increases in the Fed Funds rate and economic recovery by the second half of
2002. As the second quarter came and went however, expectations changed yet
again.
Market concerns surrounding corporate governance and accounting issues that
began in the second quarter continued into the third quarter of 2002. By the
fourth quarter, rising unemployment, weak business investment and consumer
demand as well as uncertainty associated with Iraq and North Korea continued to
hinder the long-awaited "economic recovery."
The Fed responded to the economic weakness by lowering its Fed Funds target rate
by 50 basis points to 1.25% on November 6th. This was the first and only move of
the Fed Funds rate in 2002. The surprise 50 basis point ease was characterized
as an insurance policy by Chairman Greenspan against additional economic
weakness and was done to get the economy through its current "soft spot." By
characterizing the risks to the economy as balanced, the Fed attempted to signal
its intention to avoid further rate cuts.
The London Inter-Bank Offer Rate (LIBOR) yield curve from one to twelve months
showed significant volatility as market expectations changed throughout the
year. While short LIBOR rates remained relatively stable prior to the Fed ease,
one-year LIBOR fluctuated from 2.44% on December 31, 2001 to a high of 3.08% in
March and ended at a low of 1.44% in December 2002.
PORTFOLIO SPECIFICS: A consistent overweighting in asset-backed securities and a
strong weighting of floating rate instruments contributed positively to
performance. For the last quarter, the Portfolio's average maturity was
significantly longer than competitors, which also helped returns.
MARKET OUTLOOK: Economic uncertainty emanating from a potential war with Iraq
results in a strong bid to the market (lower rates). Most market participants
believe the Fed will keep rates unchanged until the second half of 2003 at the
earliest. With a flat yield curve, purchases may be kept short until rates
back-up significantly to merit the purchase of longer maturity paper. The
Portfolio's average maturity will likely remain in-line generally with the
benchmark.
18
INDEX DESCRIPTIONS
- --------------------------------------------------------------------------------
The S&P 500 INDEX is a capitalization-weighted index of 500 stocks chosen for
market size, liquidity and industry group representation.
THE DOW JONES INDUSTRIAL AVERAGE is a price-weighted average of 30 blue-chip
stocks that are generally the leaders in their industry.
The RUSSELL 1000 GROWTH INDEX is an index that measures the performance of those
Russell 1000 Index companies with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 2000 INDEX consists of the smallest 2000 companies in the Russell
3000 Index.
The GOLDMAN SACHS TECHNOLOGY INDUSTRY COMPOSITE INDEX is a market
capitalization-weighted index of 190 stocks designed to measure the performance
of companies in the technology sector. Issues in the index include producers of
sophisticated devices, services and software related to the fields of computers,
electronics, networking and Internet services.
The LEHMAN BROTHERS AGGREGATE BOND INDEX is an index of fixed income securities.
The MSCI EAFE INDEX consists of more than 1,000 securities taken from the
largest market capitalization companies based in Europe, Australia and Asia
(Australasia), and the Far East.
The NASDAQ COMPOSITE INDEX is a broad-based capitalization-weighted index of all
Nasdaq National Market and SmallCap stocks.
The NASDAQ 100 INDEX is a modified capitalization-weighted index of the 100
largest and most active non-financial domestic and international issues listed
on the Nasdaq.
The RUSSELL 2000 VALUE INDEX is an index that measures the performance of those
Russell 2000 companies with lower price-to-book ratios and lower forecasted
growth values.
The RUSSELL 2000 GROWTH INDEX is an index that measures the performance of those
Russell 2000 companies with higher price-to-book ratios and higher forecasted
growth values.
The S&P MIDCAP 400 INDEX is a capitalization-weighted index that measures the
performance of the mid-range sector of the U.S. Stock market.
The S&P 600 INDEX is a capitalization-weighted index of 600 stocks chosen for
market size, liquidity and industry group representation.
The LONDON INTERBANK OFFERING RATE (LIBOR) yield is the interest rate at which
banks offer to lend money to one another in the wholesale money markets in
London.
The PHLX SEMICONDUCTOR SECTOR INDEX is a price-weighted index composed of 17
U.S. companies primarily involved in the design, distribution, manufacture, and
sale of semiconductors.
The GOLDMAN SACHS TECHNOLOGY INDEX (GST) SOFTWARE INDEX (GSO) is a modified
capitalization-weighted index of companies involved in the computer software
sector of the technology industry.
All indices are unmanaged.
An investor cannot invest directly in an index.
19
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders, Board of Directors, and Board of Trustees
ING Variable Portfolios, Inc., ING VP Balanced Portfolio, Inc., ING Variable
Funds,
ING VP Income Shares, and ING VP Money Market Fund:
We have audited the accompanying statements of assets and liabilities of ING VP
International Equity Portfolio, ING VP Growth Portfolio, ING VP Small Company
Portfolio, ING VP Technology Portfolio and ING VP Value Opportunity Portfolio
(formerly, Aetna Growth VP, Aetna International VP, Aetna Small Company VP,
Aetna Technology VP and Aetna Value Opportunity VP, respectively) each a series
of ING Variable Portfolios Inc., ING VP Balanced Portfolio (formerly, Aetna
Balanced VP), a series of ING VP Balanced Portfolio, Inc., ING VP Growth and
Income Portfolio (formerly, Aetna Growth and Income VP), a series of ING
Variable Funds, ING VP Bond Portfolio (formerly, Aetna Bond VP) a series of ING
Income Shares and ING VP Money Market Portfolio (formerly, Aetna Money Market
VP), a series of ING VP Money Market Fund, all a series of the ING Variable
Product Portfolios (the "Portfolios") including the portfolios of investments,
as of December 31, 2002, and the related statements of operations for the year
then ended, statements of changes in net assets for each of the years in the
two-year period then ended and financial highlights for each of the years or
periods in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002 by correspondence with the custodians
and brokers, and other appropriate audit procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects the financial position of ING VP
Growth Portfolio, ING VP International Equity Portfolio, ING VP Small Company
Portfolio, ING VP Technology Portfolio, ING VP Value Opportunity Portfolio, ING
VP Balanced Portfolio, ING VP Growth and Income Portfolio, ING VP Bond Portfolio
and ING VP Money Market Portfolio, as of December 31, 2002, the results of their
operations, changes in their net assets and financial highlights for each of the
years or periods specified in the first paragraph above, in conformity with
accounting principles generally accepted in the United States of America.
[KPMG LLP]
Boston, Massachusetts
February 7, 2003
20
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP ING VP ING VP ING VP ING VP
INTERNATIONAL GROWTH SMALL COMPANY TECHNOLOGY VALUE OPPORTUNITY
EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------- --------- --------- ---------
ASSETS:
Investments in securities at
value* $ 29,058,639 $ 178,860,350 $274,704,646 $ 44,257,373 $204,720,507
Short-term investments at
amortized cost 216,992 2,441,000 14,953,000 1,031,000 7,881,000
Cash 559 321 1,546 110 346
Cash denominated in foreign
currencies 232,867 -- -- -- --
Receivables:
Investment securities sold 211,827 1,346,370 3,781,199 330,756 --
Fund shares sold -- 8,898 38,142 -- 15,491
Dividends and interest 59,255 112,105 423,087 14,334 184,853
Other 4,556 -- -- -- --
Prepaid expenses 663 4,924 7,192 1,039 4,711
Reimbursement due from
manager 33,706 -- -- 4,750 --
------------ ------------- ------------ ------------ ------------
Total assets 29,819,064 182,773,968 293,908,812 45,639,362 212,806,908
------------ ------------- ------------ ------------ ------------
LIABILITIES:
Payable for investment
securities purchased -- 1,297,069 963,321 -- --
Payable for fund shares
redeemed 693,319 228,051 3,608,442 -- 75,620
Payable to affiliates 23,055 108,518 209,037 43,215 124,294
Other accrued expenses and
liabilities 177,704 58,232 54,541 30,654 45,317
------------ ------------- ------------ ------------ ------------
Total liabilities 894,078 1,691,870 4,835,341 73,869 245,231
------------ ------------- ------------ ------------ ------------
NET ASSETS $ 28,924,986 $ 181,082,098 $289,073,471 $ 45,565,493 $212,561,677
============ ============= ============ ============ ============
NET ASSETS WERE COMPRISED
OF:
Paid-in capital $ 63,150,445 $ 425,375,083 $366,130,025 $115,184,541 $295,811,449
Undistributed net investment
income 357,132 -- 919,164 -- 1,770,320
Accumulated net realized
loss on investments and
futures contracts (32,134,820) (232,470,776) (73,581,923) (57,810,969) (78,528,573)
Net unrealized depreciation
of investments and futures
contracts (2,447,771) (11,822,209) (4,393,795) (11,808,079) (6,491,519)
------------ ------------- ------------ ------------ ------------
NET ASSETS $ 28,924,986 $ 181,082,098 $289,073,471 $ 45,565,493 $212,561,677
============ ============= ============ ============ ============
* Cost of securities $ 31,516,660 $ 190,682,559 $279,098,441 $ 56,065,452 $211,212,026
**Cost of foreign currencies $ 228,629 $ -- $ -- $ -- $ --
Class R
Net assets $ 28,917,160 $ 181,028,875 $288,889,932 $ 45,558,725 $211,469,606
Share authorized 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000
Par value $ 0.001 $ 0.001 $ 0.001 $ 0.001 $ 0.001
Shares outstanding 5,006,393 26,443,418 22,661,538 17,133,917 21,642,555
Net asset value and
redemption price per
share $ 5.78 $ 6.85 $ 12.75 $ 2.66 $ 9.77
Class S
Net assets $ 7,826 $ 53,223 $ 183,539 $ 6,768 $ 1,092,071
Share authorized 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000
Par value $ 0.001 $ 0.001 $ 0.001 $ 0.001 $ 0.001
Shares outstanding 1,355 7,796 14,430 2,551 112,034
Net asset value and
redemption price per
share $ 5.78 $ 6.83 $ 12.72 $ 2.65 $ 9.75
</Table>
See Accompanying Notes to Financial Statements
21
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP ING VP ING VP ING VP
BALANCED GROWTH AND INCOME BOND MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
ASSETS:
Investments in securities at value* $1,198,525,513 $ 3,473,051,573 $1,178,496,445 $ --
Short-term investments at value** 142,034,030 55,464,000 357,698,496 1,537,569,134
Cash 881 2,231 -- --
Cash collateral for futures 1,621,825 -- 1,632,888 --
Cash denominated in foreign currencies*** -- 23 -- --
Receivables:
Investment securities sold 102,488,690 -- 108,618,445 14,013,543
Fund shares sold 39,926 186,260 808,852 --
Dividends and interest 5,836,889 3,997,885 11,741,544 2,105,280
Futures variation margin 58,594 -- 129,359 --
Other 144 -- 62 --
Swap contracts 967,734 -- 1,943,832 --
Prepaid expenses 30,708 96,275 26,198 35,705
-------------- --------------- -------------- --------------
Total assets 1,451,604,934 3,532,798,247 1,661,096,121 1,553,723,662
-------------- --------------- -------------- --------------
LIABILITIES:
Payable for investment securities purchased 225,052,643 -- 401,792,402 --
Payable for fund shares redeemed 2,972,606 5,242,613 3,072,881 1,516,427
Payable to custodian -- -- 17,051 14,178
Payable to affiliates 604,243 1,770,480 504,594 412,240
Other accrued expenses and liabilities 201,633 536,575 151,088 114,368
-------------- --------------- -------------- --------------
Total liabilities 228,831,125 7,549,668 405,538,016 2,057,213
-------------- --------------- -------------- --------------
NET ASSETS $1,222,773,809 $ 3,525,248,579 $1,255,558,105 $1,551,666,449
============== =============== ============== ==============
NET ASSETS WERE COMPRISED OF:
Paid-in capital $1,480,858,829 $ 6,823,119,742 $1,204,957,581 $1,531,139,045
Undistributed net investment income
(accumulated net investment loss) 24,589,706 -- (2,461,388) 24,736,598
Accumulated net realized gain (loss) on
investments and futures contracts (248,954,096) (3,249,568,371) 21,891,990 (4,506,979)
Net unrealized appreciation (depreciation) of
investments, futures contracts and swaps (33,720,630) (48,302,792) 31,169,922 297,785
-------------- --------------- -------------- --------------
NET ASSETS $1,222,773,809 $ 3,525,248,579 $1,255,558,105 $1,551,666,449
============== =============== ============== ==============
* Cost of securities $1,232,048,863 $ 3,521,388,605 $1,147,841,263 --
** Cost of short term investments $ 142,162,280 $ 55,464,000 $ 357,805,371 $1,537,271,349
***Cost of foreign currencies -- $ 22 -- --
CLASS R:
Net assets $1,222,773,809 $ 3,525,248,579 $1,205,968,248 $1,551,666,449
Share authorized 2,000,000,000 unlimited unlimited unlimited
Par value $ 0.001 $ 1.000 $ 1.000 $ 1.000
Shares outstanding 113,944,461 243,084,812 89,121,656 119,126,401
Net asset value and redemption price per
share $ 10.73 $ 14.50 $ 13.53 $ 13.03
CLASS S:
Net assets n/a n/a $ 49,589,857 n/a
Share authorized n/a n/a unlimited n/a
Par value n/a n/a $ 1.000 n/a
Shares outstanding n/a n/a 3,665,695 n/a
Net asset value and redemption price per
share n/a n/a $ 13.53 n/a
</Table>
See Accompanying Notes to Financial Statements
22
STATEMENTS OF OPERATIONS for the year ended December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP ING VP
ING VP ING VP SMALL ING VP VALUE
INTERNATIONAL GROWTH COMPANY TECHNOLOGY OPPORTUNITY
EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------- --------- --------- ---------
INVESTMENT INCOME:
Dividends (net of foreign taxes)* $ 587,900 $ 1,463,682 $ 3,797,177 $ 49,332 $ 2,516,012
Interest 39,117 143,442 437,155 79,016 240,686
------------ ------------ ------------ ------------ ------------
Total investment income 627,017 1,607,124 4,234,332 128,348 2,756,698
------------ ------------ ------------ ------------ ------------
EXPENSES:
Investment management fees 343,690 1,457,177 2,535,978 534,731 1,344,310
Distribution and service fees:
Class S 23 47 300 22 2,202
Transfer agent fees 10,449 11,693 8,195 11,210 12,263
Administrative and service fees 24,565 148,122 203,368 34,412 134,503
Shareholder reporting expense 10,128 24,256 35,011 12,744 18,332
Registration and filing fees 3,019 2,883 9,361 2,503 654
Professional fees 24,031 32,364 26,518 22,411 31,059
Custody and accounting fees 165,324 60,449 89,551 9,707 54,617
Directors' expense 1,592 10,268 11,812 1,758 7,752
Insurance expense 602 2,284 2,922 387 1,947
Miscellaneous expense 5,463 8,943 6,167 1,464 4,413
------------ ------------ ------------ ------------ ------------
Total expenses 588,886 1,758,486 2,929,183 631,349 1,612,052
------------ ------------ ------------ ------------ ------------
Less:
Net waived and reimbursed fees 124,232 -- -- 4,750 --
------------ ------------ ------------ ------------ ------------
Net expenses 464,654 1,758,486 2,929,183 626,599 1,612,052
------------ ------------ ------------ ------------ ------------
Net investment income (loss) 162,363 (151,362) 1,305,149 (498,251) 1,144,646
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FUTURES AND
FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments (8,309,781) (70,230,924) (67,277,280) (15,534,432) (62,117,080)
Futures and forward foreign
currency exchange contracts (142,634) 157,702 432,049 -- 629,436
Foreign currency related
transactions 197,153 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net realized loss (8,255,262) (70,073,222) (66,845,231) (15,534,432) (61,487,644)
Net change in unrealized
depreciation of investments,
futures and foreign currency (4,414,002) (15,240,955) (26,970,408) (15,966,037) (8,717,153)
------------ ------------ ------------ ------------ ------------
Net realized and unrealized loss
on investments, futures and
foreign currencies (12,669,264) (85,314,177) (93,815,639) (31,500,469) (70,204,797)
------------ ------------ ------------ ------------ ------------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $(12,506,901) $(85,465,539) $(92,510,490) $(31,998,720) $(69,060,151)
============ ============ ============ ============ ============
* Foreign Taxes $ 81,037 $ -- $ 84,991 $ 1,803 $ --
</Table>
See Accompanying Notes to Financial Statements
23
STATEMENTS OF OPERATIONS for the year ended December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP ING VP
ING VP GROWTH AND MONEY
BALANCED INCOME ING VP BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
INVESTMENT INCOME:
Dividends (net of foreign taxes)* $ 11,930,973 $ 62,302,914 $ -- $ --
Interest 24,791,023 2,791,301 45,349,492 29,914,443
------------- ----------------- ------------ -----------
Total investment income 36,721,996 65,094,215 45,349,492 29,914,443
------------- ----------------- ------------ -----------
EXPENSES:
Investment management fees 7,035,470 22,825,214 4,380,427 3,799,976
Distribution and service fees:
Class S -- -- 32,720 --
Transfer agent fees 4,049 22,126 19,898 3,407
Administrative and service fees 850,019 2,740,471 652,037 908,809
Shareholder reporting expense 101,576 355,075 62,501 42,142
Registration and filing fees -- 29 2,312 --
Professional fees 90,294 205,601 70,815 51,322
Custody and accounting fees 278,895 701,579 221,494 279,433
Directors' expense 52,532 147,969 38,503 51,552
Insurance expense 13,547 42,847 10,805 15,885
Miscellaneous expense 24,567 95,808 17,476 12,811
------------- ----------------- ------------ -----------
Net expenses 8,450,949 27,136,719 5,508,988 5,165,337
------------- ----------------- ------------ -----------
Net investment income 28,271,047 37,957,496 39,840,504 24,749,106
------------- ----------------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments (149,284,748) (893,234,805) 25,273,395 23,728
Futures and forward foreign currency and swaps (8,316,820) (760,388) (12,953,705) --
Foreign currency related transactions 2,757,562 2,304,315 5,138,213 --
------------- ----------------- ------------ -----------
Net realized gain (loss) (154,844,006) (891,690,878) 17,457,903 23,728
Net change in unrealized appreciation (depreciation)
of investments, futures, foreign currency and swaps (34,537,848) (459,505,600) 31,731,171 (340,945)
------------- ----------------- ------------ -----------
Net realized and unrealized gain (loss) on
investments, futures, swaps and foreign currencies (189,381,854) (1,351,196,478) 49,189,074 (317,217)
------------- ----------------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(161,110,807) $ (1,313,238,982) $ 89,029,578 $24,431,889
============= ================= ============ ===========
* Foreign Taxes $ 25,036 $ 116,265 $ -- $ --
</Table>
See Accompanying Notes to Financial Statements
24
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP INTERNATIONAL
EQUITY PORTFOLIO ING VP GROWTH PORTFOLIO
---------------------------- ------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
---- ---- ---- ----
FROM OPERATIONS:
Net investment income (loss) $ 162,363 $ 117,514 $ (151,362) $ (288,243)
Net realized loss on investments, futures and foreign
currencies swaps (8,255,262) (17,618,597) (70,073,222) (155,880,656)
Net change in unrealized appreciation (depreciation) of
investments, futures and foreign currencies swaps (4,414,002) 3,823,993 (15,240,955) 31,166,696
------------ ------------ ------------- -------------
Net decrease in net assets resulting from operations (12,506,901) (13,677,090) (85,465,539) (125,002,203)
------------ ------------ ------------- -------------
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income:
Class R (93,596) (50,990) -- (255,312)
Net realized gain from investments:
Class R -- (6,953) -- (44,808,763)
------------ ------------ ------------- -------------
Total distributions (93,596) (57,943) -- (45,064,075)
------------ ------------ ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 80,512,745 89,100,877 35,492,407 101,110,395
Shares resulting from dividend reinvestments 93,596 57,943 -- 45,064,075
------------ ------------ ------------- -------------
80,606,341 89,158,820 35,492,407 146,174,470
Cost of shares redeemed (87,743,989) (78,970,794) (74,579,328) (131,051,904)
------------ ------------ ------------- -------------
Net increase (decrease) in net asset resulting from capital
share transactions (7,137,648) 10,188,026 (39,086,921) 15,122,566
------------ ------------ ------------- -------------
Net decrease in net assets (19,738,145) (3,547,007) (124,552,460) (154,943,712)
NET ASSETS:
Beginning of year 48,663,131 52,210,138 305,634,558 460,578,270
------------ ------------ ------------- -------------
End of year $ 28,924,986 $ 48,663,131 $ 181,082,098 $ 305,634,558
============ ============ ============= =============
Undistributed net investment income at end of year $ 357,132 $ 93,706 $ -- $ --
============ ============ ============= =============
</Table>
See Accompanying Notes to Financial Statements
25
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP SMALL COMPANY PORTFOLIO ING VP TECHNOLOGY PORTFOLIO
------------------------------ ----------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
---- ---- ---- ----
FROM OPERATIONS:
Net investment income (loss) $ 1,305,149 $ 1,600,459 $ (498,251) $ (259,407)
Net realized loss on investments, futures and foreign
currencies (66,845,231) (3,170,863) (15,534,432) (28,057,857)
Net change in unrealized appreciation (depreciation) of
investments, futures and foreign currencies (26,970,408) 13,543,313 (15,966,037) 13,595,472
------------- ------------- ------------ ------------
Net increase (decrease) in net assets resulting from
operations (92,510,490) 11,972,909 (31,998,720) (14,721,792)
------------- ------------- ------------ ------------
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income:
Class R (1,576,315) (1,941,527) -- --
Class S (603) -- -- --
Net realized gain from investments:
Class R -- (9,501,885) -- --
------------- ------------- ------------ ------------
Total distributions (1,576,918) (11,443,412) -- --
------------- ------------- ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 175,762,621 186,374,546 66,979,389 70,299,570
Shares resulting from dividend reinvestments 1,576,918 11,443,412 -- --
------------- ------------- ------------ ------------
177,339,539 197,817,958 66,979,389 70,299,570
Cost of shares redeemed (135,522,236) (130,621,184) (52,304,809) (37,309,341)
------------- ------------- ------------ ------------
Net increase in net asset resulting from capital share
transactions 41,817,303 67,196,774 14,674,580 32,990,229
------------- ------------- ------------ ------------
Net increase (decrease) in net assets (52,270,105) 67,726,271 (17,324,140) 18,268,437
NET ASSETS:
Beginning of year 341,343,576 273,617,305 62,889,633 44,621,196
------------- ------------- ------------ ------------
End of year $ 289,073,471 $ 341,343,576 $ 45,565,493 $ 62,889,633
============= ============= ============ ============
Undistributed net investment income at end of year $ 919,164 $ 1,579,105 $ -- $ --
============= ============= ============ ============
</Table>
See Accompanying Notes to Financial Statements
26
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP VALUE OPPORTUNITY
PORTFOLIO ING VP BALANCED PORTFOLIO
---------------------------- --------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
---- ---- ---- ----
FROM OPERATIONS:
Net investment income $ 1,144,646 $ 953,370 $ 28,271,047 $ 40,409,421
Net realized loss on investments, futures, foreign
currencies and swaps (61,487,644) (14,621,091) (154,844,006) (72,985,781)
Net change in unrealized depreciation of investments,
futures, foreign currencies and swaps (8,717,153) (5,276,376) (34,537,848) (43,086,135)
------------ ------------ -------------- --------------
Net decrease in net assets resulting from operations (69,060,151) (18,944,097) (161,110,807) (75,662,495)
------------ ------------ -------------- --------------
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income:
Class R (951,142) (547,913) (14,989,364) (35,890,605)
Class S (3,459) -- -- --
Net realized gain from investments:
Class R -- (7,735,174) -- (60,858,556)
------------ ------------ -------------- --------------
Total distributions (954,601) (8,283,087) (14,989,364) (96,749,161)
------------ ------------ -------------- --------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 86,392,780 142,131,984 23,017,801 23,722,014
Shares resulting from dividend reinvestments 954,601 8,283,087 14,989,364 96,749,161
------------ ------------ -------------- --------------
87,347,381 150,415,071 38,007,165 120,471,175
Cost of shares redeemed (24,364,504) (19,623,228) (230,189,224) (133,598,351)
------------ ------------ -------------- --------------
Net increase (decrease) in net assets resulting from capital
share transactions 62,982,877 130,791,843 (192,182,059) (13,127,176)
------------ ------------ -------------- --------------
Net increase (decrease) in net assets (7,031,875) 103,564,659 (368,282,230) (185,538,832)
------------ ------------ -------------- --------------
NET ASSETS:
Beginning of year 219,593,552 116,028,893 1,591,056,039 1,776,594,871
------------ ------------ -------------- --------------
End of year $212,561,677 $219,593,552 $1,222,773,809 $1,591,056,039
============ ============ ============== ==============
Undistributed net investment income at end of year $ 1,770,320 $ 950,840 $ 24,589,706 $ 14,269,627
============ ============ ============== ==============
</Table>
See Accompanying Notes to Financial Statements
27
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP GROWTH AND INCOME
PORTFOLIO ING VP BOND PORTFOLIO
---------------------------------- --------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
---- ---- ---- ----
FROM OPERATIONS:
Net investment income $ 37,957,496 $ 38,859,498 $ 39,840,504 $ 44,467,447
Net realized gain (loss) on investments, futures,
foreign currencies and swaps (891,690,878) (1,574,172,936) 17,457,903 36,306,527
Net change in unrealized appreciation (depreciation) of
investments, futures, foreign currencies and swaps (459,505,600) 147,322,496 31,731,171 (10,475,614)
--------------- --------------- -------------- --------------
Net increase (decrease) in net assets resulting from
operations (1,313,238,982) (1,387,990,942) 89,029,578 70,298,360
--------------- --------------- -------------- --------------
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income
Class R (38,495,841) (40,443,521) (36,706,026) (48,397,203)
Class S -- -- (1,364,988) --
Net realized gain from investments
Class R -- (90,848) (5,077,726) (8,394,250)
Class S -- -- (25,540) --
--------------- --------------- -------------- --------------
Total distributions (38,495,841) (40,534,369) (43,174,280) (56,791,453)
--------------- --------------- -------------- --------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 27,763,650 76,916,986 265,499,333 312,081,094
Shares resulting from dividend reinvestments 38,475,273 40,514,731 43,149,619 56,753,565
--------------- --------------- -------------- --------------
66,238,923 117,431,717 308,648,952 368,834,659
Cost of shares redeemed (828,611,395) (846,837,453) (122,508,850) (69,989,795)
--------------- --------------- -------------- --------------
Net increase (decrease) in net assets resulting from
capital share transactions (762,372,472) (729,405,736) 186,140,102 298,844,864
--------------- --------------- -------------- --------------
Net increase (decrease) in net assets (2,114,107,295) (2,157,931,047) 231,995,400 312,351,771
=============== =============== ============== ==============
NET ASSETS:
Beginning of year 5,639,355,874 7,797,286,921 1,023,562,705 711,210,934
--------------- --------------- -------------- --------------
End of year $ 3,525,248,579 $ 5,639,355,874 $1,255,558,105 $1,023,562,705
=============== =============== ============== ==============
Undistributed net investment income (accumulated net
investment loss) at end of year $ -- $ (153,096) $ (2,461,388) $ 219,297
=============== =============== ============== ==============
</Table>
See Accompanying Notes to Financial Statements
28
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
ING VP MONEY MARKET PORTFOLIO
----------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
---- ----
FROM OPERATIONS:
Net investment income $ 24,749,106 $ 57,315,013
Net realized gain (loss) on investments 23,728 (3,715,968)
Net change in unrealized appreciation (depreciation) of
investments (340,945) 362,664
--------------- ---------------
Net increase in net assets resulting from operations 24,431,889 53,961,709
--------------- ---------------
FROM DIVIDENDS TO SHAREHOLDERS:
Net investment income (57,317,722) (69,787,785)
--------------- ---------------
Total distributions (57,317,722) (69,787,785)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 2,748,252,013 2,378,249,423
Shares resulting from dividend reinvestments 57,317,722 69,787,785
--------------- ---------------
2,805,569,735 2,448,037,208
Cost of shares redeemed (2,739,754,578) (2,109,404,400)
--------------- ---------------
Net increase in net assets resulting from capital share
transactions 65,815,157 338,632,808
--------------- ---------------
Net increase in net assets 32,929,324 322,806,732
NET ASSETS:
Beginning of year 1,518,737,125 1,195,930,393
--------------- ---------------
End of year $ 1,551,666,449 $ 1,518,737,125
=============== ===============
Undistributed net investment income at end of year $ 24,736,598 $ 57,305,214
=============== ===============
</Table>
See Accompanying Notes to Financial Statements
29
ING VP INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 7.90 10.40 15.92 11.59 10.27
Income from investment operations:
Net investment income (loss) $ 0.03 0.02 (0.02) (0.01) 0.07
Net realized and unrealized gain (loss) on investments $ (2.13) (2.51) (3.17) 5.78 1.87
Total from investment operations $ (2.10) (2.49) (3.19) 5.77 1.94
Less distributions from:
Net investment income $ 0.02 0.01 0.01 0.15 0.01
Net realized gains on investments $ -- -- 2.32 1.29 0.61
Total distributions $ 0.02 0.01 2.33 1.44 0.62
Net asset value, end of year $ 5.78 7.90 10.40 15.92 11.59
TOTAL RETURN(1): % (26.68) (23.88) (20.33) 51.33 18.92
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 28,917 48,652 52,210 43,548 16,242
Ratios to average net assets:
Net expenses after expense reimbursement(3) % 1.15 1.15 1.15 1.15 1.15
Gross expenses prior to expense reimbursement % 1.46 1.26 1.34 1.62 1.77
Net investment income (loss) after expense reimbursement(3) % 0.40 0.23 (0.18) 0.13 0.55
Portfolio turnover rate % 266 229 212 169 158
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS S
------------------------------
YEAR NOVEMBER 1,
ENDED 2001(4) TO
DECEMBER 31, DECEMBER 31,
2002 2001
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.90 7.38
Income from investment operations:
Net investment income $ 0.01 --
Net realized and unrealized gain (loss) on investments $ (2.13) 0.52
Total from investment operations $ (2.12) 0.52
Net asset value, end of period $ 5.78 7.90
TOTAL RETURN(1): % (26.84) 7.05
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 8 11
Ratios to average net assets:
Net expenses after expense reimbursement(2)(3) % 1.40 1.39
Gross expenses prior to expense reimbursement(2) % 1.71 1.49
Net investment income after expense reimbursement(2)(3) % 0.15 0.01
Portfolio turnover rate % 266 229
- ------------------------------------------------------------------------------------------------------
</Table>
(1)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(2)Annualized for periods less than one year.
(3)The Investment Manager has agreed to limit expenses, excluding interest,
taxes, brokerage and extraordinary expenses, subject to possible
reimbursement to ING Investments, LLC within three years.
(4)Commencement of offering of shares.
See Accompanying Notes to Financial Statements
30
ING VP GROWTH PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 9.64 14.99 17.32 13.53 9.85
Income from investment operations:
Net investment income (loss) $ (0.01) (0.01) 0.01 0.03 0.03
Net realized and unrealized gain (loss) on investments $ (2.78) (3.87) (2.02) 4.62 3.68
Total from investment operations $ (2.79) (3.88) (2.01) 4.65 3.71
Less distributions from:
Net investment income $ -- 0.01 0.01 0.02 0.03
Net realized gains on investments $ -- 1.46 0.31 0.84 --
Total distributions $ -- 1.47 0.32 0.86 0.03
Net asset value, end of year $ 6.85 9.64 14.99 17.32 13.53
TOTAL RETURN(2): % (28.94) (27.06) (11.95) 34.97 37.68
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 181,029 305,624 460,578 369,845 142,363
Ratios to average net assets:
Expenses % 0.72 0.70 0.70 0.71 0.75
Net investment income (loss) % (0.06) (0.08) 0.06 0.20 0.40
Portfolio turnover rate % 241 216 179 138 153
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS S
------------------------------
YEAR NOVEMBER 1,
ENDED 2001(1) TO
DECEMBER 31, DECEMBER 31,
2002 2001
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.63 8.96
Income from investment operations:
Net investment loss $ (0.01) --
Net realized and unrealized gain (loss) on investments $ (2.79) 0.67
Total from investment operations $ (2.80) 0.67
Net asset value, end of period $ 6.83 9.63
TOTAL RETURN(2): % (29.08) 7.48
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 53 11
Ratios to average net assets:
Expenses(3) % 0.97 0.94
Net investment loss(3) % (0.31) (0.32)
Portfolio turnover rate % 241 216
- ------------------------------------------------------------------------------------------------------
</Table>
(1)Commencement of offering of shares.
(2)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3)Annualized for periods less than one year.
See Accompanying Notes to Financial Statements
31
ING VP SMALL COMPANY PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 16.68 16.65 16.52 12.79 12.77
Income from investment operations:
Net investment income $ 0.05 0.06 0.11 0.08 0.07
Net realized and unrealized gain (loss) on investments $ (3.91) 0.58 1.09 3.84 0.07
Total from investment operations $ (3.86) 0.64 1.20 3.92 0.14
Less distributions from:
Net investment income $ 0.07 0.10 0.02 0.06 0.08
Net realized gains on investments $ -- 0.51 1.05 0.13 0.04
Total distributions $ 0.07 0.61 1.07 0.19 0.12
Net asset value, end of year $ 12.75 16.68 16.65 16.52 12.79
TOTAL RETURN:(2) % (23.23) 4.00 6.72 30.85 1.10
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 288,890 341,332 273,617 149,416 99,823
Ratios to average net assets:
Expenses % 0.87 0.86 0.87 0.88 0.89
Net investment income % 0.39 0.50 0.80 0.64 0.93
Portfolio turnover rate % 371 240 330 256 185
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS S
------------------------------
YEAR NOVEMBER 1,
ENDED 2001(1) TO
DECEMBER 31, DECEMBER 31,
2002 2001
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 16.68 14.90
Income from investment operations:
Net investment loss $ (0.04) --
Net realized and unrealized gain (loss) on investments $ (3.86) 1.78
Total from investment operations $ (3.90) 1.78
Less distribution from:
Net investment income $ 0.06 --
Total distribution $ 0.06 --
Net asset value, end of period $ 12.72 16.68
TOTAL RETURN(2): % (23.45) 11.95
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 184 11
Ratios to average net assets:
Expenses(3) % 1.12 1.10
Net investment income(3) % 0.14 0.29
Portfolio turnover rate % 371 240
- ------------------------------------------------------------------------------------------------------
</Table>
(1)Commencement of offering of shares.
(2)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3)Annualized for periods less than one year.
See Accompanying Notes to Financial Statements
32
ING VP TECHNOLOGY PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
-----------------------------------------------------
YEAR MAY 1,
ENDED YEAR ENDED 2000(1) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 4.53 5.88 10.00
Income from investment operations:
Net investment loss $ (0.03) (0.02) (0.02)
Net realized and unrealized loss on investments $ (1.84) (1.33) (4.10)
Total from investment operations $ (1.87) (1.35) (4.12)
Net asset value, end of period $ 2.66 4.53 5.88
TOTAL RETURN(2): % (41.28) (22.96) (41.20)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 45,559 62,878 44,621
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) % 1.11 1.11 1.15
Gross expenses prior to expense reimbursement(3) % 1.12 1.11 1.20
Net investment loss after expense reimbursement(3)(4) % (0.89) (0.49) (0.61)
Portfolio turnover rate % 61 129 150
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS S
------------------------------
YEAR NOVEMBER 1,
ENDED 2001(5) TO
DECEMBER 31, DECEMBER 31,
2002 2001
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 4.53 3.92
Income from investment operations:
Net investment loss $ (0.04) --
Net realized and unrealized gain (loss) on investments $ (1.84) 0.61
Total from investment operations $ (1.88) 0.61
Net asset value, end of period $ 2.65 4.53
TOTAL RETURN(2): % (41.50) 15.56
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 7 12
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) % 1.36 1.36
Gross expenses prior to expense reimbursement(3) % 1.37 1.36
Net investment loss after expense reimbursement(3)(4) % (1.14) (0.74)
Portfolio turnover rate % 61 129
- ------------------------------------------------------------------------------------------------------
</Table>
(1)Commencement of operations.
(2)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3)Annualized for periods less than one year.
(4)The Investment Manager has agreed to limit expenses, excluding interest,
taxes, brokerage and extraordinary expenses, subject to possible
reimbursement to ING Investments, LLC within three years.
(5)Commencement of offering of shares.
See Accompanying Notes to Financial Statements
33
ING VP VALUE OPPORTUNITY PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 13.25 15.34 16.42 14.41 11.92
Income from investment operations:
Net investment income $ 0.04 0.03 0.07 0.10 0.09
Net realized and unrealized gain (loss) on investments $ (3.47) (1.43) 1.49 2.71 2.56
Total from investment operations $ (3.43) (1.40) 1.56 2.81 2.65
Less distributions from:
Net investment income $ 0.05 0.05 0.03 0.08 0.08
Net realized gains on investments $ -- 0.64 2.61 0.72 0.08
Total distributions $ 0.05 0.69 2.64 0.80 0.16
Net asset value, end of year $ 9.77 13.25 15.34 16.42 14.41
TOTAL RETURN(2): % (25.96) (9.62) 10.19 19.58 22.39
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 211,470 219,287 116,029 85,030 76,109
Ratios to average net assets:
Expenses % 0.72 0.71 0.75 0.73 0.74
Net investment income % 0.51 0.54 0.58 0.69 0.93
Portfolio turnover rate % 304 185 171 125 126
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS S
------------------------------
YEAR NOVEMBER 1,
ENDED 2001(1) TO
DECEMBER 31, DECEMBER 31,
2002 2001
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.24 14.58
Income from investment operations:
Net investment income $ 0.01 --
Net realized and unrealized loss on investments $ (3.46) (1.34)
Total from investment operations $ (3.45) (1.34)
Less distributions from:
Net investment income $ 0.04 --
Total distributions $ 0.04 --
Net asset value, end of period $ 9.75 13.24
TOTAL RETURN(2): % (26.12) (9.19)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,092 307
Ratios to average net assets:
Expenses(3) % 0.97 0.96
Net investment income(3) % 0.26 0.29
Portfolio turnover rate % 304 185
- -----------------------------------------------------------------------------------------------------
</Table>
(1)Commencement of offering of shares.
(2)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3)Annualized for periods less than one year.
* Amount is less than $0.01 per share.
See Accompanying Notes to Financial Statements
34
ING VP BALANCED PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.09 13.40 15.57 15.73 16.03
Income from investment operations:
Net investment income $ 0.25 0.31 0.43 0.44 0.46
Net realized and unrealized gain (loss) on investments $ (1.49) (0.87) (0.49) 1.56 2.11
Total from investment operations $ (1.24) (0.56) (0.06) 2.00 2.57
Less distributions from:
Net investment income $ 0.12 0.28 0.46 0.40 0.39
Net realized gains on investments $ -- 0.47 1.65 1.76 2.48
Total distributions $ 0.12 0.75 2.11 2.16 2.87
Net asset value, end of year $ 10.73 12.09 13.40 15.57 15.73
TOTAL RETURN(1): % (10.31) (4.21) (0.56) 13.60 16.93
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (millions) $ 1,223 1,591 1,777 1,988 1,852
Ratios to average net assets:
Expenses % 0.60 0.59 0.59 0.59 0.59
Net investment income % 2.00 2.46 2.72 2.81 3.01
Portfolio turnover rate % 345 167 182 136 86
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
See Accompanying Notes to Financial Statements
35
ING VP GROWTH AND INCOME PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 19.54 24.12 30.69 31.87 33.63
Income from investment operations:
Net investment income $ 0.16 0.14 0.17 0.31 0.38
Net realized and unrealized gain (loss) on investments $ (5.04) (4.58) (3.46) 4.86 4.47
Total from investment operations $ (4.88) (4.44) (3.29) 5.17 4.85
Less distributions from:
Net investment income $ 0.16 0.14 0.16 0.34 0.40
Net realized gains on investments $ -- -- 3.12 6.01 6.21
Total distributions $ 0.16 0.14 3.28 6.35 6.61
Net asset value, end of year $ 14.50 19.54 24.12 30.69 31.87
TOTAL RETURN(1): % (24.99) (18.40) (10.97) 17.42 14.49
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (millions) $ 3,525 5,639 7,797 10,029 9,801
Ratios to average net assets:
Expenses % 0.59 0.59 0.58 0.58 0.57
Net investment income % 0.83 0.62 0.55 0.89 1.03
Portfolio turnover rate % 246 185 149 133 146
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
(1)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
See Accompanying Notes to Financial Statements
36
ING VP BOND PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.95 12.61 12.17 13.06 12.85
Income from investment operations:
Net investment income $ 0.45 0.59 0.79 0.76 0.75
Net realized and unrealized gain (loss) on investments $ 0.63 0.51 0.37 (0.86) 0.28
Total from investment operations $ 1.08 1.10 1.16 (0.10) 1.03
Less distributions from:
Net investment income $ 0.43 0.65 0.72 0.75 0.76
Net realized gains on investments $ 0.07 0.11 -- 0.04 0.06
Total distributions $ 0.50 0.76 0.72 0.79 0.82
Net asset value, end of year $ 13.53 12.95 12.61 12.17 13.06
TOTAL RETURN(1): % 8.33 8.75 9.64 (0.74) 8.14
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 1,205,968 1,023,563 711,211 717,472 794,560
Ratios to average net assets:
Expenses % 0.49 0.50 0.50 0.49 0.49
Net investment income % 3.50 5.06 6.29 5.77 5.82
Portfolio turnover rate % 565 219 334 201 89
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS S
------------
MAY 3,
2002(3) TO
DECEMBER 31,
2002
- -----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.05
Income from investment operations:
Net investment income $ 0.16
Net realized and unrealized gain on investments $ 0.81
Total from investment operations $ 0.97
Less distributions from:
Net investment income $ 0.42
Net realized gains on investments $ 0.07
Total distributions $ 0.49
Net asset value, end of period $ 13.53
TOTAL RETURN(1): % 7.45
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 49,590
Ratios to average net assets:
Expenses(2) % 0.74
Net investment income(2) % 3.25
Portfolio turnover rate % 565
- -----------------------------------------------------------------------------------
</Table>
(1)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(2)Annualized for periods less than one year.
(3)Commencement of offering of shares.
See Accompanying Notes to Financial Statements
37
ING VP MONEY MARKET PORTFOLIO
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS R
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 13.33 13.61 13.42 13.39 13.36
Income from investment operations:
Net investment income $ 0.21 0.50 0.83 0.59 0.63
Net realized and unrealized gain (loss) on
investments $ -- 0.01 (0.02) 0.06 0.07
Total from investment operations $ 0.21 0.51 0.81 0.65 0.70
Less distributions from:
Net investment income $ 0.51 0.79 0.62 0.62 0.67
Total distributions $ 0.51 0.79 0.62 0.62 0.67
Net asset value, end of year $ 13.03 13.33 13.61 13.42 13.39
TOTAL RETURN(1): % 1.66 3.94 6.38 5.08 5.46
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 1,551,666 1,518,737 1,195,930 1,157,818 875,169
Ratios to average net assets:
Expenses % 0.34 0.34 0.34 0.34 0.34
Net investment income % 1.63 4.07 6.20 5.04 5.28
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1)Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
See Accompanying Notes to Financial Statements
38
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Organization. The ING Variable Product Portfolios are comprised of ING Variable
Portfolios, Inc., ING VP Balanced Portfolio, Inc., ING Variable Funds, ING
Income Shares and ING VP Money Market Fund, all of which are open-end investment
management companies registered under the Investment Company Act of 1940, as
amended.
The ING Variable Portfolios, Inc. is a company incorporated under the laws of
Maryland on June 4, 1996 and has eight separate portfolios. The five portfolios
that are in this report are: ING VP International Equity Portfolio
("International"), ING VP Growth Portfolio ("Growth"), ING VP Small Company
Portfolio ("Small Company"), ING VP Technology Portfolio ("Technology"), and ING
VP Value Opportunity Portfolio ("Value Opportunity"). ING VP Balanced Portfolio,
Inc. ("Balanced") is a company incorporated under the laws of Maryland on
December 14, 1988. ING Variable Funds is a company incorporated under the laws
of Massachusetts on January 25, 1984 with one portfolio, ING VP Growth and
Income Portfolio ("Growth and Income"). ING Income Shares is a company
incorporated under the laws of Massachusetts on January 25, 1984 with one
portfolio, ING VP Bond Portfolio ("Bond"). ING VP Money Market Fund is a company
incorporated under the laws of Massachusetts on January 25, 1984 with one
portfolio, ING VP Money Market Portfolio ("Money Market").
Each Portfolio offers class R shares. International, Growth, Small Company,
Technology, Value Opportunity and Bond also offer class S shares. The two
classes differ principally in applicable shareholder service fees. Shareholders
of each class also bear certain expenses that pertain to that particular class.
All shareholders bear the common expenses of the Portfolios and earn income from
the portfolio pro rata based on the average daily net assets of each class,
without discrimination between share classes. Dividends are determined
separately for each class based on income and expenses allocable to each class.
Realized gains are allocated to each class pro rata based on the net assets of
each class on the date of distribution. No class has preferential dividend
rights. Differences in per share dividend rates generally result from the
relative weighting of pro rata income and realized gain allocations and from
differences in separate class expenses, including distribution, and shareholder
servicing fees.
International Equity Portfolio seeks long-term growth of capital through
investment in equity equivalents of companies outside the United States.
Growth Portfolio seeks growth of capital through investment in a diversified
portfolio consisting primarily of common stocks and securities convertible into
common stocks believed to offer growth potential.
Small Company Portfolio seeks growth of capital primarily through investment in
a diversified portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalization corresponding to the
Russell 2000 Index.
Technology Portfolio seeks long-term capital appreciation by investing at least
80% of its assets in common stocks and securities convertible into common stock
of companies in the information technology industry sector.
Value Opportunity Portfolio seeks growth of capital primarily through investment
in a diversified portfolio of common stocks and securities convertible into
common stock.
Balanced Portfolio seeks to maximize investment return consistent with
reasonable safety of principal, by investing in a diversified portfolio of one
or more of the following asset classes: stocks, bonds and cash equivalents.
Growth and Income Portfolio seeks to maximize total return through investment in
a diversified portfolio consisting primarily of common stocks and securities
convertible into common stock believed to offer above-average growth potential.
Bond Portfolio seeks to provide as high a level of total return as is consistent
with reasonable risk, primarily through investment in a diversified portfolio of
investment-grade corporate bonds, and debt securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
Money Market Portfolio seeks to provide high current return, consistent with
preservation of capital and liquidity through investment in high quality money
market instruments.
On December 13, 2000, Aetna Inc. (Aetna), the indirect parent company of Aeltus
Investment Management, Inc. (Aeltus), the investment adviser to the Portfolios,
and Aeltus Capital, Inc. (ACI), each Portfolio's principal underwriter, sold
certain of its financial services and international businesses, including Aeltus
and ACI, to ING Groep N.V. (ING). ING is a global financial institution active
in the fields of insurance, banking and asset management in more than 65
countries.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the
Portfolios in the preparation of their financial statements, and such policies
are in conformity with accounting principles generally accepted in the United
States of America for investment companies.
39
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
A. Security Valuation. Investments in equity securities
traded on a national securities exchange or included on the NASDAQ
National Market System are valued at the last reported sale price.
Securities traded on an exchange or NASDAQ for which there has been no
sale and 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 bid prices obtained from independent services or
from one or more dealers making markets in the securities. 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 for which market quotations are not
readily available are valued at their respective fair values as determined
in good faith and in accordance with policies set by the Board of
Directors. Investments in securities maturing in less than 60 days from
the date of acquisition 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 delivered. 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 portfolios. Premium amortization and discount
accretion are determined by the effective yield method.
C. Foreign Currency Translation. The books and records
of the portfolios 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 Portfolios do 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 and maturities of short-term
securities, 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 Portfolio'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 fiscal year
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 re-evaluation 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.
D. Foreign Currency Transactions and Futures
Contracts. Certain portfolios may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to
and from the U.S. dollar in connection with the planned purchases or sales
of securities. The Portfolios either enter into these transactions on a
spot basis at the spot rate prevailing in the foreign currency exchange
market or use forward foreign currency contracts to purchase or sell
foreign currencies. When the contract is fulfilled or closed, gains or
losses are realized. Until then, the gain or loss is included in
unrealized appreciation or depreciation. Risks may arise upon entering
into forward contracts from the potential inability of counterparties to
meet the terms of their forward contracts and from the potential inability
of counterparties to meet the terms of their forward contracts and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
Each Portfolio may enter into futures contracts involving foreign
currency, interest rates, securities and securities indices, for hedging
purposes only. A
40
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
futures contract obligates the seller of the contract to deliver and the
purchaser of the contract to take delivery of the type of foreign
currency, financial instrument or security called for in the contract at a
specified future time for a specified price. Upon entering into such a
contract, a Portfolio is required to deposit and maintain as collateral
such initial margin as required by the exchange on which the contract is
traded. Pursuant to the contract, a Portfolio agrees to receive from or
pay to the broker an amount equal to the daily fluctuations in the value
of the contract. Such receipts or payments are known as variation margins
and are recorded as unrealized gains or losses by the Portfolio. When the
contract is closed, the Portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time it was closed.
E. Distributions to Shareholders. Dividends from net
investment income and capital gains, if any, are declared and paid
annually by the International, Growth, Small Company, Technology, Value
Opportunity, Balanced and Money Market Portfolios; and declared and paid
semi-annually by Bond and Growth and Income Portfolios.
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. These "book/tax" differences are
either considered temporary or permanent in nature. Key differences are
the treatment of short-term capital gains, foreign currency transactions,
and other temporary differences. To the extent that these differences are
permanent in nature, such amounts are reclassified within the capital
accounts, presented on the Statement of Assets and Liabilities, based on
their federal tax-basis treatment; temporary differences do not require
reclassifications. Distributions which exceed net investment income and
net realized capital gains for financial reporting purposes but not for
tax purposes, are reported as distributions in excess of net investment
income and/or net realized capital gains. To the extent they exceed net
investment income and/or net realized capital gains for tax purposes, they
are reported as distributions of paid-in capital.
F. Federal Income Taxes. It is the policy of the
Portfolios, to comply with the requirements of the Internal Revenue Code
that are applicable to regulated investment companies and to distribute
substantially all of their net investment income and any net realized
capital gains to their shareholders. Therefore, a federal income tax or
excise tax provision is not required. The Board of Directors intends to
offset any net capital gains with any available capital loss carryforward
until each carryforward has been fully utilized or expires.
G. Use of Estimates. Management of the Portfolios 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. Actual results could differ from these
estimates.
H. Repurchase Agreements. Each Portfolio may invest
in repurchase agreements only with government securities dealers
recognized by the Board of Governors of the Federal Reserve System or with
member banks 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 agreements is usually short,
from overnight to one week, while the underlying securities generally have
longer maturities. Each Portfolio will always 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 Portfolio. 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, a Portfolio might incur a loss or delay in the realization of
proceeds if the value of the collateral securing the repurchase agreement
declines, and it might incur disposition costs in liquidating the
collateral.
I. Securities Lending. Each Portfolio had the option to
temporarily loan up to 33 1/3% of its total assets to brokers, dealers or
other financial institutions in exchange for a negotiated lender's fee.
The borrower is required to fully collateralize the loans with cash,
letters of credit or U.S. Government securities.
J. Illiquid and Restricted Securities. Illiquid securities
are not readily marketable. Disposing of illiquid investments may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for the Portfolios to sell them promptly at an acceptable
price. Restricted securities are those sold under Rule 144A of the
Securities Act of 1933 (1933 Act) or are securities offered pursuant to
Section 4(2) of the 1933 Act, and are subject to legal or contractual
restrictions on resale and may
41
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
not be publicly sold without registration under the 1933 Act. Each
Portfolio, except for Money Market, may invest up to 15% of its net assets
in illiquid securities. Restricted securities are valued using market
quotations when readily available. In the absence of market quotations,
the illiquid and restricted securities are valued based upon their fair
value determined under procedures approved by the Board. The Portfolios
will not pay the costs of disposition of restricted securities other than
ordinary brokerage fees, if any.
K. Delayed Delivery Transactions. Balanced, Growth
and Income, and Bond Portfolios may purchase or sell securities on a
when-issued or forward commitment basis. The price of the underlying
securities and date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated. The market value of such
is identified in the Portfolios' Portfolio of Investments. Losses may
arise due to changes in the market value of the securities or from the
inability of counterparties to meet the terms of the contract. In
connection with such purchases, the Portfolios are required to hold liquid
assets as collateral with the Portfolios' custodian sufficient to cover
the purchase price.
L. Mortgage Dollar Roll Transactions. In connection
with a portfolio's ability to purchase or sell securities on a when-issued
basis, Balanced, Growth and Income, and Bond Portfolios may engage in
dollar roll transactions with respect to mortgage-backed securities issued
by Government National Mortgage Association, Federal National Mortgage
Association and Federal Home Loan Mortgage Corp. In a dollar roll
transaction, a Portfolio sells a mortgage-backed security to a financial
institution, such as a bank or broker/dealer, and simultaneously agrees to
repurchase a substantially similar (i.e., same type, coupon, and maturity)
security from the institution on a delayed delivery basis at an agreed
upon price. The mortgage-backed securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized
by different pools of mortgages with different prepayment histories.
M. Options Contracts. Balanced, Growth and Income,
and Bond may purchase put and call options and may write (sell) put
options and covered call options. The Portfolios may engage in option
transactions as a hedge against adverse movements in the value of
portfolio holdings or to increase market exposure. Option contracts are
valued daily and unrealized gains or losses are recorded based upon the
last sales price on the principal exchange on which the options are
traded. The Portfolios will realize a gain or loss upon the expiration or
closing of the option contract. When an option is exercised, the proceeds
on sales of the underlying security for a written call option, the
purchase cost of the security for a written put option, or the cost of the
security for a purchased put or call option is adjusted by the amount of
premium received or paid. Realized and unrealized gains or losses on
option contracts are reflected in the accompanying financial statements.
The risk in writing a call option is that the Portfolios give up the
opportunity for profit if the market price of the security increases and
the option is exercised. The risk in writing a put option is that the
Portfolios may incur a loss if the market price of the security decreases
and the option is exercised. The risk in buying an option is that the
Portfolios pay a premium whether or not the option is exercised. Risks may
also arise from an illiquid secondary market or from the inability of
counterparties to meet the terms of the contract.
N. Swap Contracts. The Balanced and Bond Portfolios
may enter into interest rate swaps, currency swaps and other types of swap
agreements, including swaps on securities and indices. A swap is an
agreement between two parties pursuant to which each party agrees to make
one or more payments to the other on regularly scheduled dates over a
stated term, based on different interest rates, currency exchange rates,
security prices, the prices or rates of other types of financial
instruments or assets or the levels of specified indices. During the term
of the swap, changes in the value of the swap are recognized by
marking-to-market the value of the swap. For each swap contract, a capital
gain or loss is recognized on each contract's respective payment date.
NOTE 3 -- INVESTMENT TRANSACTIONS
For the year ended December 31, 2002, the cost of purchases and proceeds from
the sales of securities, excluding U.S. Government and short-term securities,
were as follows:
<Table>
<Caption>
PURCHASES SALES
--------- -----
International $ 101,651,359 $ 106,311,143
Growth 569,623,529 605,002,042
Small Company 1,235,173,777 1,167,496,874
Technology 49,471,830 31,873,840
Value Opportunity 718,399,434 652,800,243
Balanced 2,872,745,837 2,827,500,759
Growth and Income 11,006,249,137 11,706,870,445
Bond 2,061,716,856 1,584,720,941
</Table>
42
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
U.S. Government Securities not included above were as follows:
<Table>
<Caption>
PURCHASES SALES
--------- -----
International $ -- $ --
Growth -- --
Small Company -- --
Technology -- --
Value Opportunity -- --
Balanced 1,745,442,523 1,867,666,649
Growth and Income -- --
Bond 4,058,368,086 4,312,847,246
</Table>
NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
Each of the Portfolios has entered into an Investment Management Agreement with
ING Investments, LLC (the "Manager"), a wholly-owned subsidiary of ING Groep
N.V. The investment management agreements compensate the Manager with a fee,
computed daily and payable monthly, based on the average daily net assets of
each Portfolio, at the following annual rates:
<Table>
<Caption>
AS A PERCENTAGE OF
AVERAGE NET ASSETS
------------------
International 0.85%
Growth 0.60%
Small Company 0.75%
Technology 0.95%
Value Opportunity 0.60%
Balanced 0.50%
Growth and Income 0.50% on first $10
billion; 0.45% on next $5
billion; and 0.425% over
$15 billion
Bond 0.40%
Money Market 0.25%
</Table>
The Manager entered into a subadvisory agreement with Aeltus Investment
Management, Inc. (Aeltus), a wholly owned subsidiary of ING Groep N.V. effective
March 1, 2002. Aeltus acts as subadvisor to all Portfolios except the Technology
Portfolio. Subject to such policies as the Board or The Manager may determine,
Aeltus manages the Portfolios' assets in accordance with the Portfolios'
investment objectives, policies, and limitations.
Pursuant to a subadvisory agreement between the Investment Adviser and AIC Asset
Management, LLC ("AIC"), AIC serves as subadviser to the Technology Portfolio.
Pursuant to the Administrative Services Agreement effective April 1, 2002 ING
Funds Services, LLC ("IFS") acts as administrator and provides certain
administrative and shareholder services necessary for Portfolio operations and
is responsible for the supervision of other service providers.
IFS is entitled to receive from each Portfolio a fee at an annual rate of 5.5
basis points on the first $5 billion of daily net assets and 3.0 basis points
thereafter.
NOTE 5 -- DISTRIBUTION AND SERVICE FEES
Class S shares of the Portfolios have adopted a Plan pursuant to Rule 12b-1
under the 1940 Act (the "12b-1 Plans"), whereby ING Funds Distributor, LLC (the
"Distributor") is reimbursed or compensated by the Portfolios for expenses
incurred in the distribution of each Portfolio's shares ("Distribution Fees").
Pursuant to the 12b-1 Plans, the Distributor is entitled to a payment each month
to reimburse or compensate expenses incurred in the distribution and promotion
of each Portfolio's shares, including expenses incurred in printing prospectuses
and reports used for sales purposes, expenses incurred in preparing and printing
sales literature and other such distribution related expenses, including any
distribution or shareholder servicing fees ("Service Fees") paid to securities
dealers who have executed a distribution agreement with the Distributor. Under
the 12b-1 Plans, class S shares of the Portfolios pay the Distributor a fee
calculated at an annual rate of 0.25% of average daily net assets.
Prior to January 1, 2002, the Distribution fees were paid to ACI. Presently, the
Portfolios' class specific expenses are limited to distribution fees.
NOTE 6 -- OTHER TRANSACTIONS WITH AFFILIATED AND RELATED PARTIES
At December 31, 2002 the Portfolios had the following amounts recorded in
payable to affiliates on the accompanying Statements of Assets and Liabilities
(see Notes 4 and 5):
<Table>
<Caption>
ACCRUED
ACCRUED SHAREHOLDER
INVESTMENT ACCRUED SERVICES AND
MANAGEMENT ADMINISTRATIVE DISTRIBUTION
FEES FEES FEES TOTAL
---- ---- ---- -----
International $ 21,654 $ 1,401 $ -- $ 23,055
Growth 99,399 9,112 7 108,518
Small Company 194,718 14,279 40 209,037
Technology 40,850 2,365 -- 43,215
Value Opportunity 113,637 10,417 240 124,294
Balanced 544,363 59,880 -- 604,243
Growth and Income 1,595,027 175,453 -- 1,770,480
Bond 435,055 59,820 9,719 504,594
Money Market 337,902 74,338 -- 412,240
</Table>
Each Portfolio has adopted a Deferred Compensation Plan (the "Plan"), which
allows eligible non-affiliated directors as described in the Plan to defer the
receipt of all or a portion of the directors' fees payable. The deferred fees
are invested in various funds advised by
43
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
ING Investments, LLC until distribution in accordance with the Plan.
NOTE 7 -- EXPENSE LIMITATIONS
For the following Portfolios, the Investment Manager has voluntarily agreed to
limit expenses, excluding interest, taxes, brokerage and extraordinary expenses
to the levels listed below:
<Table>
<Caption>
CLASS R CLASS S
------- -------
International 1.15% 1.40%
Growth 0.80% 1.05%
Small Company 0.95% 1.20%
Technology 1.15% 1.40%
Value Opportunity 0.80% 1.05%
</Table>
Each Portfolio will at a later date reimburse the Investment Manager for
expenses waived during the previous 36 months, but only if, after such
reimbursement, the Portfolio's expense ratio does not exceed the percentage
described above. Waived and reimbursed fees and any recoupment by the Investment
Manager of such waived and reimbursed fees are reflected on the accompanying
Statements of Operations for each Portfolio.
As of December 31, 2002, the cumulative amount of reimbursed fees that are
subject to possible recoupment by the Manager are as follows:
<Table>
International Equity $81,760
Technology 4,750
</Table>
NOTE 8 -- LINE OF CREDIT
All of the Portfolios included in this report, in addition to certain other
funds managed by the Adviser, have entered into an unsecured committed revolving
line of credit agreement (the "Credit Agreement ") with a syndicate of banks led
by Citibank, N.A. for an aggregate amount of $200,000,000. The proceeds may be
used only to: (1) temporarily finance the purchase and sale of securities; (2)
finance the redemption of shares of an investor in the Portfolios; and (3)
enable the Portfolios to meet other emergency expenses as defined in the Credit
Agreement. The Portfolios to which the line of credit is available pay a
commitment fee equal to 0.09% per annum on the daily unused portion of the
committed line amount. Each of the Portfolios will pay its pro rata share of
both the agent and commitment fee. Generally, borrowings under the Credit
Agreement accrue interest at the Federal Funds Rate plus a specified margin.
Repayments generally must be made within 30 days after the date of a revolving
credit advance. At December 31, 2002, the Portfolios did not have any loans
outstanding under the line of credit.
NOTE 9 -- CAPITAL SHARES TRANSACTIONS
Transaction in capital shares and dollars were as follows:
<Table>
<Caption>
CLASS R SHARES CLASS S SHARES
------------------------------ ----------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
---- ---- ---- -------
INTERNATIONAL (NUMBER OF SHARES)
Shares sold 12,211,157 10,303,969 -- 1,355
Shares issued as reinvestment of dividends 13,352 6,668 -- --
Shares redeemed (13,375,503) (9,173,537) -- --
------------- ------------- -------- -------
Net increase (decrease) in shares outstanding (1,150,994) 1,137,100 -- 1,355
============= ============= ======== =======
INTERNATIONAL ($)
Shares sold $ 80,512,745 $ 89,090,877 $ -- $10,000
Shares issued as reinvestment of dividends 93,596 57,943 -- --
Shares redeemed (87,743,989) (78,970,794) -- --
------------- ------------- -------- -------
Net increase (decrease) $ (7,137,648) $ 10,178,026 $ -- $10,000
============= ============= ======== =======
</Table>
- ------------------
(1) Class S commenced offering of shares on November 1, 2001.
44
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARES TRANSACTIONS (CONTINUED)
<Table>
<Caption>
CLASS R SHARES CLASS S SHARES
----------------------------- ----------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
---- ---- ---- -------
GROWTH (NUMBER OF SHARES)
Shares sold 4,049,562 8,998,681 6,802 1,116
Shares issued as reinvestment of dividends -- 4,126,747 -- --
Shares redeemed (9,317,320) (12,145,096) (122) --
------------ ------------- -------- -------
Net increase (decrease) in shares outstanding (5,267,758) 980,332 6,680 1,116
============ ============= ======== =======
GROWTH ($)
Shares sold $35,440,835 $ 101,100,395 $ 51,572 $10,000
Shares issued as reinvestment of dividends -- 45,064,075 -- --
Shares redeemed (74,578,416) (131,051,904) (912) --
------------ ------------- -------- -------
Net increase (decrease) $(39,137,581) $ 15,112,566 $ 50,660 $10,000
============ ============= ======== =======
</Table>
<Table>
<Caption>
CLASS R SHARES CLASS S SHARES
------------------------------ ----------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
---- ---- ---- -------
SMALL COMPANY (NUMBER OF SHARES)
Shares sold 11,534,225 11,561,624 16,344 671
Shares issued as reinvestment of dividends 105,298 712,985 40 --
Shares redeemed (9,435,640) (8,247,035) (2,625) --
------------- ------------- -------- -------
Net increase in shares outstanding 2,203,883 4,027,574 13,759 671
============= ============= ======== =======
SMALL COMPANY ($)
Shares sold $ 175,512,145 $ 186,364,546 $250,476 $10,000
Shares issued as reinvestment of dividends 1,576,315 11,443,412 603 --
Shares redeemed (135,484,865) (130,621,184) (37,371) --
------------- ------------- -------- -------
Net increase $ 41,603,595 $ 67,186,774 $213,708 $10,000
============= ============= ======== =======
</Table>
<Table>
<Caption>
CLASS R SHARES CLASS S SHARES
---------------------------- ----------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
---- ---- ---- -------
TECHNOLOGY (NUMBER OF SHARES)
Shares sold 18,405,609 14,490,361 -- 2,551
Shares redeemed (15,147,805) (8,201,840) -- --
------------ ------------ ---------- --------
Net increase in shares outstanding 3,257,804 6,288,521 -- 2,551
============ ============ ========== ========
TECHNOLOGY ($)
Shares sold $66,979,389 $70,289,570 $ -- $ 10,000
Shares redeemed (52,304,809) (37,309,341) -- --
------------ ------------ ---------- --------
Net increase $14,674,580 $32,980,229 $ -- $ 10,000
============ ============ ========== ========
</Table>
- ------------------
(1) Class S commenced offering of shares on November 1, 2001.
45
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARES TRANSACTIONS (CONTINUED)
<Table>
<Caption>
CLASS R SHARES CLASS S SHARES
---------------------------- ----------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
---- ---- ---- -------
VALUE OPPORTUNITY (NUMBER OF SHARES)
Shares sold 7,209,302 9,865,146 104,635 24,347
Shares issued as reinvestment of dividends 82,208 563,859 300 --
Shares redeemed (2,198,402) (1,443,189) (16,084) (1,164)
------------ ------------ ---------- --------
Net increase in shares outstanding 5,093,108 8,985,816 88,851 23,183
============ ============ ========== ========
VALUE OPPORTUNITY ($)
Shares sold $ 85,145,155 $141,808,283 $1,247,625 $323,701
Shares issued as reinvestment of dividends 951,142 8,283,087 3,459 --
Shares redeemed (24,195,900) (19,608,503) (168,604) (14,725)
------------ ------------ ---------- --------
Net increase $ 61,900,397 $130,482,867 $1,082,480 $308,976
============ ============ ========== ========
</Table>
<Table>
<Caption>
CLASS R SHARES
------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
---- ----
BALANCED (NUMBER OF SHARES)
Shares sold 1,996,574 1,876,995
Shares issued as reinvestment of dividends 1,341,931 7,859,279
Shares redeemed (20,950,203) (10,783,611)
------------- -------------
Net decrease in shares outstanding (17,611,698) (1,047,337)
============= =============
BALANCED ($)
Shares sold $ 23,017,801 $ 23,722,014
Shares issued as reinvestment of dividends 14,989,364 96,749,161
Shares redeemed (230,189,224) (133,598,351)
------------- -------------
Net decrease $(192,182,059) $ (13,127,176)
============= =============
</Table>
<Table>
<Caption>
CLASS R SHARES
------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
---- ----
GROWTH AND INCOME (NUMBER OF SHARES)
Shares sold 1,580,665 3,787,554
Shares issued as reinvestment of dividends 2,604,961 2,086,247
Shares redeemed (49,721,251) (40,566,220)
------------- -------------
Net decrease in shares outstanding (45,535,625) (34,692,419)
============= =============
GROWTH AND INCOME ($)
Shares sold $ 27,763,650 $ 76,916,986
Shares issued as reinvestment of dividends 38,475,273 40,514,731
Shares redeemed (828,611,395) (846,837,453)
------------- -------------
Net decrease $(762,372,472) $(729,405,736)
============= =============
</Table>
- ------------------
(1) Class S commenced offering of shares on November 1, 2001.
46
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARES TRANSACTIONS (CONTINUED)
<Table>
<Caption>
CLASS R SHARES CLASS S SHARES
----------------------------- --------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002(1)
---- ---- -------
BOND (NUMBER OF SHARES)
Shares sold 15,194,847 23,487,819 4,594,043
Shares issued as reinvestment of dividends 3,110,914 4,397,753 103,425
Shares redeemed (8,233,251) (5,226,170) (1,031,773)
------------- ------------ ------------
Net increase in shares outstanding 10,072,510 22,659,402 3,665,695
============= ============ ============
BOND ($)
Shares sold $ 203,392,793 $312,081,094 $ 62,106,540
Shares issued as reinvestment of dividends 41,759,091 56,753,565 1,390,528
Shares redeemed (108,669,400) (69,989,795) (13,839,450)
------------- ------------ ------------
Net increase $ 136,482,484 $298,844,864 $ 49,657,618
============= ============ ============
</Table>
<Table>
<Caption>
CLASS R SHARES
----------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
---- ----
MONEY MARKET (NUMBER OF SHARES)
Shares sold 212,328,316 181,433,412
Shares issued as reinvestment of dividends 4,467,825 5,442,986
Shares redeemed (211,631,167) (160,797,942)
--------------- ---------------
Net increase in shares outstanding 5,164,974 26,078,456
=============== ===============
MONEY MARKET ($)
Shares sold $ 2,748,252,013 $ 2,378,249,423
Shares issued as reinvestment of dividends 57,317,722 69,787,785
Shares redeemed (2,739,754,578) (2,109,404,400)
--------------- ---------------
Net increase $ 65,815,157 $ 338,632,808
=============== ===============
</Table>
- ------------------
(1) Class S commenced offering of shares on May 3, 2002.
NOTE 10 -- FEDERAL INCOME TAXES
Dividends paid by the Funds from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. The tax composition of dividends and
distributions to shareholders were as follow:
<Table>
<Caption>
ORDINARY
INCOME
-----------
International Equity $ 93,596
Growth --
Small Company 1,576,918
Technology --
Value Opportunity 954,601
Balanced 14,989,364
Growth and Income 38,495,841
Bond 43,174,280
Money Market 57,317,722
</Table>
The amount of distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These book/tax
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains, foreign currency
transactions, organization costs and other temporary differences. To the extent
that these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassifications. To the extent
distributions exceed net investment income and/or net realized capital gains for
tax purposes, they are reported as distributions of paid-in capital.
Accordingly, the following amounts represent current year permanent tax
differences that have been reclassified as of December 31, 2002.
<Table>
<Caption>
ACCUMULATED NET
PAID-IN UNDISTRIBUTED NET REALIZED GAINS (LOSSES)
CAPITAL INVESTMENT INCOME ON INVESTMENTS
------- ----------------- -----------------------
International Equity $ 200 $ 194,659 $ (194,859)
Growth (151,362) 151,362 --
Small Company 327,559 (388,172) 60,613
Technology (498,251) 498,251 --
Value Opportunity -- 629,435 (629,435)
Balanced -- (2,961,604) 2,961,604
Growth and Income (2,082,271) 691,441 1,390,830
Bond -- (4,450,175) 4,450,175
Money Market -- -- --
</Table>
47
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 10 -- FEDERAL INCOME TAXES (CONTINUED)
Capital loss carryforwards, which may be used to offset future realized capital
gains for federal income tax purposes were as follows at December 31, 2002:
<Table>
<Caption>
AMOUNT EXPIRATION DATES
------ ----------------
International Equity $ 31,531,309 2009-2010
Growth 217,997,040 2009-2010
Small Company 70,984,645 2009-2010
Technology 57,131,367 2008-2010
Value Opportunity 70,506,602 2009-2010
Balanced 205,059,932 2009-2010
Growth and Income 3,023,558,930 2009-2011
Bond 571,253 2011
Money Market 4,506,979 2003-2010
</Table>
The following represents the tax-basis components of distributable earnings as
of December 31, 2002:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED CAPITAL
ORDINARY LONG-TERM UNREALIZED LOSS
INCOME CAPITAL GAINS APPRECIATION CARRYFORWARDS
------------- ------------- ------------- ---------------
International Equity $ 357,132 $-- $ (3,051,282) $ (31,531,309)
Growth -- -- (26,295,943) (217,997,040)
Small Company 919,164 -- (6,991,073) (70,984,645)
Technology -- -- (12,487,681) (57,131,367)
Value Opportunity 1,770,320 -- (14,513,491) (70,506,603)
Balanced 25,544,494 -- (77,614,793) (205,059,932)
Growth and Income -- -- (270,833,095) (3,023,558,930)
Bond 21,964,617 -- 31,668,549 (571,253)
Money Market 24,736,599 -- 297,785 (4,506,979)
</Table>
NOTE 11 -- SUBSEQUENT EVENT
Dividends. Subsequent to December 31, 2002, the following Portfolio declared
dividends of:
<Table>
<Caption>
PER SHARE
TYPE AMOUNT PAYABLE DATE RECORD DATE
---- --------- ---------------- ----------------
MONEY MARKET PORTFOLIO
Class R NII $0.203378 January 30, 2003 January 27, 2003
</Table>
48
ING
VP
INTERNATIONAL
EQUITY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
COMMON STOCKS: 100.46%
AUSTRALIA: 4.86%
41,900 Amcor Ltd. $ 200,188
27,400 Australia & New Zealand Banking Group Ltd. 267,526
63,400 BHP Billiton Ltd. 362,135
243,800 Goodman Fielder Ltd. 244,213
18,600 National Australia Bank Ltd. 332,332
------------
TOTAL AUSTRALIA 1,406,394
------------
BELGIUM: 2.07%
9,900 Dexia 122,809
15,200 Fortis 267,770
8,800 Interbrew 207,623
------------
TOTAL BELGIUM 598,202
------------
BRITAIN: 21.86%
8,400 AstraZeneca PLC 300,158
27,300 Aviva PLC 194,663
56,600 BG Group PLC 244,157
30,200 BHP Billiton PLC 161,263
131,533 BP PLC 904,025
26,800 Compass Group PLC 142,353
21,800 Diageo PLC 236,853
20,400 GlaxoSmithKline PLC ADR 764,184
55,000 HSBC Holdings PLC 607,745
140,200 Invensys PLC 119,039
31,759 Lloyds TSB Group PLC 227,992
47,762 National Grid Transco PLC 350,947
24,300 Pearson PLC 224,706
20,800 Reed Elsevier PLC 178,112
19,603 Royal Bank of Scotland Group PLC 469,508
50,500 Tesco PLC 157,693
490,341 Vodafone Group PLC 893,829
18,900 WPP Group PLC 144,350
------------
TOTAL BRITAIN 6,321,577
------------
FINLAND: 2.02%
30,400 Nokia OYJ ADR 471,200
10,700 Stora Enso OYJ 112,761
------------
TOTAL FINLAND 583,961
------------
FRANCE: 8.47%
5,700 Aventis SA 309,610
14,500 AXA 194,468
5,900 BNP Paribas 240,231
5,900 Carrefour SA 262,503
1,400 Groupe Danone 188,203
4,100 LVMH Moet Hennessy Louis Vuitton SA 168,316
2,600 Schneider Electric SA 122,932
2,400 Societe Generale 139,674
6,000 Suez SA 104,063
5,048 Total Fina Elf SA 720,423
------------
TOTAL FRANCE 2,450,423
------------
GERMANY: 8.55%
1,200 Allianz AG 114,067
3,300 BASF AG 124,851
6,000 Bayerische Motoren Werke AG 181,953
4,900 DaimlerChrysler AG 150,804
3,300 Deutsche Bank AG 151,911
32,700 Deutsche Telekom AG 420,043
7,900 E.ON AG 318,517
16,000 Infineon Technologies AG 117,275
8,500 Metro AG 202,773
1,100 Muenchener Rueckversicherungs AG 131,494
</Table>
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
2,700 SAP AG $ 213,814
2,100 Schering AG 91,275
4,000 Siemens AG 169,873
7,700 ThyssenKrupp AG 85,990
------------
TOTAL GERMANY 2,474,640
------------
HONG KONG: 2.42%
35,000 Cheung Kong Holdings Ltd. 227,767
38,000 Hutchison Whampoa Ltd. 237,788
248,000 Li & Fung Ltd. 235,326
------------
TOTAL HONG KONG 700,881
------------
IRELAND: 0.78%
14,000 Bank of Ireland 143,134
6,700 CRH PLC 82,902
------------
TOTAL IRELAND 226,036
------------
ITALY: 4.49%
10,900 Assicurazioni Generali SpA 224,023
33,600 Enel SpA 174,755
14,700 ENI-Ente Nazionale Idrocarburi SpA 233,528
53,500 Telecom Italia SpA 405,604
65,500 UniCredito Italiano SpA 261,683
------------
TOTAL ITALY 1,299,593
------------
JAPAN: 22.93%
9,000 Ajinomoto Co., Inc. 93,903
7,000 Bridgestone Corp. 86,653
7,000 Canon, Inc. 263,495
13,000 Dai Nippon Printing Co. Ltd. 143,739
40 East Japan Railway Co. 198,400
7,000 Fuji Photo Film Co. Ltd. 228,126
15,000 Fujitsu Ltd. 42,821
4,900 Hitachi Information Systems Ltd. 115,743
26,000 Hitachi Ltd. 99,621
4,600 Honda Motor Co. Ltd. 170,055
9,000 Ito-Yokado Co. Ltd. 265,263
1,000 Jafco Co. Ltd. 43,200
44,000 Kajima Corp. 98,189
7,000 Kao Corp. 153,558
500 Keyence Corp. 86,947
11,000 Kikkoman Corp. 76,236
1,900 Kyocera Corp. 110,560
20,000 Matsushita Electric Industrial Co. Ltd. 197,053
22 Millea Holdings, Inc. 158,215
43,000 Mitsubishi Heavy Industries Ltd. 105,011
32 Mitsubishi Tokyo Financial Group, Inc. 173,811
26,000 Mitsui & Co. Ltd. 121,297
1,100 Nintendo Co. Ltd. 102,728
118,000 Nippon Steel Corp. 138,122
51 Nippon Telegraph & Telephone Corp. 185,103
22,000 Nissan Motor Co. Ltd. 171,554
17,000 Nomura Holdings, Inc. 190,973
96 NTT DoCoMo, Inc. 177,044
200 Obic Co. Ltd. 34,779
1,500 ORIX Corp. 96,632
1,300 Rohm Co. Ltd. 165,415
2,500 Secom Co. Ltd. 85,684
10,000 Sharp Corp. 94,905
6,800 Shin-Etsu Chemical Co. Ltd. 222,754
4,400 Sony Corp. 183,781
27 Sumitomo Mitsui Financial Group, Inc. 84,354
8,800 Takeda Chemical Industries Ltd. 367,562
16,000 Tanabe Seiyaku Co. Ltd. 139,587
1,900 TDK Corp. 76,480
9,600 Tohoku Electric Power Co., Inc. 141,231
</Table>
See Accompanying Notes to Financial Statements
49
ING
VP
INTERNATIONAL
EQUITY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
JAPAN (CONTINUED)
2,200 Tokyo Electron Ltd. $ 99,486
61,000 Tokyo Gas Co. Ltd. 191,091
14,000 Tostem Inax Holding Corp. 212,211
16,300 Toyota Motor Corp. 437,869
------------
TOTAL JAPAN 6,631,241
------------
NETHERLANDS: 8.25%
15,700 Aegon NV 201,837
5,300 Akzo Nobel NV 168,006
13,300 @ ASML Holding NV 111,013
11,800 Koninklijke Philips Electronics NV 206,637
6,183 Numico NV 77,802
21,800 Royal Dutch Petroleum Co 958,955
23,800 Royal KPN NV 154,731
6,000 TPG NV 97,205
6,700 Unilever NV 411,350
------------
TOTAL NETHERLANDS 2,387,536
------------
SINGAPORE: 0.42%
19,000 DBS Group Holdings Ltd. 120,485
------------
TOTAL SINGAPORE 120,485
------------
SPAIN: 3.27%
33,400 Banco Bilbao Vizcaya Argentaria SA 319,412
6,400 Banco Popular Espanol 261,529
10,400 Iberdrola SA 145,588
24,500 @ Telefonica SA 219,142
------------
TOTAL SPAIN 945,671
------------
SWEDEN: 0.27%
109,700 Telefonaktiebolaget LM Ericsson 76,960
------------
TOTAL SWEDEN 76,960
------------
SWITZERLAND: 9.80%
11,150 Credit Suisse Group 241,831
540 Holcim Ltd. 97,990
2,790 Nestle SA 590,991
18,950 Novartis AG 691,179
4,450 Roche Holding AG 309,975
3,800 STMicroelectronics NV 74,434
2,150 Swiss Reinsurance 140,981
7,950 UBS AG 386,235
3,232 Zurich Financial Services AG 301,423
------------
TOTAL SWITZERLAND 2,835,039
------------
Total Common Stocks
(Cost $31,516,660) 29,058,639
------------
Total Long-Term Investments
(Cost $31,516,660) 29,058,639
------------
<Caption>
Principal
Amount Value
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 0.75%
$ 217,000 UBS Finance Discount Note,
effective rate 1.200%, due 01/02/03 $ 216,992
------------
Total Short-Term Investments
(Cost $216,992) 216,992
------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 101.21% $29,275,631
(COST $31,733,652)*
OTHER ASSETS AND LIABILITIES-NET -1.21% (350,645)
-------- -----------
NET ASSETS 100.00% $28,924,986
======== ===========
</Table>
<Table>
@ Non-income producing security
ADR American Depository Receipt
GDR Global Depository Receipt
* Cost for federal income tax purposes is $32,276,984. Net
unrealized depreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $ 230,218
Gross Unrealized Depreciation (3,231,572)
-----------
Net Unrealized Depreciation $(3,001,354)
===========
</Table>
See Accompanying Notes to Financial Statements
50
ING
VP
INTERNATIONAL
EQUITY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Percentage of
Industry Group Net Assets
----------------------------------------------------------------------
Advertising 0.50%
Auto Manufacturers 3.85%
Auto Parts & Equipment 0.30%
Banks 16.66%
Beverages 1.54%
Building Materials 1.36%
Chemicals 1.78%
Commercial Services 0.50%
Computers 0.93%
Cosmetics/Personal Care 0.53%
Distribution/Wholesale 1.23%
Diversified Financial Services 0.99%
Electric 3.91%
Electrical Equipment 0.67%
Electronics 1.69%
Engineering & Construction 0.34%
Food 7.98%
Food Service 0.49%
Forest Products & Paper 0.39%
Gas 0.66%
Hand/Machine Tools 0.43%
Holding Companies-Diversified 1.40%
Home Furnishings 1.32%
Insurance 5.74%
Iron/Steel 0.77%
Media 1.39%
Mining 1.81%
Miscellaneous Manufacturer 2.15%
Office/Business Equipment 0.91%
Oil & Gas 10.59%
Packaging & Containers 0.69%
Pharmaceuticals 10.28%
Real Estate 0.79%
Retail 0.92%
Semiconductors 1.96%
Software 0.74%
Short-Term Investments 0.75%
Telecommunications 10.38%
Toys/Games/Hobbies 0.36%
Transportation 1.02%
Venture Capital 0.15%
Water 0.36%
Other Assets and Liabilities, Net -1.21%
------
NET ASSETS 100.00%
======
</Table>
See Accompanying Notes to Financial Statements
51
ING
VP
GROWTH
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ----------------------------------------------------------------------------------------
COMMON STOCKS: 98.77%
BANKS: 1.12%
29,300 Bank of America Corp $ 2,038,401
------------
2,038,401
------------
BEVERAGES: 1.39%
97,600 Pepsi Bottling Group, Inc. 2,508,320
------------
2,508,320
------------
BIOTECHNOLOGY: 2.84%
106,572 Amgen, Inc. 5,151,690
------------
5,151,690
------------
COMMERCIAL SERVICES: 3.31%
68,900 @ Apollo Group, Inc. 3,031,600
64,400 @ Weight Watchers International, Inc. 2,960,468
------------
5,992,068
------------
COMPUTERS: 4.43%
162,000 @ Dell Computer Corp 4,331,880
212,200 Hewlett-Packard Co. 3,683,792
------------
8,015,672
------------
COSMETICS/PERSONAL CARE: 2.60%
54,800 Procter & Gamble Co. 4,709,512
------------
4,709,512
------------
DIVERSIFIED FINANCIAL SERVICES: 8.34%
37,100 American Express Co. 1,311,485
22,300 Bear Stearns Cos., Inc. 1,324,620
48,000 Citigroup, Inc. 1,689,120
46,900 Fannie Mae 3,017,077
41,500 Freddie Mac 2,450,575
73,600 MBNA Corp. 1,399,872
103,000 Merrill Lynch & Co., Inc. 3,908,850
------------
15,101,599
------------
ELECTRICAL EQUIPMENT: 0.52%
62,900 @ American Power Conversion 952,935
------------
952,935
------------
ELECTRONICS: 1.14%
44,700 Parker Hannifin Corp. 2,062,011
------------
2,062,011
------------
HEALTHCARE -- PRODUCTS: 8.21%
24,400 CR Bard, Inc. 1,415,200
39,700 @ Henry Schein, Inc. 1,786,500
158,100 Johnson & Johnson 8,491,551
63,900 @ Varian Medical Systems, Inc. 3,169,440
------------
14,862,691
------------
HEALTHCARE -- SERVICES: 2.34%
56,800 A Aetna, Inc. 2,335,616
22,800 UnitedHealth Group, Inc. 1,903,800
------------
4,239,416
------------
HOUSEHOLD PRODUCTS/WARES: 1.41%
61,900 Clorox Co. 2,553,375
------------
2,553,375
------------
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Shares Value
INSURANCE: 2.45%
66,700 Metlife, Inc. $ 1,803,568
179,300 @ Travelers Property Casualty Corp. 2,626,745
------------
4,430,313
------------
INTERNET: 2.54%
24,700 @ Expedia, Inc. 1,653,176
180,600 @ Yahoo, Inc. 2,952,810
------------
4,605,986
------------
MEDIA: 5.44%
87,100 @ Clear Channel Communications, Inc. 3,247,959
74,000 @ Fox Entertainment Group, Inc. 1,918,820
114,800 @ Viacom, Inc. 4,679,248
------------
9,846,027
------------
MISCELLANEOUS MANUFACTURER: 7.31%
21,800 3M Co. 2,687,940
42,697 Danaher Corp. 2,805,193
49,700 Eastman Kodak Co. 1,741,488
246,300 General Electric Co. 5,997,405
------------
13,232,026
------------
OIL & GAS: 1.15%
104,200 Ocean Energy, Inc. 2,080,874
------------
2,080,874
------------
OIL & GAS SERVICES: 0.83%
80,200 Halliburton Co. 1,500,542
------------
1,500,542
------------
PACKAGING & CONTAINERS: 0.81%
28,600 Ball Corp. 1,464,034
------------
1,464,034
------------
PHARMACEUTICALS: 11.98%
51,100 Allergan, Inc. 2,944,382
14,200 @ Forest Laboratories, Inc. 1,394,724
55,800 Merck & Co., Inc. 3,158,838
192,500 Pfizer, Inc. 5,884,725
104,000 Pharmacia Corp. 4,347,200
36,600 @@ Teva Pharmaceutical Industries ADR 1,413,126
90,200 @ Watson Pharmaceuticals, Inc. 2,549,954
------------
21,692,949
------------
RETAIL: 8.61%
84,100 @ Abercrombie & Fitch Co. 1,720,686
120,200 Gap, Inc. 1,865,504
99,000 Home Depot, Inc. 2,372,040
31,300 @ Kohl's Corp. 1,751,235
107,000 @ Petsmart, Inc. 1,832,910
131,700 @ Staples, Inc. 2,410,110
72,100 Wal-Mart Stores, Inc. 3,641,771
------------
15,594,256
------------
SEMICONDUCTORS: 6.08%
284,800 Intel Corp. 4,434,336
46,600 @ Kla-Tencor Corp. 1,648,242
69,400 Linear Technology Corp. 1,784,968
67,200 Microchip Technology, Inc. 1,643,040
53,200 @ Novellus Systems, Inc. 1,493,856
------------
11,004,442
------------
</Table>
See Accompanying Notes to Financial Statements
52
ING
VP
GROWTH
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ----------------------------------------------------------------------------------------
SOFTWARE: 11.10%
50,900 @ Electronic Arts, Inc. $ 2,533,293
34,900 @ Intuit, Inc. 1,637,508
211,200 @ Microsoft Corp. 10,919,040
289,900 @ Oracle Corp. 3,130,920
103,000 @ Peoplesoft, Inc. 1,884,900
------------
20,105,661
------------
TELECOMMUNICATIONS: 2.82%
390,500 @ Cisco Systems, Inc. 5,115,550
------------
5,115,550
------------
Total Common Stocks
(Cost $190,682,559) 178,860,350
------------
Total Long-Term Investments
(Cost $190,682,559) 178,860,350
------------
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 1.35%
REPURCHASE AGREEMENT: 1.35%
$ 2,441,000 State Street Bank Repurchase Agreement, 1.200%,
due 01/02/03, $2,441,163 to be received upon
repurchase (Collateralized by $2,494,658 FNMA,
2.600%, due 10/01/04) $ 2,441,000
------------
Total Short-Term Investment
(Cost $2,441,000) 2,441,000
------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 100.12% $181,301,350
(COST $193,123,559)*
OTHER ASSETS AND LIABILITIES-NET -0.12% (219,252)
------- ------------
NET ASSETS 100.00% $181,082,098
======= ============
</Table>
<Table>
@ Non-income producing security
@@ Foreign Issuer
A Related Party
ADR American Depository Receipt
* Cost for federal income tax purposes is $207,597,294. Net
unrealized depreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $ 2,869,986
Gross Unrealized Depreciation (29,165,930)
------------
Net Unrealized Depreciation $(26,295,944)
============
</Table>
See Accompanying Notes to Financial Statements
53
ING
VP
SMALL
COMPANY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
COMMON STOCKS: 95.03%
AEROSPACE/DEFENSE: 2.19%
30,000 Curtiss-Wright Corp. $ 1,914,600
70,000 Engineered Support Systems, Inc. 2,566,200
60,000 @ Moog, Inc. 1,862,400
------------
6,343,200
------------
AIRLINES: 0.64%
42,499 @ Atlantic Coast Airlines Holdings, Inc. 511,263
131,500 @ ExpressJet Holdings, Inc. 1,347,875
------------
1,859,138
------------
APPAREL: 0.60%
65,000 @ Quiksilver, Inc. 1,732,900
------------
1,732,900
------------
BANKS: 4.80%
76,900 Chittenden Corp. 1,959,412
60,000 East-West Bancorp, Inc. 2,164,800
50,000 FNB Corp. 1,376,500
71,000 @ Local Financial Corp. 1,040,150
56,000 Provident Bankshares Corp. 1,294,216
65,000 @@ R&G Financial Corp. 1,511,250
124,000 South Financial Group, Inc. 2,561,840
55,000 Texas Regional Bancshares, Inc. 1,954,755
------------
13,862,923
------------
BIOTECHNOLOGY: 0.20%
60,000 @ Applera Corp. 573,000
------------
573,000
------------
CHEMICALS: 0.59%
285,000 Crompton Corp. 1,695,750
------------
1,695,750
------------
COMMERCIAL SERVICES: 4.47%
22,000 @ Advisory Board Co. 657,800
100,000 @ Corinthian Colleges, Inc. 3,786,000
100,000 @ Corporate Executive Board Co. 3,192,000
70,000 @ Kroll, Inc. 1,335,600
113,000 @ PRG-Schultz International, Inc. 1,005,700
75,000 @ Right Management Consultants, Inc. 993,750
34,000 Strayer Education, Inc. 1,955,000
------------
12,925,850
------------
COMPUTERS: 6.36%
120,000 @ Anteon International Corp. 2,880,000
80,000 @ CACI International, Inc. 2,851,200
20,000 @ Cognizant Technology Solutions Corp. 1,444,600
67,700 @ Fidelity National Information Solutions,
Inc. 1,167,825
40,000 @ Hutchinson Technology, Inc. 828,000
53,000 @ Imation Corp. 1,859,240
100,000 @ Intergraph Corp. 1,776,000
217,300 Mentor Graphics Corp. 1,707,978
62,500 @ Neoware Systems, Inc. 931,875
80,000 Talx Corp. 1,033,600
300,000 @ Western Digital Corp. 1,917,000
------------
18,397,318
------------
DISTRIBUTION/WHOLESALE: 0.43%
25,000 @ Scansource, Inc. 1,232,500
------------
1,232,500
------------
</Table>
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES: 0.90%
210,000 @ Ameritrade Holding Corp. $ 1,188,600
150,000 @ Friedman Billings Ramsey Group, Inc. 1,404,000
------------
2,592,600
------------
ELECTRIC: 1.63%
110,000 PNM Resources, Inc. 2,620,200
60,000 UIL Holdings Corp. 2,092,200
------------
4,712,400
------------
ELECTRICAL EQUIPMENT: 1.40%
105,000 Ametek, Inc. 4,041,450
------------
4,041,450
------------
ELECTRONICS: 4.78%
115,000 @ Benchmark Electronics, Inc. 3,295,900
71,300 @ Invision Technologies, Inc. 1,879,468
80,000 @ Itron, Inc. 1,533,600
100,000 @ OSI Systems, Inc. 1,698,000
100,000 @ Paxar Corp. 1,475,000
225,000 @ Sonic Solutions, Inc. 1,125,000
203,700 Symbol Technologies, Inc. 1,674,414
70,000 Technitrol, Inc. 1,129,800
------------
13,811,182
------------
ENGINEERING & CONSTRUCTION: 1.10%
60,000 @ EMCOR Group, Inc. 3,180,600
------------
3,180,600
------------
ENTERTAINMENT: 1.55%
200,000 @ Alliance Gaming Corp. 3,406,000
150,000 @ Scientific Games Corp. 1,089,000
------------
4,495,000
------------
ENVIRONMENTAL CONTROL: 1.12%
100,000 @ Stericycle, Inc. 3,237,900
------------
3,237,900
------------
FOOD: 0.70%
90,000 Sensient Technologies Corp. 2,022,300
------------
2,022,300
------------
FOREST PRODUCTS & PAPER: 0.50%
110,000 Glatfelter 1,447,600
------------
1,447,600
------------
GAS: 2.50%
115,000 AGL Resources, Inc. 2,794,500
65,000 Oneok, Inc. 1,248,000
85,000 UGI Corp. 3,178,150
------------
7,220,650
------------
HEALTHCARE -- PRODUCTS: 2.61%
120,000 @ CTI Molecular Imaging, Inc. 2,959,200
60,000 @ Merit Medical Systems, Inc. 1,195,200
77,000 @ Respironics, Inc. 2,343,187
59,500 @ Wright Medical Group, Inc. 1,038,811
------------
7,536,398
------------
</Table>
See Accompanying Notes to Financial Statements
54
ING
VP
SMALL
COMPANY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
HEALTHCARE -- SERVICES: 2.18%
185,000 @ Option Care, Inc. $ 1,472,600
80,000 @ Pediatrix Medical Group, Inc. 3,204,800
120,000 @ Select Medical Corp. 1,618,800
------------
6,296,200
------------
HOUSEHOLD PRODUCTS/WARES: 0.69%
90,000 Harland Co. 1,991,700
------------
1,991,700
------------
INSURANCE: 3.74%
65,000 Delphi Financial Group 2,467,400
40,800 Hilb Rogal & Hamilton Co. 1,668,720
70,000 Landamerica Financial Group, Inc. 2,481,500
40,800 @,@@ Platinum Underwriters Holdings Ltd. 1,075,080
200,000 @ UICI 3,110,000
------------
10,802,700
------------
INTERNET: 1.87%
100,000 @,@@ AsiaInfo Holdings, Inc. 634,000
57,000 @ Internet Security Systems 1,044,810
70,000 @ LendingTree, Inc. 901,600
175,000 @ Netbank, Inc. 1,694,000
52,900 @ Websense, Inc. 1,129,997
------------
5,404,407
------------
INVESTMENT COMPANIES: 1.49%
200,000 American Capital Strategies Ltd. 4,318,000
------------
4,318,000
------------
LODGING: 1.21%
250,000 @ Boyd Gaming Corp. 3,512,500
------------
3,512,500
------------
MEDIA: 0.44%
110,000 @ Sinclair Broadcast Group, Inc. 1,279,300
------------
1,279,300
------------
METAL FABRICATE/HARDWARE: 0.70%
60,000 Quanex Corp. 2,010,000
------------
2,010,000
------------
MISCELLANEOUS MANUFACTURER: 2.84%
92,000 AO Smith Corp. 2,484,920
138,625 Carlisle Cos., Inc. 5,736,303
------------
8,221,223
------------
OIL & GAS: 2.56%
321,200 Chesapeake Energy Corp. 2,486,088
100,000 @ Denbury Resources, Inc. 1,130,000
120,000 Patina Oil & Gas Corp. 3,798,000
------------
7,414,088
------------
OIL & GAS SERVICES: 0.86%
100,000 @ Oceaneering International, Inc. 2,474,000
------------
2,474,000
------------
PACKAGING & CONTAINERS: 0.55%
64,000 @ Silgan Holdings, Inc. 1,579,520
------------
1,579,520
------------
PHARMACEUTICALS: 5.71%
325,000 @ Alkermes, Inc. 2,037,750
50,000 @ American Pharmaceutical Partners, Inc. 890,000
151,400 @ Amylin Pharmaceuticals, Inc. 2,443,596
</Table>
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
225,000 @ Cell Therapeutics, Inc. $ 1,635,750
150,000 @ Endo Pharmaceuticals Holdings, Inc. 1,154,850
150,000 @ NBTY, Inc. 2,637,000
40,000 @ Neurocrine Biosciences, Inc. 1,826,400
154,200 @ NPS Pharmaceuticals, Inc. 3,881,214
------------
16,506,560
------------
REITS: 8.66%
80,000 Alexandria Real Estate Equities, Inc. 3,408,000
90,000 CBL & Associates Properties, Inc. 3,604,500
19,100 Centerpoint Properties Corp. 1,091,565
105,000 Chelsea Property Group, Inc. 3,497,550
80,000 Equity One, Inc. 1,068,000
47,000 Mills Corp. 1,378,980
82,300 Newcastle Investment Corp. 1,314,331
148,000 Reckson Associates Realty Corp. 3,115,400
135,000 SL Green Realty Corp. 4,266,000
90,000 Washington Real Estate Investment Trust 2,295,000
------------
25,039,326
------------
RETAIL: 7.28%
85,000 @ Blue Rhino Corp. 1,478,150
130,000 Claire's Stores, Inc. 2,869,100
125,000 @ CSK Auto Corp. 1,375,000
64,900 Hancock Fabrics, Inc. 989,725
100,000 @ J. Jill Group, Inc. 1,398,000
150,000 Nu Skin Enterprises, Inc. 1,795,500
160,000 PEP Boys-Manny Moe & Jack 1,856,000
80,000 Regis Corp. 2,079,200
132,000 @ Select Comfort Corp. 1,240,800
81,500 @ Sharper Image Corp. 1,420,545
54,500 @ Tuesday Morning Corp. 931,950
100,000 @ United Auto Group, Inc. 1,247,000
100,000 @ Urban Outfitters, Inc. 2,357,000
------------
21,037,970
------------
SAVINGS & LOANS: 2.87%
120,000 BankAtlantic Bancorp, Inc. 1,134,000
112,000 Commercial Federal Corp. 2,615,200
51,000 @ FirstFed Financial Corp. 1,476,450
80,000 Flagstar Bancorp, Inc. 1,728,000
75,000 Waypoint Financial Corp. 1,335,000
------------
8,288,650
------------
SEMICONDUCTORS: 1.10%
60,000 @ Actel Corp. 973,200
140,700 @ Lattice Semiconductor Corp. 1,233,939
50,000 @ Standard Microsystems Corp. 973,500
------------
3,180,639
------------
SOFTWARE: 5.84%
100,000 @ Barra, Inc. 3,033,000
68,000 @ Hyperion Solutions Corp. 1,745,560
134,000 Inter-Tel, Inc. 2,801,940
90,000 @ MRO Software, Inc. 1,093,050
275,000 @ Parametric Technology Corp. 693,000
130,000 @ Pinnacle Systems, Inc. 1,769,300
65,000 @ Serena Software, Inc. 1,026,350
200,500 @ Take-Two Interactive Software 4,709,744
------------
16,871,944
------------
TELECOMMUNICATIONS: 3.61%
75,000 @ Anixter International, Inc. 1,743,750
400,000 @ Arris Group, Inc. 1,428,000
</Table>
See Accompanying Notes to Financial Statements
55
ING
VP
SMALL
COMPANY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ---------------------------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
46,000 @ Commonwealth Telephone Enterprises, Inc. $ 1,648,640
250,000 @ Nextel Partners, Inc. 1,517,500
99,000 @ Plantronics, Inc. 1,497,870
250,000 @ Tekelec 2,612,500
------------
10,448,260
------------
TOYS/GAMES/HOBBIES: 0.85%
130,000 Action Performance Cos., Inc. 2,470,000
------------
2,470,000
------------
TRANSPORTATION: 0.91%
90,000 @ JB Hunt Transport Services, Inc. 2,637,000
------------
2,637,000
------------
Total Common Stocks
(Cost $279,098,441) 274,704,646
------------
Total Long-Term Investments
(Cost $279,098,441) 274,704,646
------------
<Caption>
Principal
Amount Value
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 5.17%
REPURCHASE AGREEMENT: 5.17%
$ 14,953,000 State Street Bank Repurchase Agreement, 1.200%,
due 01/02/03, $14,953,997 to be received upon
repurchase (Collateralized by $15,253,200 USTB,
9.125%, due 05/15/18) $ 14,953,000
------------
Total Short-Term Investment
(Cost $14,953,000) 14,953,000
------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 100.20% $289,657,646
(COST $294,051,441)*
OTHER ASSETS AND LIABILITIES-NET -0.20% (584,175)
-------- ------------
NET ASSETS 100.00% $289,073,471
======== ============
</Table>
<Table>
@ Non-income producing security
@@ Foreign Issuer
* Cost for federal income tax purposes is $296,648,720. Net
unrealized depreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $ 7,088,307
Gross Unrealized Depreciation (14,079,381)
------------
Net Unrealized Depreciation $ (6,991,074)
============
</Table>
See Accompanying Notes to Financial Statements
56
ING
VP
TECHNOLOGY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ----------------------------------------------------------------------------------------
COMMON STOCKS: 97.13%
COMPUTERS: 16.89%
26,050 @ Affiliated Computer Services, Inc. $ 1,371,533
700 @ Anteon International Corp. 16,800
43,100 @ Cadence Design Systems, Inc. 508,149
45,200 @ Computer Sciences Corp. 1,557,140
99,750 @ Dell Computer Corp. 2,667,315
90,700 Hewlett-Packard Co. 1,574,552
-----------
7,695,489
-----------
ELECTRONICS: 5.68%
247,500 @,@@ Flextronics International Ltd. 2,027,025
50,250 @ Vishay Intertechnology, Inc. 561,795
-----------
2,588,820
-----------
INTERNET: 7.24%
21,400 @ eBay, Inc. 1,451,348
114,850 @ Network Associates, Inc. 1,847,937
-----------
3,299,285
-----------
RETAIL: 6.72%
58,775 @ Best Buy Co., Inc. 1,419,416
37,450 @ CDW Computer Centers, Inc. 1,642,183
-----------
3,061,599
-----------
SEMICONDUCTORS: 35.76%
99,000 @ Altera Corp. 1,221,660
94,000 @ Applied Materials, Inc. 1,224,820
103,600 @,@@ ASML Holding NV 866,096
113,650 Intel Corp. 1,769,531
24,800 @ Kla-Tencor Corp. 877,176
116,250 @ Lam Research Corp. 1,255,500
119,000 @ LSI Logic Corp. 686,630
98,000 @ Micron Technology, Inc. 954,520
39,700 @ Novellus Systems, Inc. 1,114,776
45,000 @@ STMicroelectronics NV 877,950
217,415 @,@@ Taiwan Semiconductor Manufacturing Co. Ltd.
ADR 1,532,776
64,950 @ Teradyne, Inc. 845,000
96,250 Texas Instruments, Inc. 1,444,713
78,700 @ Xilinx, Inc. 1,621,220
-----------
16,292,368
-----------
SOFTWARE: 15.74%
71,850 @ BMC Software, Inc. 1,229,354
51,550 @ Intuit, Inc. 2,418,726
54,600 @ Microsoft Corp. 2,822,820
65,050 @ Oracle Corp. 702,540
-----------
7,173,440
-----------
TELECOMMUNICATIONS: 9.10%
121,300 @ Cisco Systems, Inc. 1,589,030
68,850 @@ Nokia OYJ ADR 1,067,171
40,950 @ Qualcomm, Inc. 1,490,171
-----------
4,146,372
-----------
Total Common Stocks
(Cost $56,065,452) 44,257,373
-----------
Total Long-Term Investments
(Cost $56,065,452) 44,257,373
-----------
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 2.26%
REPURCHASE AGREEMENT: 2.26%
$ 1,031,000 State Street Bank Repurchase Agreement, 0.800%,
due 01/02/03, $1,031,046 to be received upon
repurchase (Collateralized by $1,051,640 USTB,
8.875%, due 08/15/17) $ 1,031,000
-----------
Total Short-Term Investment
(Cost $1,031,000) 1,031,000
-----------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 99.39% $45,288,373
(COST $57,096,452)*
OTHER ASSETS AND LIABILITIES-NET 0.61% 277,120
------- -----------
NET ASSETS 100.00% $45,565,493
======= ===========
</Table>
<Table>
@ Non-income producing security
@@ Foreign Issuer
ADR American Depository Receipt
* Cost for federal income tax purposes is $57,776,054. Net
unrealized depreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $ 2,179,603
Gross Unrealized Depreciation (14,667,284)
------------
Net Unrealized Depreciation $(12,487,681)
============
</Table>
See Accompanying Notes to Financial Statements
57
ING
VP
VALUE
OPPORTUNITY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ------------------------------------------------------------------------------------------
COMMON STOCKS: 96.31%
AEROSPACE/DEFENSE: 1.23%
42,100 United Technologies Corp. $ 2,607,674
------------
2,607,674
------------
APPAREL: 1.63%
116,800 Liz Claiborne, Inc. 3,463,120
------------
3,463,120
------------
BANKS: 3.54%
46,000 Bank of America Corp. 3,200,220
51,400 Wachovia Corp. 1,873,016
52,300 Wells Fargo & Co. 2,451,301
------------
7,524,537
------------
BEVERAGES: 2.96%
130,100 Anheuser-Busch Cos., Inc. 6,296,840
------------
6,296,840
------------
CHEMICALS: 1.51%
113,700 Sherwin-Williams Co. 3,212,025
------------
3,212,025
------------
COMMERCIAL SERVICES: 0.63%
58,200 Equifax, Inc. 1,346,748
------------
1,346,748
------------
COMPUTERS: 6.01%
218,700 @ Dell Computer Corp. 5,848,038
99,800 Hewlett-Packard Co. 1,732,528
46,500 International Business Machines Corp. 3,603,750
197,000 @ Sun Microsystems, Inc. 612,670
41,500 @ Sungard Data Systems, Inc. 977,740
------------
12,774,726
------------
COSMETICS/PERSONAL CARE: 3.84%
94,900 Procter & Gamble Co. 8,155,706
------------
8,155,706
------------
DIVERSIFIED FINANCIAL SERVICES: 10.11%
91,800 Bear Stearns Cos., Inc. 5,452,920
108,100 Citigroup, Inc. 3,804,039
36,400 Countrywide Financial Corp. 1,880,060
87,300 Fannie Mae 5,616,009
45,600 SLM Corp. 4,736,016
------------
21,489,044
------------
ELECTRIC: 0.51%
62,800 Centerpoint Energy, Inc. 533,800
29,300 TXU Corp. 547,324
------------
1,081,124
------------
ELECTRONICS: 0.81%
193,000 @ Sanmina-SCI Corp. 866,570
241,100 @ Solectron Corp. 855,905
------------
1,722,475
------------
FOOD: 4.55%
70,000 Hershey Foods Corp. 4,720,800
75,000 Kellogg Co. 2,570,250
105,800 Sara Lee Corp. 2,381,558
------------
9,672,608
------------
</Table>
<Table>
- ------------------------------------------------------------------------------------------
<Caption>
Shares Value
HEALTHCARE -- PRODUCTS: 7.79%
154,100 Becton Dickinson & Co. $ 4,729,329
95,200 CR Bard, Inc. 5,521,600
117,500 Johnson & Johnson 6,310,925
------------
16,561,854
------------
HEALTHCARE -- SERVICES: 2.18%
24,500 @ Anthem, Inc. 1,541,050
190,200 @ Humana, Inc. 1,902,000
16,600 @ WellPoint Health Networks 1,181,256
------------
4,624,306
------------
HOUSEHOLD PRODUCTS/WARES: 2.60%
256,970 @ American Greetings 4,060,126
31,500 Fortune Brands, Inc. 1,465,065
------------
5,525,191
------------
INSURANCE: 3.83%
31,200 AMBAC Financial Group, Inc. 1,754,688
149,400 Torchmark Corp. 5,457,582
53,500 UnumProvident Corp. 938,390
------------
8,150,660
------------
MEDIA: 1.85%
193,400 @ AOL Time Warner, Inc. 2,533,540
59,265 @ Comcast Corp. 1,396,876
------------
3,930,416
------------
MISCELLANEOUS MANUFACTURER: 4.56%
75,800 Cooper Industries Ltd. 2,762,910
101,000 Crane Co. 2,012,930
201,800 General Electric Co. 4,913,830
------------
9,689,670
------------
OIL & GAS: 2.44%
41,500 Amerada Hess Corp. 2,284,575
83,200 Exxon Mobil Corp. 2,907,008
------------
5,191,583
------------
OIL & GAS SERVICES: 0.58%
66,100 Halliburton Co. 1,236,731
------------
1,236,731
------------
PACKAGING & CONTAINERS: 1.13%
109,600 @ Pactiv Corp. 2,395,856
------------
2,395,856
------------
PHARMACEUTICALS: 7.07%
74,600 Abbott Laboratories 2,984,000
30,600 AmerisourceBergen Corp. 1,661,886
54,300 Bristol-Myers Squibb Co. 1,257,045
163,200 Pfizer, Inc. 4,989,024
99,100 Pharmacia Corp. 4,142,380
------------
15,034,335
------------
RETAIL: 6.63%
60,435 Dillard's, Inc. 958,499
95,000 @ Federated Department Stores 2,732,200
76,400 Home Depot, Inc. 1,830,544
169,700 Wal-Mart Stores, Inc. 8,571,547
------------
14,092,790
------------
</Table>
See Accompanying Notes to Financial Statements
58
ING
VP
VALUE
OPPORTUNITY
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ------------------------------------------------------------------------------------------
SAVINGS & LOANS: 1.85%
114,200 Washington Mutual, Inc. $ 3,943,326
------------
3,943,326
------------
SEMICONDUCTORS: 3.69%
111,200 @ Altera Corp. 1,372,208
85,600 @ Broadcom Corp. 1,289,136
194,700 Intel Corp. 3,031,479
33,100 @ Nvidia Corp. 380,981
76,900 @ PMC -- Sierra, Inc. 427,564
64,700 @ Xilinx, Inc. 1,332,820
------------
7,834,188
------------
SOFTWARE: 6.65%
179,300 @ Compuware Corp. 860,640
78,500 First Data Corp. 2,779,685
171,600 @ Microsoft Corp. 8,871,720
355,900 @ Novell, Inc. 1,188,706
58,300 @ Siebel Systems, Inc. 436,084
------------
14,136,835
------------
TELECOMMUNICATIONS: 6.13%
117,340 AT&T Corp. 3,063,747
135,500 @ Cisco Systems, Inc. 1,775,050
189,900 Motorola, Inc. 1,642,635
51,900 @ Qualcomm, Inc. 1,888,641
238,000 Qwest Communications International 1,190,000
88,000 @ Sprint Corp. 385,440
79,500 Verizon Communications, Inc. 3,080,626
------------
13,026,139
------------
Total Common Stocks
(Cost $211,212,026) 204,720,507
------------
Total Long-Term Investments
(Cost $211,212,026) 204,720,507
------------
<Caption>
Principal
Amount Value
- ------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 3.71%
REPURCHASE AGREEMENT: 3.71%
$ 7,881,000 State Street Bank Repurchase Agreement, 1.200%, due
01/02/03, $7,881,525 to be received upon repurchase
(Collateralized by $8,040,800 USTB, 9.125%, due
05/15/18) $ 7,881,000
------------
Total Short-Term Investments
(Cost $7,881,000) 7,881,000
------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 100.02% $212,601,507
(COST $219,093,026)*
OTHER ASSETS AND LIABILITIES-NET -0.02% (39,830)
------- ------------
NET ASSETS 100.00% $212,561,677
======= ============
</Table>
<Table>
@ Non-income producing security
@@ Foreign Issuer
* Cost for federal income tax purposes is $227,114,998. Net
unrealized depreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $ 2,262,779
Gross Unrealized Depreciation (16,776,270)
------------
Net Unrealized Depreciation $(14,513,491)
============
</Table>
See Accompanying Notes to Financial Statements
59
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ----------------------------------------------------------------------------------------
COMMON STOCKS: 58.75%
AEROSPACE/DEFENSE: 1.29%
34,275 @ Alliant Techsystems, Inc. $ 2,137,046
80,550 Boeing Co. 2,657,345
35,825 Goodrich Corp. 656,314
42,450 Lockheed Martin Corp. 2,451,488
17 Northrop Grumman Corp. 1,656
89,500 Rockwell Collins, Inc. 2,081,770
93,650 United Technologies Corp. 5,800,681
--------------
15,786,300
--------------
AGRICULTURE: 0.58%
176,000 Philip Morris Cos., Inc. 7,133,280
--------------
7,133,280
--------------
AIRLINES: 0.02%
24,875 @ ExpressJet Holdings, Inc. 254,969
--------------
254,969
--------------
APPAREL: 0.87%
60,650 @ Jones Apparel Group, Inc. 2,149,436
145,950 Liz Claiborne, Inc. 4,327,418
50 Nike, Inc. 2,224
54,800 @ Reebok International Ltd. 1,611,120
82,525 @ Skechers U.S.A., Inc. 700,637
51,400 VF Corp. 1,852,970
--------------
10,643,805
--------------
AUTO MANUFACTURERS: 0.44%
408,100 Ford Motor Co. 3,795,330
41,850 General Motors Corp. 1,542,591
--------------
5,337,921
--------------
AUTO PARTS & EQUIPMENT: 0.47%
62,725 @ American Axle & Manufacturing Holdings,
Inc. 1,469,020
66,000 Cooper Tire & Rubber Co. 1,012,440
124,850 Dana Corp. 1,468,236
84,900 @ Dura Automotive Systems, Inc. 852,396
138,800 Goodyear Tire & Rubber Co. 945,228
--------------
5,747,320
--------------
BANKS: 3.39%
197,900 Bank of America Corp. 13,767,903
104,350 Bank One Corp. 3,813,993
62,350 Comerica, Inc. 2,696,014
145,075 Hibernia Corp. 2,794,145
119,350 Huntington Bancshares, Inc. 2,233,039
250 Keycorp 6,285
88,950 Regions Financial Corp. 2,967,372
93,350 Union Planters Corp. 2,626,869
150 US Bancorp 3,183
112,900 Wachovia Corp. 4,114,076
136,900 Wells Fargo & Co. 6,416,503
50 Zions Bancorporation 1,967
--------------
41,441,349
--------------
BEVERAGES: 1.65%
71,550 Anheuser-Busch Cos., Inc. 3,463,020
206,050 Coca-Cola Co. 9,029,111
62,000 @ Constellation Brands, Inc. 1,470,020
147,150 Pepsico, Inc. 6,212,673
--------------
20,174,824
--------------
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Shares Value
BIOTECHNOLOGY: 0.54%
106,250 @ Amgen, Inc. $ 5,136,125
46,175 @ Invitrogen Corp. 1,446,663
--------------
6,582,788
--------------
BUILDING MATERIALS: 0.00%
150 Masco Corp. 3,158
--------------
3,158
--------------
CHEMICALS: 0.59%
79,825 Ashland, Inc. 2,277,407
89,300 Du Pont EI de Nemours & Co. 3,786,320
130,000 @ Hercules, Inc. 1,144,000
--------------
7,207,727
--------------
COMMERCIAL SERVICES: 0.63%
86,350 @ Corp.orate Executive Board Co. 2,756,292
69,200 @ H&R Block, Inc. 2,781,840
44,550 @ Rent-A-Center, Inc. 2,225,273
--------------
7,763,405
--------------
COMPUTERS: 2.29%
375,100 @ Dell Computer Corp. 10,030,174
593,000 EMC Corp. 3,641,020
63,825 @ Fidelity National Information Solutions,
Inc. 1,100,981
481,100 Hewlett-Packard Co. 8,351,896
40,650 @ Lexmark International, Inc. 2,459,325
52,575 @ Synopsys, Inc. 2,426,336
--------------
28,009,732
--------------
COSMETICS/PERSONAL CARE: 1.70%
204,800 Gillette Co. 6,217,728
169,050 Procter & Gamble Co. 14,528,157
--------------
20,745,885
--------------
DISTRIBUTION/WHOLESALE: 0.29%
28,425 @ Scansource, Inc. 1,401,353
80,625 @ Tech Data Corp. 2,173,650
--------------
3,575,003
--------------
DIVERSIFIED FINANCIAL SERVICES: 4.94%
61,750 @ Affiliated Managers Group 3,106,025
109,650 @ American Express Co. 3,876,128
42,100 Bear Stearns Cos., Inc. 2,500,740
85,550 Capital One Financial Corp. 2,542,546
415,500 Citigroup, Inc. 14,621,445
49,750 Countrywide Financial Corp. 2,569,588
151,600 Fannie Mae 9,752,428
118,500 Freddie Mac 6,997,425
150 Household International, Inc. 4,172
173,550 JP Morgan Chase & Co. 4,165,200
273,950 MBNA Corp. 5,210,529
150 Merrill Lynch & Co., Inc. 5,693
90,150 Morgan Stanley 3,598,788
226,850 Providian Financial Corp. 1,472,257
--------------
60,422,964
--------------
ELECTRIC: 1.59%
135,800 Allegheny Energy, Inc. 1,026,648
100 Cinergy Corp. 3,372
148,800 CMS Energy Corp. 1,404,672
24,000 Dominion Resources, Inc. 1,317,600
53,500 DTE Energy Co. 2,482,400
73,500 Duke Energy Corp. 1,436,190
</Table>
See Accompanying Notes to Financial Statements
60
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ----------------------------------------------------------------------------------------
ELECTRIC (CONTINUED)
152,600 @ Edison International $ 1,808,310
100 Entergy Corp. 4,559
72,850 Exelon Corp. 3,844,295
169,750 @ PG&E Corp. 2,359,525
84,425 PNM Resources, Inc. 2,011,004
62,250 Southern Co. 1,767,278
--------------
19,465,853
--------------
ELECTRICAL EQUIPMENT: 0.16%
125,400 @ American Power Conversion 1,899,810
50 Emerson Electric Co. 2,543
--------------
1,902,353
--------------
ELECTRONICS: 0.45%
62,500 AVX Corp. 612,500
113,450 @ Jabil Circuit, Inc. 2,033,024
75,000 @,@@ Mettler Toledo International, Inc. 2,404,500
50 Parker Hannifin Corp. 2,307
130,600 @ Solectron Corp. 463,630
--------------
5,515,961
--------------
ENGINEERING & CONSTRUCTION: 0.14%
59,850 Fluor Corp. 1,675,800
--------------
1,675,800
--------------
ENTERTAINMENT: 0.15%
62,250 @ Argosy Gaming Co. 1,178,393
22,875 @ GTECH Holdings Corp. 637,298
--------------
1,815,691
--------------
ENVIRONMENTAL CONTROL: 0.12%
142,150 @ Allied Waste Industries, Inc. 1,421,500
--------------
1,421,500
--------------
FOOD: 0.36%
89,400 @ Chiquita Brands International, Inc. 1,185,444
168,650 @@ Fresh Del Monte Produce 3,189,172
--------------
4,374,616
--------------
FOREST PRODUCTS & PAPER: 0.13%
45,950 International Paper Co. 1,606,872
--------------
1,606,872
--------------
GAS: 0.26%
37,950 Nicor, Inc. 1,291,439
111,000 Northwestern Corp. 563,880
34,050 Peoples Energy Corp. 1,316,033
200 Sempra Energy 4,730
--------------
3,176,082
--------------
HAND/MACHINE TOOLS: 0.14%
40,650 Black & Decker Corp. 1,743,479
--------------
1,743,479
--------------
HEALTHCARE -- PRODUCTS: 2.85%
93,000 Becton Dickinson & Co. 2,854,170
102,525 Cooper Cos., Inc. 2,565,176
65,750 CR Bard, Inc. 3,813,500
70,650 @ Edwards Lifesciences Corp. 1,799,456
99,500 Guidant Corp. 3,069,575
31,550 @ Immucor, Inc. 638,888
245,950 Johnson & Johnson 13,209,975
86,575 @ Respironics, Inc. 2,634,564
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Shares Value
68,700 @ St-Jude Medical, Inc. $ 2,728,764
30,975 @ Varian Medical Systems, Inc. 1,536,360
--------------
34,850,428
--------------
HEALTHCARE -- SERVICES: 1.16%
62,100 A Aetna, Inc. 2,553,552
48,400 @ Anthem, Inc. 3,044,360
63,450 UnitedHealth Group, Inc. 5,298,075
45,850 @ WellPoint Health Networks 3,262,686
--------------
14,158,673
--------------
HOME BUILDERS: 0.26%
34,500 Centex Corp. 1,731,900
35,800 KB Home 1,534,030
--------------
3,265,930
--------------
HOUSEHOLD PRODUCTS/WARES: 0.77%
239,650 @ American Greetings 3,786,470
43,100 Avery Dennison Corp. 2,632,548
71,900 Clorox Co. 2,965,875
--------------
9,384,893
--------------
INSURANCE: 2.06%
209,000 American International Group 12,090,650
56,200 Cigna Corp. 2,310,944
75,575 First American Corp. 1,677,765
50 Loews Corp. 2,223
48,650 MGIC Investment Corp. 2,009,245
63,700 Progressive Corp. 3,161,431
269,468 @ Travelers Property Casualty Corp. 3,947,706
--------------
25,199,964
--------------
INTERNET: 0.29%
47,275 @ j2 Global Communications, Inc. 900,116
26,700 @ Overture Services, Inc. 729,177
256,000 @ Riverstone Networks, Inc. 542,720
37,175 @ United Online, Inc. 592,607
94,450 @ VeriSign, Inc. 757,489
100 @ Yahoo, Inc. 1,635
--------------
3,523,744
--------------
IRON/STEEL: 0.38%
184,400 Allegheny Technologies, Inc. 1,148,812
45,100 Nucor Corp. 1,862,630
129,250 United States Steel Corp. 1,695,760
--------------
4,707,202
--------------
LEISURE TIME: 0.37%
110,950 @ Bally Total Fitness Holding Corp. 786,636
62,000 Brunswick Corp. 1,231,320
43,650 Polaris Industries, Inc. 2,557,890
--------------
4,575,846
--------------
LODGING: 0.16%
49,250 @ Harrah's Entertainment, Inc. 1,950,300
--------------
1,950,300
--------------
MACHINERY -- DIVERSIFIED: 0.00%
400 Rockwell Automation, Inc. 8,284
--------------
8,284
--------------
MEDIA: 1.21%
46,350 @ Clear Channel Communications, Inc. 1,728,392
68,850 @ Entercom Communications Corp. 3,230,442
33,400 Meredith Corp. 1,373,074
</Table>
See Accompanying Notes to Financial Statements
61
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ----------------------------------------------------------------------------------------
MEDIA (CONTINUED)
144,650 @ Viacom, Inc. $ 5,895,934
155,100 Walt Disney Co. 2,529,681
--------------
14,757,523
--------------
METAL FABRICATE/HARDWARE: 0.16%
58,050 Quanex Corp. 1,944,675
--------------
1,944,675
--------------
MINING: 0.08%
33,650 Newmont Mining Corp. 976,860
100 @ Phelps Dodge Corp. 3,165
--------------
980,025
--------------
MISCELLANEOUS MANUFACTURER: 2.92%
33,800 3M Co. 4,167,540
116,925 Crane Co. 2,330,315
81,950 Eastman Kodak Co. 2,871,528
824,650 General Electric Co. 20,080,228
42,750 Harsco Corp. 1,363,298
41,000 ITT Industries, Inc. 2,488,290
56,700 Textron, Inc. 2,437,533
--------------
35,738,732
--------------
OFFICE/BUSINESS EQUIPMENT: 0.14%
242,375 IKON Office Solutions, Inc. 1,732,981
--------------
1,732,981
--------------
OIL & GAS: 2.55%
39,900 Amerada Hess Corp. 2,196,495
49,800 Apache Corp. 2,838,102
56,150 ConocoPhillips 2,717,099
559,850 Exxon Mobil Corp. 19,561,159
350 Marathon Oil Corp. 7,452
118,300 Transocean, Inc. 2,744,560
47,200 XTO Energy, Inc. 1,165,840
--------------
31,230,707
--------------
OIL & GAS SERVICES: 0.11%
166,450 @ Veritas DGC, Inc. 1,314,955
--------------
1,314,955
--------------
PACKAGING & CONTAINERS: 0.46%
39,800 Ball Corp. 2,037,362
121,150 @ Owens-Illinois, Inc. 1,766,367
85,300 @ Pactiv Corp. 1,864,658
--------------
5,668,387
--------------
PHARMACEUTICALS: 3.07%
71,050 @ AdvancePCS 1,578,021
44,100 AmerisourceBergen Corp. 2,395,071
53,025 @ Express Scripts, Inc. 2,547,321
60,650 @ Medicis Pharmaceutical 3,012,486
185,650 Merck & Co., Inc. 10,509,647
509,950 Pfizer, Inc. 15,589,172
67,950 @ Watson Pharmaceuticals, Inc. 1,920,947
--------------
37,552,665
--------------
REAL ESTATE: 0.16%
54,025 LNR Property Corp. 1,912,485
--------------
1,912,485
--------------
REITS: 0.49%
43,575 CBL & Associates Properties, Inc. 1,745,179
51,525 Chelsea Property Group, Inc. 1,716,298
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Shares Value
27,350 General Growth Properties, Inc. $ 1,422,200
129,700 @ Host Marriott Corp. 1,147,845
--------------
6,031,522
--------------
RETAIL: 4.37%
200 @ Big Lots, Inc. 2,646
69,400 Dillard's, Inc. 1,100,684
100 @ Federated Department Stores 2,876
222,550 Gap, Inc. 3,453,976
188,350 Home Depot, Inc. 4,512,866
60,175 @ Jack in the Box, Inc. 1,040,426
105,150 JC Penney Co. 2,419,502
151,150 Lowe's Cos., Inc. 5,668,125
175,550 Ltd. Brands 2,445,412
106,600 McDonald's Corp. 1,714,128
68,250 @ Movie Gallery, Inc. 887,250
126,250 @ Office Depot, Inc. 1,863,450
18,625 @ Panera Bread Co. 648,336
96,600 RadioShack Corp. 1,810,284
69,125 @ ShopKo Stores, Inc. 860,606
42,350 @ Sports Authority, Inc. 296,450
168,150 @ Staples, Inc. 3,077,145
75,150 Target Corp. 2,254,500
117,150 @ United Auto Group, Inc. 1,460,861
354,700 Wal-Mart Stores, Inc. 17,915,897
--------------
53,435,420
--------------
SAVINGS & LOANS: 2.03%
282,750 BankAtlantic Bancorp, Inc. 2,671,988
69,800 Downey Financial Corp. 2,722,200
85,400 @ FirstFed Financial Corp. 2,472,330
131,375 Flagstar Bancorp, Inc. 2,837,700
46,300 Golden West Financial Corp. 3,324,803
83,200 New York Community Bancorp, Inc. 2,402,816
181,450 Washington Mutual, Inc. 6,265,469
61,400 Webster Financial Corp. 2,136,720
--------------
24,834,026
--------------
SEMICONDUCTORS: 1.57%
200 @ Analog Devices, Inc. 4,774
134,650 @ Applied Materials, Inc. 1,754,490
140,225 @ Cirrus Logic, Inc. 403,848
190,700 @ GlobespanVirata, Inc. 840,987
542,350 Intel Corp. 8,444,390
106,050 Linear Technology Corp. 2,727,606
68,200 @ Novellus Systems, Inc. 1,915,056
50 @ QLogic Corp. 1,726
169,425 @ Silicon Image, Inc. 1,016,550
135,750 Texas Instruments, Inc. 2,037,608
--------------
19,147,035
--------------
SOFTWARE: 4.38%
50 Adobe Systems, Inc. 1,240
57,300 Automatic Data Processing 2,249,025
112,050 @ BMC Software, Inc. 1,917,176
28,975 @ Certegy, Inc. 711,336
280,700 @ Compuware Corp. 1,347,360
83,150 @ Dun & Bradstreet Corp. 2,867,844
43,450 @ Electronic Arts, Inc. 2,162,507
71,350 First Data Corp. 2,526,504
111,125 Inter-Tel, Inc. 2,323,624
63,900 @ Mercury Interactive Corp. 1,894,635
436,600 @ Microsoft Corp. 22,572,220
371,775 @ Novell, Inc. 1,241,729
822,400 @ Oracle Corp. 8,881,920
250 @ Peoplesoft, Inc. 4,575
</Table>
See Accompanying Notes to Financial Statements
62
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- ----------------------------------------------------------------------------------------
SOFTWARE (CONTINUED)
167,125 @ ScanSoft, Inc. $ 869,050
258,700 @ Siebel Systems, Inc. 1,935,076
--------------
53,505,821
--------------
TELECOMMUNICATIONS: 2.84%
302,000 @ CIENA Corp. 1,552,280
593,250 @ Cisco Systems, Inc. 7,771,575
60,075 @ Commonwealth Telephone Enterprises, Inc. 2,153,088
188,950 Motorola, Inc. 1,634,418
97,100 @ Polycom, Inc. 924,392
100 Scientific-Atlanta, Inc. 1,186
435,500 Sprint Corp. 6,306,040
371,950 Verizon Communications, Inc. 14,413,063
--------------
34,756,042
--------------
TOYS/GAMES/HOBBIES: 0.24%
150,850 Mattel, Inc. 2,888,778
--------------
2,888,778
--------------
TRANSPORTATION: 0.48%
92,250 United Parcel Service, Inc. 5,819,130
--------------
5,819,130
--------------
Total Common Stocks
(Cost $767,250,428) 718,404,810
--------------
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES: 1.95%
COMMERCIAL MORTGAGE BACKED SECURITIES: 1.79%
$ 3,600,000 First Union National Bank,
6.136%, due 12/15/10 $ 4,003,935
500,000 GE Capital Commercial Mortgage Corp.,
6.531%, due 03/15/11 565,376
200,000 JP Morgan Chase Commercial Mortgage
Securities Corp.,
6.162%, Due 05/12/34 221,532
3,120,000 JP Morgan Chase Commercial Mortgage
Securities Corp.,
6.244%, Due 04/15/35 3,470,417
2,340,000 LB-UBS Commercial Mortgage Trust,
4.659%, due 12/15/26 2,385,017
3,800,000 LB-UBS Commercial Mortgage Trust,
6.133%, due 12/15/30 4,206,067
3,000,000 LB-UBS Commercial Mortgage Trust,
7.370%, due 08/15/26 3,540,830
3,120,000 Mortgage Capital Funding, Inc.,
6.663%, due 03/18/30 3,518,334
--------------
21,911,508
--------------
CREDIT CARD: 0.07%
775,000 Citibank Credit Card Issuance Trust,
5.650%, due 06/16/08 845,536
--------------
845,536
--------------
</Table>
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
WHOLE LOAN COLLATERALIZED MORTGAGE: 0.09%
$ 1,125,774 xx Bear Stearns Adjustable Rate Mortgage
Trust,
6.059%, due 01/25/32 $ 1,146,003
--------------
1,146,003
--------------
Total Collateralized Mortgage Obligations and Asset
Backed Securities
(Cost $22,556,073) 23,903,047
--------------
CORPORATE BONDS: 12.56%
AEROSPACE/DEFENSE: 0.45%
680,000 Lockheed Martin Corp.,
8.200%, due 12/01/09 841,498
680,000 Northrop Grumman Corp.,
7.125%, due 02/15/11 774,096
1,321,000 Raytheon Co.,
6.150%, due 11/01/08 1,426,882
1,340,000 United Technologies Corp.,
4.875%, due 11/01/06 1,419,356
840,000 United Technologies Corp.,
7.125%, due 11/15/10 986,878
--------------
5,448,710
--------------
AGENCIES: 0.09%
1,062,581 Vendee Mortgage Trust,
6.750%, due 11/15/14 1,071,980
--------------
1,071,980
--------------
AGRICULTURE: 0.19%
1,140,000 RJ Reynolds Tobacco Holdings, Inc.,
6.500%, due 06/01/07 1,190,523
1,120,000 RJ Reynolds Tobacco Holdings, Inc.,
7.250%, due 06/01/12 1,173,897
--------------
2,364,420
--------------
AUTO MANUFACTURERS: 0.49%
1,225,000 DaimlerChrysler NA Holding Corp.,
7.200%, due 09/01/09 1,363,696
1,540,000 Ford Motor Co.,
6.375%, due 02/01/29 1,190,340
1,695,000 Ford Motor Co.,
6.625%, due 10/01/28 1,355,130
1,195,000 General Motors Corp.,
6.750%, due 05/01/28 1,043,572
1,065,000 General Motors Corp.,
7.200%, due 01/15/11 1,071,076
--------------
6,023,814
--------------
BANKS: 0.47%
1,195,000 Bank of America Corp.,
6.375%, due 02/15/08 1,345,593
255,000 Bank of America Corp.,
7.800%, due 02/15/10 303,751
765,000 Bank One Corp.,
5.250%, due 01/30/13 788,993
1,050,000 Wachovia Corp.,
6.400%, due 04/01/08 1,178,405
1,870,000 Wells Fargo Bank NA,
6.450%, due 02/01/11 2,102,598
--------------
5,719,340
--------------
</Table>
See Accompanying Notes to Financial Statements
63
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
BEVERAGES: 0.20%
$ 1,030,000 Anheuser-Busch Cos., Inc.,
5.950%, due 01/15/33 $ 1,082,892
1,205,000 Coors Brewing Co.,
6.375%, due 05/15/12 1,349,054
--------------
2,431,946
--------------
BUILDING MATERIALS: 0.04%
490,000 CRH America, Inc.,
6.950%, due 03/15/12 549,884
--------------
549,884
--------------
CHEMICALS: 0.11%
1,310,000 Dow Chemical Co.,
5.750%, due 11/15/09 1,357,222
--------------
1,357,222
--------------
COMMERCIAL MORTGAGE BACKED SECURITIES: 0.20%
2,060,000 Chase Manhattan Bank,
7.439%, due 07/15/09 2,415,393
--------------
2,415,393
--------------
COMMERCIAL SERVICES: 0.12%
1,415,000 Hertz Corp.,
8.250%, due 06/01/05 1,438,540
--------------
1,438,540
--------------
DIVERSIFIED FINANCIAL SERVICES: 2.52%
400,000 American Express Credit Corp.,
4.250%, due 02/07/05 415,676
520,000 American General Finance Corp.,
5.750%, due 03/15/07 561,527
1,135,000 Associates Corp. Of N. America,
6.250%, due 11/01/08 1,252,720
1,115,000 Boeing Capital Corp.,
7.375%, due 09/27/10 1,245,963
460,000 # Bombardier Capital, Inc.,
6.125%, due 06/29/06 416,597
415,000 # Bombardier Capital, Inc.,
7.500%, due 10/17/05 386,377
1,260,000 Caterpillar Financial Services Corp.,
2.030%, due 01/31/05 1,261,991
1,000,000 CIT Group, Inc.,
5.500%, due 11/30/07 1,023,470
785,000 Citigroup, Inc.,
5.625%, due 08/27/12 826,952
575,000 Citigroup, Inc.,
6.750%, due 12/01/05 639,811
2,835,000 Countrywide Home Loans, Inc.,
2.526%, due 10/23/06 2,819,816
200,000 Countrywide Home Loans, Inc.,
4.250%, due 12/19/07 202,644
400,000 Credit Suisse First Boston USA, Inc.,
4.625%, due 01/15/08 405,916
2,635,000 Ford Motor Credit Co.,
6.500%, due 01/25/07 2,604,921
367,000 Ford Motor Credit Co.,
7.250%, due 10/25/11 357,174
1,285,000 Ford Motor Credit Co.,
7.375%, due 10/28/09 1,275,273
3,055,000 General Electric Capital Corp.,
5.000%, due 06/15/07 3,238,004
425,000 General Electric Capital Corp.,
6.000%, due 06/15/12 459,695
2,130,000 General Motors Acceptance Corp.,
7.250%, due 03/02/11 2,173,855
</Table>
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
$ 390,000 Goldman Sachs Group, Inc.,
5.700%, due 09/01/12 $ 406,370
120,000 Household Finance Corp.,
5.750%, due 01/30/07 125,707
1,272,000 Household Finance Corp.,
6.375%, due 11/27/12 1,330,320
284,000 Household Finance Corp.,
8.000%, due 07/15/10 321,292
3,930,000 International Lease Finance Corp.,
3.173%, due 10/18/04 3,939,224
720,000 Morgan Stanley,
6.750%, due 04/15/11 801,399
1,480,000 Morgan Stanley,
7.750%, due 06/15/05 1,652,182
600,000 Textron Financial Corp.,
7.125%, due 12/09/04 642,400
--------------
30,787,276
--------------
ELECTRIC: 0.98%
1,340,000 Dominion Resources, Inc.,
6.750%, due 12/15/32 1,380,631
450,000 Duke Energy Corp.,
6.450%, due 10/15/32 439,020
900,000 Exelon Generation Co. LLC,
6.950%, due 06/15/11 974,766
770,000 FirstEnergy Corp.,
5.500%, due 11/15/06 775,147
355,000 FirstEnergy Corp.,
7.375%, due 11/15/31 345,339
1,360,000 Florida Power & Light Co.,
6.875%, due 12/01/05 1,517,491
1,340,000 Georgia Power Co.,
4.875%, due 07/15/07 1,413,583
1,005,000 Nisource Finance Corp.,
7.625%, due 11/15/05 1,050,352
870,000 # Oncor Electric Delivery Co.,
7.250%, due 01/15/33 888,723
1,195,000 # Pepco Holdings, Inc.,
6.450%, due 08/15/12 1,267,693
870,000 PSEG Power LLC,
6.950%, due 06/01/12 885,159
970,000 Wisconsin Energy Corp.,
5.500%, due 12/01/08 1,048,223
--------------
11,986,127
--------------
ENVIRONMENTAL CONTROL: 0.08%
970,000 # Waste Management, Inc.,
6.375%, due 11/15/12 999,998
--------------
999,998
--------------
FOOD: 0.59%
1,030,000 ConAgra Foods, Inc.,
6.750%, due 09/15/11 1,173,237
1,025,000 ConAgra Foods, Inc.,
7.500%, due 09/15/05 1,149,581
1,170,000 Kraft Foods, Inc.,
6.500%, due 11/01/31 1,290,048
535,000 Kroger Co.,
6.750%, due 04/15/12 593,068
1,140,000 Safeway, Inc.,
4.800%, due 07/16/07 1,177,359
380,000 Safeway, Inc.,
5.800%, due 08/15/12 398,365
</Table>
See Accompanying Notes to Financial Statements
64
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
FOOD (CONTINUED)
$ 250,000 @@ Sysco International Co.,
6.100%, due 06/01/12 $ 281,299
1,040,000 Unilever Capital Corp.,
6.875%, due 11/01/05 1,166,975
--------------
7,229,932
--------------
FOREST PRODUCTS & PAPER: 0.13%
725,000 @@ Abitibi-Consolidated, Inc.,
6.950%, due 12/15/06 753,865
825,000 Weyerhaeuser Co.,
6.750%, due 03/15/12 901,086
--------------
1,654,951
--------------
HOME BUILDERS: 0.10%
1,160,000 # Toll Brothers, Inc.,
6.875%, due 11/15/12 1,196,742
--------------
1,196,742
--------------
INSURANCE: 0.15%
315,000 Allstate Corp.,
6.125%, due 12/15/32 322,002
350,000 Cigna Corp.,
7.875%, due 05/15/27 346,581
1,065,000 # Monumental Global Funding II,
6.050%, due 01/19/06 1,143,339
--------------
1,811,922
--------------
MEDIA: 0.62%
1,930,000 AOL Time Warner, Inc.,
6.875%, due 05/01/12 2,042,504
525,000 COX Communications, Inc.,
7.125%, due 10/01/12 584,177
870,000 TCI Communications, Inc.,
8.650%, due 09/15/04 934,441
1,475,000 Tele-Communications-TCI Group,
7.125%, due 02/15/28 1,378,890
925,000 Tele-Communications-TCI Group,
9.800%, due 02/01/12 1,113,617
770,000 # USA Interactive,
7.000%, due 01/15/13 797,631
700,000 Walt Disney Co.,
5.875%, due 12/15/17 712,576
--------------
7,563,836
--------------
MULTI-NATIONAL: 0.24%
2,420,000 @@ Inter-American Development Bank,
6.750%, due 07/15/27 2,912,923
--------------
2,912,923
--------------
OIL & GAS: 0.94%
1,115,000 Amerada Hess Corp.,
5.900%, due 08/15/06 1,193,680
415,000 Apache Corp.,
6.250%, due 04/15/12 466,026
1,485,000 @@ Burlington Resources Finance Co,
5.600%, due 12/01/06 1,592,599
1,480,000 @@ Conoco Funding Co.,
5.450%, due 10/15/06 1,598,831
1,885,000 @@ Conoco Funding Co.,
6.350%, due 10/15/11 2,108,533
840,000 Devon Energy Corp.,
7.950%, due 04/15/32 1,013,060
1,715,000 # Pemex Project Funding Master Trust,
7.375%, due 12/15/14 1,762,163
</Table>
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
$ 880,000 Transocean, Inc.,
7.500%, due 04/15/31 $ 1,012,671
700,000 Valero Energy Corp.,
7.500%, due 04/15/32 711,169
--------------
11,458,732
--------------
OTHER ABS: 0.49%
5,290,000 PP&L Transition Bond Co. LLC,
7.050%, due 06/25/09 6,034,700
--------------
6,034,700
--------------
PIPELINES: 0.22%
975,000 Consolidated Natural Gas Co.,
6.850%, due 04/15/11 1,090,153
682,000 Duke Energy Field Services LLC,
7.875%, due 08/16/10 723,018
390,000 Kinder Morgan Energy Partners LP,
6.750%, due 03/15/11 424,309
615,000 Tennessee Gas Pipeline Co.,
7.000%, due 10/15/28 474,992
--------------
2,712,472
--------------
REGIONAL (STATE/PROVINCE): 0.20%
1,300,000 @@ Province of Ontario,
5.125%, due 07/17/12 1,390,887
840,000 @@ Province of Quebec,
7.500%, due 09/15/29 1,051,685
--------------
2,442,572
--------------
RETAIL: 0.01%
145,000 Kohl's Corp.,
6.000%, due 01/15/33 146,278
--------------
146,278
--------------
SAVINGS & LOANS: 0.15%
1,830,000 Washington Mutual, Inc.,
4.375%, due 01/15/08 1,866,807
--------------
1,866,807
--------------
SOVEREIGN: 1.30%
14,400,000 @@ Bundesobligation,
coupon rate 5.000%, due 02/17/06 15,952,992
--------------
15,952,992
--------------
TELECOMMUNICATIONS: 1.00%
312,000 AT&T Broadband,
8.375%, due 03/15/13 355,157
31,000 AT&T Corp.,
6.000%, due 03/15/09 31,003
945,000 AT&T Corp.,
6.500%, due 03/15/13 950,056
195,000 AT&T Corp.,
8.000%, due 11/15/31 215,674
720,000 AT&T Wireless Services, Inc.,
8.125%, due 05/01/12 725,005
1,120,000 @@ British Telecommunications PLC,
0.000%, due 12/15/30 1,433,037
500,000 Citizens Communications Co.,
9.250%, due 05/15/11 596,586
950,000 @@ Deutsche Telekom International Finance
BV,
8.750%, due 06/15/30 1,101,138
660,000 @@ France Telecom,
9.250%, due 03/01/11 764,487
</Table>
See Accompanying Notes to Financial Statements
65
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
$ 1,695,000 Sprint Capital Corp.,
8.750%, due 03/15/32 $ 1,615,154
1,150,000 @@ Telefonica Europe BV,
8.250%, due 09/15/30 1,417,512
975,000 Verizon Global Funding Corp.,
7.375%, due 09/01/12 1,124,162
655,000 Verizon Wireless Capital LLC,
5.375%, due 12/15/06 684,997
1,155,000 @@ Vodafone Group PLC,
6.250%, due 11/30/32 1,158,339
--------------
12,172,307
--------------
TEXTILES: 0.09%
980,000 Mohawk Industries, Inc.,
7.200%, due 04/15/12 1,103,075
--------------
1,103,075
--------------
TRANSPORTATION: 0.39%
1,770,000 CSX Corp.,
6.750%, due 03/15/11 1,979,099
1,140,000 CSX Corp.,
7.450%, due 05/01/07 1,312,813
1,300,000 Norfolk Southern Corp.,
6.200%, due 04/15/09 1,438,353
--------------
4,730,265
--------------
Total Corporate Bonds
(Cost $146,430,075) 153,585,156
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS: 15.86%
FEDERAL HOME LOAN MORTGAGE ASSOCIATION: 3.05%
14,299,000 5.125%, due 07/15/12 15,247,753
21,290,000 6.000%, due 01/15/33 22,015,180
--------------
37,262,933
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION: 9.29%
2,600,000 5.500%, due 01/25/18 2,694,250
13,300,000 6.000%, due 02/25/18 13,902,650
8,270,000 6.000%, due 02/25/33 8,549,113
3,320,000 6.125%, due 03/15/12 3,791,526
40,390,000 6.500%, due 02/25/33 42,056,088
3,711,179 6.500%, due 11/01/28 3,871,118
13,300,000 7.000%, due 02/25/33 13,989,938
3,638,598 7.000%, due 06/01/31 3,833,554
1,945,128 7.000%, due 11/01/29 2,048,280
1,876,958 7.500%, due 01/25/48 2,035,913
1,463,077 7.500%, due 06/25/32 1,584,798
1,835,848 7.500%, due 10/01/30 1,950,342
2,433,029 7.500%, due 11/01/30 2,584,767
4,947,779 8.500%, due 01/01/25 5,386,496
1,697,362 8.500%, due 11/01/23 1,849,888
3,096,803 9.500%, due 10/01/16 3,451,252
--------------
113,579,973
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 3.52%
783,854 5.375%, due 04/20/28 806,316
197,417 6.000%, due 12/20/29 202,360
</Table>
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
$ 9,410,000 6.500%, due 02/15/33 $ 9,871,673
5,000,000 7.000%, due 02/15/33 5,298,440
3,102,288 7.000%, due 09/15/24 3,313,192
4,491,113 7.000%, due 10/15/24 4,795,912
812,959 7.000%, due 11/15/24 868,260
2,111,428 7.500%, due 11/20/30 2,250,640
8,769,631 7.500%, due 12/15/23 9,428,924
431,965 8.000%, due 07/15/24 472,132
5,284,860 8.000%, due 12/15/17 5,801,230
--------------
43,109,079
--------------
Total U.S. Government Obligations
(Cost $189,085,083) 193,951,985
--------------
U.S. TREASURY OBLIGATIONS: 8.89%
U.S. TREASURY BONDS: 1.77%
2,193,000 5.375%, due 02/15/31 2,391,399
11,850,000 8.125%, due 05/15/21 16,658,979
1,825,000 8.125%, due 08/15/21 2,568,832
--------------
21,619,210
--------------
U.S. TREASURY NOTES: 7.12%
1,585,000 2.000%, due 11/30/04 1,598,621
23,441,000 3.000%, due 01/31/04 23,884,199
15,254,000 3.000%, due 11/15/07 15,442,255
4,746,000 4.000%, due 11/15/12 4,814,599
4,700,000 4.875%, due 02/15/12 5,105,192
2,421,000 5.000%, due 02/15/11 2,660,832
4,004,000 5.000%, due 08/15/11 4,391,892
11,450,000 5.250%, due 11/05/12 11,813,217
557,000 5.875%, due 11/15/04 601,756
16,650,000 6.250%, due 02/15/03 16,748,742
--------------
87,061,305
--------------
Total U.S. Treasury Obligations
(Cost $106,727,204) 108,680,515
--------------
Total Long-Term Investments
(Cost $1,232,048,863) 1,198,525,513
--------------
SHORT-TERM INVESTMENTS: 11.62%
COMMERCIAL PAPER: 7.10%
12,000,000 Bos Treasury Services,
1.340%, due 01/14/03 11,994,640
12,000,000 Cox Enterprises, Inc.,
1.700%, due 01/14/03 11,993,200
12,000,000 General Mills, Inc.,
1.630%, due 01/14/03 11,993,480
15,000,000 General Motors Accept Co,
3.986%, due 08/04/03 14,871,750
12,000,000 John Deere Capital Corp.,
1.610%, due 01/14/03 11,993,560
12,000,000 Windmill Funding Corp.,
1.350%, due 01/14/03 11,994,600
12,000,000 Wyeth,
1.800%, due 01/14/03 11,992,800
--------------
86,834,030
--------------
</Table>
See Accompanying Notes to Financial Statements
66
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 4.52%
$ 55,200,000 State Street Bank Repurchase Agreement,
1.200%, due 01/02/03 $55,203,680 to be
received upon repurchase (Collateralized
by $51,000,131, FNMA, 2.125%, due
11/26/04 and $5,307,483, FNMA 2.250%,
due 11/22/04 $ 55,200,000
--------------
55,200,000
--------------
Total Short-Term Investment
(Cost $142,162,280) 142,034,030
--------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 109.63% $1,340,559,543
(COST $1,374,211,143)*
OTHER ASSETS AND LIABILITIES-NET -9.63% (117,785,734)
------- --------------
NET ASSETS 100.00% $1,222,773,809
======= ==============
</Table>
<Table>
@ Non-income producing security
@@ Foreign Issuer
A Related Party
# Securities purchased pursuant to Rule 144A, under the
Securities Act of 1933 and may not be resold subject to that
rule except to qualified institutional buyers.
xx Value of Securities obtained from one or more dealers making
markets in the securities which have been adjusted based on
the Portfolio's valuation procedures.
* Cost for federal income tax purposes is $1,419,145,545. Net
unrealized depreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $ 34,297,325
Gross Unrealized Depreciation (112,883,327)
-------------
Net Unrealized Depreciation $ (78,586,002)
=============
</Table>
Information concerning open futures contracts at December 31, 2002 is shown
below:
<Table>
<Caption>
NO. OF NOTIONAL EXPIRATION UNREALIZED
CONTRACTS MARKET VALUE DATE COMMITMENT GAIN/(LOSS)
--------- ------------ ---- ---------- -----------
LONG CONTRACTS
- -----------
880 $99,600,000 Mar-03 Buy $ 2,312,475
U.S. 5 Year Treasury Bond
83 9,353,063 Mar-03 Buy 253,773
U.S. 20 Year Treasury Bond
------------ -----------
$109,013,063 $ 2,566,248
============ ===========
SHORT CONTRACTS
- -----------
20 $ 4,303,750 Mar-03 Sell $ (1,350)
U.S. 2 Year Treasury Bond
1061 122,064,734 Mar-03 Sell (3,618,083)
U.S. 10 Year Treasury Bond
------------ -----------
$126,368,484 $(3,619,433)
============ ===========
</Table>
Information concerning the following open swap contracts at December 31, 2002 is
shown below:
<Table>
SWAP COUNTER PARTY BEAR STEARNS
Notional Principal $7,650,000
Fund will Pay: Notional amount times (libor rate + 0.675%) times actual
days divided by 360
Effective LIBOR rate: 1.4388%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to Bear Stearns.
Index: Bear Stearns High Yield Composite Index
Payment Date: Monthly on the 5th
Net unrealized gain: $62,222
Termination date: July 1, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
See Accompanying Notes to Financial Statements
67
ING
VP
BALANCED
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
SWAP COUNTER PARTY BEAR STEARNS
Notional Principal $7,650,000
Fund will Pay: Notional amount times (libor rate + 0.80%) times actual days
divided by 360
Effective LIBOR rate: 1.4388%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to
Bear Stearns.
Index: Bear Stearns High Yield Composite Index
Payment Date: Monthly on the 5th
Net unrealized gain: $61,425
Termination date: July 1, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
<Table>
SWAP COUNTER PARTY LEHMAN BROTHERS
Notional Principal $7,650,000
Fund will Pay: Notional amount times (libor rate + 1.05%) times actual days
divided by 360
Effective LIBOR rate: 1.4388%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to
Lehman Brothers.
Index: Lehman Brothers U.S. Corporate High Yield Index
Payment Date: Monthly on the 5th
Net unrealized gain: $91,123
Termination date: January 1, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / (Starting Index Level + 100).
</Table>
<Table>
SWAP COUNTER PARTY MERRILL LYNCH
Notional Principal $7,650,000
Fund will Pay: Notional amount times (libor rate + 1.00%) times actual days
divided by 360
Effective LIBOR rate: 1.7900%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to
Merrill Lynch Capital Services.
Index: U.S. High Yield Cash Pay Index
Payment Date: Quarterly on the 2nd
Net unrealized gain: $472,007
Termination date: July 2, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
<Table>
SWAP COUNTER PARTY MERRILL LYNCH
Notional Principal $4,535,000
Fund will Pay: Notional amount times (libor rate + 0.90%) times actual days
divided by 360
Effective LIBOR rate: 1.7900%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to
Merrill Lynch Capital Services.
Index: U.S. High Yield Cash Pay Index
Payment Date: Quarterly on the 2nd
Net unrealized gain: $280,957
Termination date: July 2, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
See Accompanying Notes to Financial Statements
68
ING
VP
GROWTH &
INCOME
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- -----------------------------------------------------------------------------------------
COMMON STOCKS: 98.48%
AEROSPACE/DEFENSE: 2.04%
558,000 @ L-3 Communications Holdings, Inc. $ 25,059,780
131,000 Lockheed Martin Corp. 7,565,250
635,000 United Technologies Corp. 39,331,900
--------------
71,956,930
--------------
AGRICULTURE: 0.86%
747,000 Philip Morris Cos., Inc. 30,275,910
--------------
30,275,910
--------------
APPAREL: 1.00%
992,500 @ Jones Apparel Group, Inc. 35,174,200
--------------
35,174,200
--------------
BANKS: 6.74%
600,000 AmSouth Bancorp 11,520,000
1,262,000 Bank of America Corp. 87,797,340
620,700 Charter One Financial, Inc. 17,832,711
1,261,300 National City Corp. 34,458,716
573,000 North Fork Bancorporation, Inc. 19,333,020
1,827,000 Wachovia Corp. 66,575,880
--------------
237,517,667
--------------
BEVERAGES: 2.57%
1,872,600 Anheuser-Busch Cos., Inc. 90,633,840
--------------
90,633,840
--------------
BIOTECHNOLOGY: 0.80%
582,300 @ Amgen, Inc. 28,148,382
--------------
28,148,382
--------------
BUILDING MATERIALS: 1.34%
662,800 @ American Standard Cos., Inc. 47,151,592
--------------
47,151,592
--------------
CHEMICALS: 0.35%
339,700 Eastman Chemical Co. 12,490,769
--------------
12,490,769
--------------
COMMERCIAL SERVICES: 0.45%
684,700 Equifax, Inc. 15,843,958
--------------
15,843,958
--------------
COMPUTERS: 4.93%
3,372,000 @ Brocade Communications Systems, Inc. 13,960,080
600,000 @ Dell Computer Corp. 16,044,000
1,235,000 @ EMC Corp. 7,582,900
2,091,000 Hewlett-Packard Co. 36,299,760
818,900 International Business Machines Corp. 63,464,750
2,374,000 @ Sun Microsystems, Inc. 7,383,140
955,025 @ Sungard Data Systems, Inc. 22,500,389
676,100 @ Unisys Corp. 6,693,390
--------------
173,928,409
--------------
COSMETICS/PERSONAL CARE: 4.88%
972,300 Kimberly-Clark Corp. 46,155,081
1,464,000 Procter & Gamble Co. 125,816,160
--------------
171,971,241
--------------
DISTRIBUTION/WHOLESALE: 0.20%
262,500 @ Tech Data Corp. 7,077,000
--------------
7,077,000
--------------
</Table>
<Table>
- -----------------------------------------------------------------------------------------
<Caption>
Shares Value
DIVERSIFIED FINANCIAL SERVICES: 10.33%
1,250,000 Bear Stearns Cos., Inc. $ 74,250,000
2,584,399 Citigroup, Inc. 90,945,001
818,000 Countrywide Financial Corp. 42,249,700
1,077,000 Fannie Mae 69,283,410
1,119,200 JP Morgan Chase & Co. 26,860,800
235,000 Merrill Lynch & Co., Inc. 8,918,250
497,000 SLM Corp. 51,618,420
--------------
364,125,581
--------------
ELECTRIC: 1.37%
310,000 DTE Energy Co. 14,384,000
335,000 Entergy Corp. 15,272,650
350,000 Exelon Corp. 18,469,500
--------------
48,126,150
--------------
ELECTRONICS: 0.07%
701,000 @ Solectron Corp. 2,488,550
--------------
2,488,550
--------------
FOOD: 1.34%
1,377,700 Kellogg Co. 47,213,779
--------------
47,213,779
--------------
HEALTHCARE -- PRODUCTS: 6.86%
705,000 Bausch & Lomb, Inc. 25,380,000
1,973,800 Becton Dickinson & Co. 60,575,922
800,600 CR Bard, Inc. 46,434,800
2,039,600 Johnson & Johnson 109,546,916
--------------
241,937,638
--------------
HEALTHCARE -- SERVICES: 3.14%
407,600 @ Anthem, Inc. 25,638,040
353,000 @ Quest Diagnostics 20,085,700
404,000 UnitedHealth Group, Inc. 33,734,000
438,200 @ WellPoint Health Networks 31,182,312
--------------
110,640,052
--------------
HOUSEHOLD PRODUCTS/WARES: 1.16%
878,700 Fortune Brands, Inc. 40,868,337
--------------
40,868,337
--------------
INSURANCE: 3.20%
1,219,925 AMBAC Financial Group, Inc. 68,608,582
494,100 MGIC Investment Corp. 20,406,330
257,000 Prudential Financial, Inc. 8,157,180
900,000 UnumProvident Corp. 15,786,000
--------------
112,958,092
--------------
LEISURE TIME: 0.21%
408,000 @ Sabre Holdings Corp. 7,388,880
--------------
7,388,880
--------------
MEDIA: 2.46%
1,950,000 @ AOL Time Warner, Inc. 25,545,000
1,146,600 @ Comcast Corp. 27,025,362
836,000 @ Viacom, Inc. 34,075,360
--------------
86,645,722
--------------
MISCELLANEOUS MANUFACTURER: 2.61%
3,776,100 General Electric Co. 91,948,035
--------------
91,948,035
--------------
</Table>
See Accompanying Notes to Financial Statements
69
ING
VP
GROWTH &
INCOME
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Shares Value
- -----------------------------------------------------------------------------------------
OIL & GAS: 3.71%
756,900 Amerada Hess Corp. $ 41,667,345
1,914,000 Exxon Mobil Corp. 66,875,160
781,000 Occidental Petroleum Corp. 22,219,450
--------------
130,761,955
--------------
OIL & GAS SERVICES: 0.77%
1,455,200 Halliburton Co. 27,226,792
--------------
27,226,792
--------------
PACKAGING & CONTAINERS: 0.85%
1,366,000 @ Pactiv Corp. 29,860,760
--------------
29,860,760
--------------
PHARMACEUTICALS: 7.69%
1,229,400 Abbott Laboratories 49,176,000
394,300 Allergan, Inc. 22,719,566
1,016,200 Bristol-Myers Squibb Co. 23,525,030
686,000 @ Express Scripts, Inc. 32,955,440
3,138,400 Pfizer, Inc. 95,940,888
900,700 Pharmacia Corp. 37,649,260
319,500 @ Watson Pharmaceuticals, Inc. 9,032,265
--------------
270,998,449
--------------
RETAIL: 6.81%
639,100 @ CDW Computer Centers, Inc. 28,024,535
624,000 Dillard's, Inc. 9,896,640
547,000 @ Federated Department Stores 15,731,720
1,094,000 Home Depot, Inc. 26,212,240
792,000 Lowe's Cos., Inc. 29,700,000
222,000 Ross Stores, Inc. 9,410,580
1,988,700 Wal-Mart Stores, Inc. 100,449,237
851,000 @ Yum! Brands, Inc. 20,611,220
--------------
240,036,172
--------------
SAVINGS & LOANS: 2.42%
2,471,000 Washington Mutual, Inc. 85,323,630
--------------
85,323,630
--------------
SEMICONDUCTORS: 2.83%
1,809,000 @ Altera Corp. 22,323,060
2,980,000 @ Atmel Corp. 6,645,400
2,870,300 Intel Corp. 44,690,571
1,091,000 @ Nvidia Corp. 12,557,410
2,466,300 @ PMC -- Sierra, Inc. 13,712,628
--------------
99,929,069
--------------
SOFTWARE: 7.04%
688,300 Automatic Data Processing 27,015,775
1,129,800 First Data Corp. 40,006,218
520,900 @ Fiserv, Inc. 17,684,555
2,778,800 @ Microsoft Corp. 143,663,960
1,847,000 @ Oracle Corp. 19,947,600
--------------
248,318,108
--------------
TELECOMMUNICATIONS: 7.45%
1,090,000 AT&T Corp. 28,459,900
2,266,000 @ AT&T Wireless Services, Inc. 12,802,900
900,000 BellSouth Corp. 23,283,000
3,674,400 @ Cisco Systems, Inc. 48,134,640
5,356,000 @ Lucent Technologies, Inc. 6,748,560
2,670,100 Motorola, Inc. 23,096,365
552,000 @ Nextel Communications, Inc. 6,375,600
298,400 @ Qualcomm, Inc. 10,858,775
1,405,000 Qwest Communications International 7,025,000
1,410,000 SBC Communications, Inc. 38,225,100
1,488,600 Verizon Communications, Inc. 57,683,250
--------------
262,693,090
--------------
Total Common Stocks
(Cost $3,520,180,839) 3,471,658,739
--------------
<Caption>
Principal
Amount Value
- -----------------------------------------------------------------------------------------
CORPORATE BONDS: 0.04%
OIL & GAS: 0.04%
$ 532,000 @ Devon Energy Corp.,
4.900%, due 08/15/08 $ 536,655
727,000 @ Devon Energy Corp.,
4.950%, due 08/15/08 735,179
--------------
1,271,834
--------------
Total Corporate Bonds
(Cost $881,068) 1,271,834
--------------
WARRANTS: 0.00%
DIVERSIFIED FINANCIAL SERVICES: 0.00%
1,000,000 @ Dime Bancorp, Inc. 121,000
--------------
Total Warrants
(Cost $326,698) 121,000
--------------
Total Long-Term Investments
(Cost $3,521,388,605) 3,473,051,573
--------------
SHORT-TERM INVESTMENT: 1.57%
REPURCHASE AGREEMENT: 1.57%
55,464,000 State Street Bank Repurchase Agreement, 1.200%,
due 01/02/03, $55,457,698 to be received upon
repurchase (Collateralized by $56,574,108 FHLB,
2.000%, due 11/17/03) 55,464,000
--------------
Total Short-Term Investment
(Cost $55,464,000) 55,464,000
--------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 100.09% $3,528,515,573
(COST $3,576,852,605)*
OTHER ASSETS AND LIABILITIES-NET -0.09% (3,266,994)
------- --------------
NET ASSETS 100.00% $3,525,248,579
======= ==============
</Table>
<Table>
@ Non-income producing security
* Cost for federal income tax purposes is $3,799,382,908. Net
unrealized depreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $ 109,641,497
Gross Unrealized Depreciation (380,508,831)
-------------
Net Unrealized Depreciation $(270,867,334)
=============
</Table>
See Accompanying Notes to Financial Statements
70
ING
VP
BOND
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
CORPORATE BONDS: 31.40%
AEROSPACE/DEFENSE: 1.14%
$ 1,250,000 Lockheed Martin Corp.,
8.200%, due 12/01/09 $ 1,546,871
1,605,000 Northrop Grumman Corp.,
7.125%, due 02/15/11 1,827,093
2,918,000 Raytheon Co,
6.150%, due 11/01/08 3,151,886
3,500,000 Raytheon Co,
8.200%, due 03/01/06 3,935,103
2,525,000 United Technologies Corp.,
4.875%, due 11/01/06 2,674,533
1,035,000 United Technologies Corp.,
7.125%, due 11/15/10 1,215,975
--------------
14,351,461
--------------
AGRICULTURE: 0.42%
2,775,000 RJ Reynolds Tobacco Holdings, Inc.,
6.500%, due 06/01/07 2,897,982
2,255,000 RJ Reynolds Tobacco Holdings, Inc.,
7.250%, due 06/01/12 2,363,515
--------------
5,261,497
--------------
AUTO MANUFACTURERS: 1.17%
2,428,000 DaimlerChrysler NA Holding Corp.,
7.200%, due 09/01/09 2,702,901
2,680,000 Ford Motor Co,
6.375%, due 02/01/29 2,071,501
3,951,000 Ford Motor Co,
6.625%, due 10/01/28 3,158,773
2,628,000 General Motors Corp.,
6.750%, due 05/01/28 2,294,985
4,370,000 General Motors Corp.,
7.200%, due 01/15/11 4,394,931
--------------
14,623,091
--------------
BANKS: 1.35%
2,781,000 Bank of America Corp.,
6.375%, due 02/15/08 3,131,459
504,000 Bank of America Corp.,
7.800%, due 02/15/10 600,355
1,515,000 Bank One Corp.,
5.250%, due 01/30/13 1,562,516
3,155,000 JP Morgan Chase & Co,
5.250%, due 05/30/07 3,338,684
2,454,000 Wachovia Corp.,
6.400%, due 04/01/08 2,754,100
4,910,000 Wells Fargo Bank NA,
6.450%, due 02/01/11 5,520,725
--------------
16,907,839
--------------
BEVERAGES: 0.37%
2,000,000 Anheuser-Busch Cos., Inc.,
5.950%, due 01/15/33 2,102,702
2,280,000 Coors Brewing Co,
6.375%, due 05/15/12 2,552,567
--------------
4,655,269
--------------
BUILDING MATERIALS: 0.08%
915,000 CRH America, Inc.,
6.950%, due 03/15/12 1,026,824
--------------
1,026,824
--------------
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Principal
Amount Value
CHEMICALS: 0.21%
$ 2,555,000 Dow Chemical Co/The,
5.750%, due 11/15/09 $ 2,647,100
--------------
2,647,100
--------------
COMMERCIAL MORTGAGE BACKED SECURITIES: 1.23%
6,167,579 Chase Manhattan Bank-First Union National
Bank,
7.439%, due 07/15/09 7,231,617
7,300,000 GE Capital Commercial Mortgage Corp.,
6.531%, due 03/15/11 8,254,494
--------------
15,486,111
--------------
COMMERCIAL SERVICES: 0.20%
2,485,000 Hertz Corp.,
8.250%, due 06/01/05 2,526,340
--------------
2,526,340
--------------
DIVERSIFIED FINANCIAL SERVICES: 9.17%
2,235,000 American Express Credit Corp.,
4.250%, due 02/07/05 2,322,590
1,025,000 American General Finance Corp.,
5.750%, due 03/15/07 1,106,855
2,340,000 Associates Corp. Of N. America,
6.250%, due 11/01/08 2,582,700
2,490,000 Boeing Capital Corp.,
7.375%, due 09/27/10 2,782,465
905,000 # Bombardier Capital, Inc.,
6.125%, due 06/29/06 819,610
790,000 # Bombardier Capital, Inc.,
7.500%, due 10/17/05 735,514
2,395,000 Caterpillar Financial Services Corp.,
2.030%, due 01/31/05 2,398,784
2,180,000 CIT Group, Inc.,
5.500%, due 11/30/07 2,231,165
1,290,000 Citigroup, Inc.,
5.625%, due 08/27/12 1,358,940
1,185,000 Citigroup, Inc.,
6.750%, due 12/01/05 1,318,567
4,730,000 Countrywide Home Loans, Inc.,
2.526%, due 10/23/06 4,704,666
2,350,000 Countrywide Home Loans, Inc.,
4.250%, due 12/19/07 2,381,067
970,000 Credit Suisse First Boston USA, Inc.,
4.625%, due 01/15/08 984,346
3,155,000 Credit Suisse First Boston USA, Inc.,
5.750%, due 04/15/07 3,380,573
5,285,000 Ford Motor Credit Co,
6.500%, due 01/25/07 5,224,672
324,000 Ford Motor Credit Co,
7.250%, due 10/25/11 315,326
2,415,000 Ford Motor Credit Co,
7.375%, due 10/28/09 2,396,718
6,055,000 General Electric Capital Corp.,
5.000%, due 06/15/07 6,417,713
710,000 General Electric Capital Corp.,
6.000%, due 06/15/12 767,962
3,995,000 General Motors Acceptance Corp.,
7.250%, due 03/02/11 4,077,253
900,000 Goldman Sachs Group, Inc.,
5.700%, due 09/01/12 937,778
300,000 Household Finance Corp.,
5.750%, due 01/30/07 314,268
2,532,000 Household Finance Corp.,
6.375%, due 11/27/12 2,648,090
</Table>
See Accompanying Notes to Financial Statements
71
ING
VP
BOND
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
$ 555,000 Household Finance Corp.,
8.000%, due 07/15/10 $ 627,878
6,915,000 International Lease Finance Corp.,
3.173%, due 10/18/04 6,931,230
1,200,000 Morgan Stanley,
6.750%, due 04/15/11 1,335,665
3,890,000 Morgan Stanley,
7.750%, due 06/15/05 4,342,559
1,105,000 Textron Financial Corp.,
7.125%, due 12/09/04 1,183,087
10,950,000 #xx TRAINS,
0.000%, due 01/15/12 12,266,190
11,220,000 #xx TRAINS,
0.000%, due 01/15/32 13,149,840
22,050,000 #xx TRAINS,
6.539%, due 08/15/08 23,064,300
--------------
115,108,371
--------------
ELECTRIC: 2.05%
3,255,000 Dominion Resources, Inc./VA,
6.750%, due 12/15/32 3,353,698
1,060,000 Duke Energy Corp.,
6.450%, due 10/15/32 1,034,136
1,775,000 Exelon Generation Co LLC,
6.950%, due 06/15/11 1,922,455
1,875,000 FirstEnergy Corp.,
5.500%, due 11/15/06 1,887,534
980,000 FirstEnergy Corp.,
7.375%, due 11/15/31 953,329
2,370,000 Florida Power & Light Co,
6.875%, due 12/01/05 2,644,451
2,685,000 Georgia Power Co,
4.875%, due 07/15/07 2,832,441
1,975,000 Nisource Finance Corp.,
7.625%, due 11/15/05 2,064,124
2,295,000 # Oncor Electric Delivery Co,
7.250%, due 01/15/33 2,344,391
2,825,000 # Pepco Holdings, Inc.,
6.450%, due 08/15/12 2,996,848
1,720,000 PSEG Power LLC,
6.950%, due 06/01/12 1,749,969
1,810,000 Wisconsin Energy Corp.,
5.500%, due 12/01/08 1,955,962
--------------
25,739,338
--------------
ENVIRONMENTAL CONTROL: 0.19%
2,350,000 # Waste Management, Inc.,
6.375%, due 11/15/12 2,422,676
--------------
2,422,676
--------------
FOOD: 1.15%
1,705,000 ConAgra Foods, Inc.,
6.750%, due 09/15/11 1,942,106
1,920,000 ConAgra Foods, Inc.,
7.500%, due 09/15/05 2,153,361
2,050,000 Kraft Foods, Inc.,
6.500%, due 11/01/31 2,260,340
1,222,000 Kroger Co,
6.750%, due 04/15/12 1,354,635
2,775,000 Safeway, Inc.,
4.800%, due 07/16/07 2,865,940
836,000 Safeway, Inc.,
5.800%, due 08/15/12 876,402
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Principal
Amount Value
$ 525,000 @@ Sysco International Co,
6.100%, due 06/01/12 $ 590,727
2,100,000 Unilever Capital Corp.,
6.875%, due 11/01/05 2,356,391
--------------
14,399,902
--------------
FOREST PRODUCTS & PAPER: 0.26%
1,445,000 @@ Abitibi-Consolidated, Inc.,
6.950%, due 12/15/06 1,502,531
1,560,000 Weyerhaeuser Co.,
6.750%, due 03/15/12 1,703,871
--------------
3,206,402
--------------
HOME BUILDERS: 0.20%
2,460,000 # Toll Brothers, Inc.,
6.875%, due 11/15/12 2,537,918
--------------
2,537,918
--------------
INSURANCE: 0.20%
775,000 Allstate Corp./The,
6.125%, due 12/15/32 792,228
1,610,000 # Monumental Global Funding II,
6.050%, due 01/19/06 1,728,428
--------------
2,520,656
--------------
MEDIA: 1.67%
5,360,000 AOL Time Warner, Inc.,
6.875%, due 05/01/12 5,672,445
1,035,000 COX Communications, Inc.,
7.125%, due 10/01/12 1,151,663
3,500,000 News America, Inc.,
6.625%, due 01/09/08 3,755,241
1,710,000 TCI Communications, Inc.,
8.650%, due 09/15/04 1,836,660
2,970,000 Tele-Communications-TCI Group,
7.125%, due 02/15/28 2,776,478
1,740,000 Tele-Communications-TCI Group,
9.800%, due 02/01/12 2,094,803
1,905,000 # USA Interactive,
7.000%, due 01/15/13 1,973,359
1,720,000 Walt Disney Co,
5.875%, due 12/15/17 1,750,902
--------------
21,011,551
--------------
MULTI-NATIONAL: 0.30%
3,085,000 @@ Inter-American Development Bank,
6.750%, due 07/15/27 3,713,374
--------------
3,713,374
--------------
OIL & GAS: 1.93%
2,930,000 Amerada Hess Corp.,
5.900%, due 08/15/06 3,136,755
790,000 Apache Corp.,
6.250%, due 04/15/12 887,134
2,610,000 @@ Burlington Resources Finance Co, 5.600%,
due 12/01/06 2,799,113
2,515,000 @@ Conoco Funding Co,
5.450%, due 10/15/06 2,716,932
3,550,000 @@ Conoco Funding Co,
6.350%, due 10/15/11 3,970,977
2,065,000 Devon Energy Corp.,
7.950%, due 04/15/32 2,490,440
4,470,000 # Pemex Project Funding Master Trust,
7.375%, due 12/15/14 4,592,925
</Table>
See Accompanying Notes to Financial Statements
72
ING
VP
BOND
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
OIL & GAS (CONTINUED)
$ 1,535,000 Transocean, Inc.,
7.500%, due 04/15/31 $ 1,766,421
1,785,000 Valero Energy Corp.,
7.500%, due 04/15/32 1,813,481
--------------
24,174,178
--------------
PIPELINES: 0.44%
1,545,000 Consolidated Natural Gas Co,
6.850%, due 04/15/11 1,727,474
1,495,000 Duke Energy Field Services Llc,
7.875%, due 08/16/10 1,584,915
1,175,000 Kinder Morgan Energy Partners LP,
6.750%, due 03/15/11 1,278,367
1,205,000 Tennessee Gas Pipeline Co.,
7.000%, due 10/15/28 930,676
--------------
5,521,432
--------------
REGIONAL (STATE/PROVINCE): 0.32%
980,000 @@ Province of Quebec,
7.500%, due 09/15/29 1,226,966
2,627,000 @@ Province of Ontario,
5.125%, due 07/17/12 2,810,661
--------------
4,037,627
--------------
RETAIL: 0.03%
338,000 Kohl's Corp.,
6.000%, due 01/15/33 340,978
--------------
340,978
--------------
SAVINGS & LOANS: 0.36%
4,455,000 Washington Mutual, Inc.,
4.375%, due 01/15/08 4,544,603
--------------
4,544,603
--------------
SOVEREIGN: 3.54%
35,485,000 @@ Bundesobligation,
coupon rate 5.000%, due 02/17/06 39,311,939
4,655,790 Small Business Administration,
7.550%, due 11/01/12 5,156,492
--------------
44,468,431
--------------
TELECOMMUNICATIONS: 2.53%
747,000 AT&T Broadband,
8.375%, due 03/15/13 850,327
74,000 AT&T Corp.,
6.000%, due 03/15/09 74,007
1,850,000 AT&T Corp.,
6.500%, due 03/15/13 1,859,898
390,000 AT&T Corp.,
8.000%, due 11/15/31 431,347
1,045,000 AT&T Wireless Services, Inc.,
8.125%, due 05/01/12 1,052,264
2,660,000 @@ British Telecommunications PLC,
0.000%, due 12/15/30 3,403,462
1,390,000 Citizens Communications Co,
9.250%, due 05/15/11 1,658,508
1,890,000 @@ Deutsche Telekom International Finance
BV,
8.750%, due 06/15/30 2,190,686
1,535,000 @@ France Telecom,
9.250%, due 03/01/11 1,778,010
4,175,000 Sprint Capital Corp.,
8.750%, due 03/15/32 3,978,328
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Principal
Amount Value
$ 2,800,000 @@ Telefonica Europe BV,
8.250%, due 09/15/30 $ 3,451,333
6,560,000 Verizon Global Funding Corp.,
7.375%, due 09/01/12 7,563,595
1,115,000 Verizon Wireless Capital LLC,
5.375%, due 12/15/06 1,166,064
2,295,000 @@ Vodafone Group PLC,
6.250%, due 11/30/32 2,301,635
--------------
31,759,464
--------------
TEXTILES: 0.16%
1,840,000 Mohawk Industries, Inc.,
7.200%, due 04/15/12 2,071,080
--------------
2,071,080
--------------
TRANSPORTATION: 0.73%
3,120,000 CSX Corp.,
6.750%, due 03/15/11 3,488,581
2,775,000 CSX Corp.,
7.450%, due 05/01/07 3,195,662
2,270,000 Norfolk Southern Corp.,
6.200%, due 04/15/09 2,511,585
--------------
9,195,828
--------------
Total Corporate Bonds
(Cost $379,374,890) 394,259,341
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS: 7.40%
AGENCY: 0.48%
5,777,746 Vendee Mortgage Trust,
5.863%, due 09/15/23 5,955,805
--------------
5,955,805
--------------
COMMERCIAL MORTGAGE BACKED SECURITIES: 3.86%
5,200,000 First Union National Bank-Bank of America
Commercial Mortgage Trust,
6.136%, due 12/15/10 5,783,461
6,350,000 JP Morgan Chase Commercial Mortgage
Securities Corp.,
6.162%, due 05/12/34 7,033,630
9,380,000 JP Morgan Chase Commercial Mortgage
Securities Corp.,
6.244%, due 04/15/35 10,433,496
7,030,000 LB-UBS Commercial Mortgage Trust,
4.659%, due 12/15/26 7,165,245
2,000,000 LB-UBS Commercial Mortgage Trust,
6.133%, due 12/15/30 2,213,719
4,500,000 LB-UBS Commercial Mortgage Trust,
7.370%, due 08/15/26 5,311,246
9,380,000 Mortgage Capital Funding, Inc.,
6.663%, due 03/18/30 10,577,556
--------------
48,518,353
--------------
CREDIT CARD ASSET BACKED SECURITY: 0.76%
8,800,000 Citibank Credit Card Issuance Trust,
5.650%, due 06/16/08 9,600,925
--------------
9,600,925
--------------
DIVERSIFIED FINANCIAL SERVICES: 2.13%
26,250,000 Core Investment Grade Bond Trust I,
4.727%, due 11/30/07 26,700,056
--------------
26,700,056
--------------
</Table>
See Accompanying Notes to Financial Statements
73
ING
VP
BOND
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
WHOLE LOAN COLLATERALIZED MORTGAGE: 0.17%
$ 2,128,737 xx Bear Stearns Adjustable Rate Mortgage
Trust,
6.059%, due 01/25/32 $ 2,166,988
--------------
2,166,988
--------------
Total Collateralized Mortgage Obligations
(Cost $90,630,741) 92,942,127
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS: 35.86%
FEDERAL HOME LOAN MORTGAGE CORPORATION: 3.60%
25,550,000 5.125%, due 07/15/12 27,245,268
16,230,000 6.000%, due 01/15/33 16,782,826
1,050,000 7.500%, due 12/01/11 1,120,682
--------------
45,148,776
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION: 21.30%
1,163,246 10.000%, due 02/25/19 1,339,861
9,300,000 5.500%, due 01/25/18 9,637,125
33,200,000 6.000%, due 02/25/18 34,704,358
33,230,000 6.000%, due 02/25/33 34,351,513
6,200,000 6.125%, due 03/15/12 7,080,561
81,795,000 6.500%, due 02/25/33 85,169,044
8,000,000 6.500%, due 09/25/23 8,600,622
2,863,653 6.500%, due 11/01/13 3,034,730
2,162,248 7.000%, due 01/01/30 2,276,914
243,100 7.000%, due 02/01/26 257,211
207,974 7.000%, due 02/01/26 220,046
35,000,000 7.000%, due 02/25/33 36,815,625
233,082 7.000%, due 03/01/26 246,265
1,100,264 7.000%, due 03/01/26 1,163,340
8,049,541 7.000%, due 06/01/31 8,480,834
178,843 7.000%, due 08/01/25 189,224
204,175 7.000%, due 10/01/25 216,027
95,627 7.000%, due 11/01/25 101,178
770,687 7.000%, due 12/01/25 815,423
9,261,421 7.500%, due 01/25/48 10,045,748
7,216,042 7.500%, due 06/25/32 7,816,381
611,644 7.500%, due 07/01/11 653,515
1,227,530 7.500%, due 10/01/30 1,304,085
4,183,749 7.500%, due 11/01/28 4,467,599
1,900,356 7.500%, due 11/01/30 2,018,873
924,237 7.500%, due 11/01/30 981,877
3,205,749 8.500%, due 01/01/25 3,490,001
1,841,411 8.500%, due 11/01/23 2,006,882
--------------
267,484,862
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 10.96%
836,430 5.375%, due 04/20/28 860,399
4,590,376 6.000%, due 07/01/29 4,765,679
554,804 6.000%, due 12/20/29 568,696
30,735,000 6.500%, due 02/15/33 32,242,921
23,270,585 6.500%, due 08/01/29 24,253,402
31,150,000 7.000%, due 02/15/33 33,009,281
3,162,201 7.000%, due 04/15/26 3,367,265
388,107 7.500%, due 01/15/30 414,240
32,503 7.500%, due 01/15/31 34,683
979,323 7.500%, due 01/15/32 1,045,328
10,721 7.500%, due 02/15/30 11,443
357,555 7.500%, due 02/15/31 381,533
979,984 7.500%, due 02/15/32 1,045,710
11,970,000 7.500%, due 02/15/33 12,770,494
261,282 7.500%, due 03/15/31 278,800
300,000 7.500%, due 03/15/32 320,120
250,407 7.500%, due 04/15/22 269,248
400,000 7.500%, due 04/15/31 426,818
350,611 7.500%, due 05/15/30 374,219
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Principal
Amount Value
$ 980,133 7.500%, due 06/15/32 $ 1,045,869
416,000 7.500%, due 07/15/30 444,012
20,906 7.500%, due 08/15/30 22,313
980,428 7.500%, due 08/15/32 1,046,183
394,347 7.500%, due 10/15/30 420,901
42,610 7.500%, due 11/15/30 45,479
2,620,205 7.500%, due 11/20/30 2,792,963
9,692 7.500%, due 12/15/30 10,345
5,245,287 7.500%, due 12/15/31 5,598,526
8,893,204 8.000%, due 12/15/17 9,762,135
--------------
137,629,005
--------------
Total U.S. Government Agency Obligations
(Cost $438,990,323) 450,262,643
--------------
U.S. TREASURY OBLIGATIONS: 19.20%
U.S. TREASURY BONDS: 8.49%
23,335,000 2.000%, due 11/30/04 23,535,541
3,438,000 5.375%, due 02/15/31 3,749,032
56,375,000 8.125%, due 05/15/21 79,253,159
--------------
106,537,732
--------------
U.S. TREASURY NOTES: 10.71%
30,034,000 3.000%, due 01/31/04 30,601,856
21,818,000 3.000%, due 11/15/07 22,087,321
2,949,000 4.000%, due 11/15/12 2,991,625
225,000 5.000%, due 08/15/11 246,797
21,600,000 5.250%, due 11/05/12 22,285,195
55,950,000 6.250%, due 02/15/03 56,281,808
--------------
134,494,602
--------------
Total U.S. Treasury Obligations
(Cost $238,845,309) 241,032,334
--------------
Total Long-Term Investments
(Cost $1,147,841,263) 1,178,496,445
--------------
SHORT-TERM INVESTMENT: 28.49%
COMMERCIAL PAPERS: 22.41%
12,000,000 Bristol-Myers Squibb Co.,
1.400%, due 01/15/03 11,993,933
19,000,000 Cit Group Holdings, Inc.,
1.400%, due 01/14/03 18,991,133
12,000,000 Conoco Phillips,
1.450%, due 01/17/03 11,992,750
12,000,000 Cox Enterprises, Inc.,
1.700%, due 01/14/03 11,993,200
12,000,000 Csx Corp.,
1.450%, due 01/15/03 11,993,717
12,000,000 Diamlerchrysler Na,
1.960%, due 01/14/03 11,992,160
21,000,000 Federal Farm Credit Bank,
1.730%, due 02/03/03 21,000,000
12,000,000 Ford Motor Credit Corp.,
1.940%, due 01/15/03 11,991,593
12,000,000 General Electric Capital,
1.340%, due 01/14/03 11,994,640
12,000,000 General Mills, Inc.,
1.630%, due 01/14/03 11,993,480
12,500,000 General Motors Accept Co.,
3.986%, due 08/04/03 12,393,125
12,000,000 HBOS Treasury Services,
1.340%, due 01/14/03 11,994,640
12,000,000 Household Finance Corp.,
1.570%, due 01/14/03 11,993,720
</Table>
See Accompanying Notes to Financial Statements
74
ING
VP
BOND
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- ----------------------------------------------------------------------------------------
COMMERCIAL PAPERS (CONTINUED)
$ 12,000,000 John Deere Capital Corp.,
1.610%, due 01/14/03 $ 11,993,560
12,000,000 Preferred Rec Funding,
1.360%, due 01/13/03 11,995,010
13,000,000 Royal Bank Of Scotland,
1.330%, due 01/14/03 12,994,237
12,000,000 Safeway, Inc.,
1.520%, due 01/10/03 11,995,947
12,000,000 Saloman Smith Barney,
1.330%, due 01/14/03 11,994,680
12,000,000 Svenska Handelsbaken,
1.350%, due 01/14/03 11,994,600
12,000,000 Viacom International,
1.500%, due 01/14/03 11,994,000
12,000,000 Windmill Funding Corp.,
1.350%, due 01/14/03 11,994,600
12,000,000 Wyeth,
1.800%, due 01/14/03 11,992,800
--------------
281,267,525
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION: 1.79%
22,500,000 2.250%, due 02/07/03 22,499,551
--------------
22,499,551
--------------
STUDENT LOAN MARKETING ASSOCIATION: 1.99%
25,000,000 2.250%, due 01/03/03 25,000,420
--------------
25,000,420
--------------
</Table>
<Table>
- ----------------------------------------------------------------------------------------
<Caption>
Principal
Amount Value
REPURCHASE AGREEMENT: 2.30%
$ 28,931,000 State Street Bank Repurchase Agreement,
1.200%, due 01/02/03 $28,932,929 to be
received upon repurchase (Collateralized
by $29,511,627 FNMA, 5.000%, due 02/14/03 $ 28,931,000
--------------
28,931,000
--------------
Total Short-Term Investment
(Cost $357,805,371) 357,698,496
--------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 122.35% $1,536,194,941
(COST $1,505,646,634)*
OTHER ASSETS AND LIABILITIES-NET -22.35% (280,636,836)
------- --------------
NET ASSETS 100.00% $1,255,558,105
======= ==============
</Table>
<Table>
@@ Foreign Issuer
# Securities purchased pursuant to Rule 144A, under the
Securities Act of 1933 and may not be resold subject to that
rule except to qualified institutional buyers.
xx Value of Securities obtained from one or more dealers making
markets in the securities which have been adjusted based on
the Portfolio's valuation procedures.
* Cost for federal income tax purposes is $1,506,510,541. Net
unrealized appreciation consists of:
</Table>
<Table>
Gross Unrealized Appreciation $30,635,955
Gross Unrealized Depreciation (844,680)
-----------
Net Unrealized Appreciation $29,791,275
===========
</Table>
Information concerning open futures contracts at December 31, 2002 is shown
below:
<Table>
<Caption>
NO. OF NOTIONAL EXPIRATION UNREALIZED
CONTRACTS MARKET VALUE DATE COMMITMENT GAIN/(LOSS)
--------- ------------ ---- ---------- -----------
LONG CONTRACTS
- -----------
293 $63,049,938 Mar-03 Buy $ 436,763
U.S. 2 Year Treasury Bond
300 33,975,000 Mar-03 Buy 2,175,829
U.S. 5 Year Treasury Bond
828 93,771,000 Mar-03 Buy 495,375
U.S. 5 Year Treasury Bond
19 2,141,063 Mar-03 Buy 61,358
U.S. 20 Year Treasury Bond
------------ -----------
$192,937,001 $ 3,169,325
============ ===========
SHORT CONTRACTS
- -----------
109 $12,540,109 Mar-03 Sell $ (238,983)
U.S. 10 Year Treasury Bond
250 28,761,719 Mar-03 Sell (552,031)
U.S. 10 Year Treasury Bond
1097 126,206,422 Mar-03 Sell (3,740,846)
U.S. 10 Year Treasury Bond
------------ -----------
$167,508,250 $(4,531,859)
============ ===========
</Table>
Information concerning the following open swap contracts at December 31, 2002 is
shown below:
<Table>
SWAP COUNTER PARTY BEAR STEARNS
Notional Principal $15,300,000
Fund will Pay: Notional amount times (libor rate + 0.675%) times actual
days divided by 360
Effective LIBOR rate: 1.4388%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to Bear Stearns.
Index: Bear Stearns High Yield Composite Index
Payment Date: Monthly on the 5th
Net unrealized gain: $124,443
Termination date: July 1, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
See Accompanying Notes to Financial Statements
75
ING
VP
BOND
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
SWAP COUNTER PARTY BEAR STEARNS
Notional Principal $15,300,000
Fund will Pay: Notional amount times (libor rate + 0.80%) times actual days
divided by 360
Effective LIBOR rate: 1.4388%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to Bear Stearns.
Index: Bear Stearns High Yield Composite Index
Payment Date: Monthly on the 5th
Net unrealized gain: $122,849
Termination date: July 1, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
<Table>
SWAP COUNTER PARTY LEHMAN BROTHERS
Notional Principal $15,300,000
Fund will Pay: Notional amount times (libor rate + 1.05%) times actual days
divided by 360
Effective LIBOR rate: 1.4388%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to Lehman Brothers.
Index: Lehman Brothers U.S. Corporate High Yield Index
Payment Date: Monthly on the 5th
Net unrealized gain: $182,248
Termination date: January 1, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / (Starting Index Level + 100).
</Table>
<Table>
SWAP COUNTER PARTY MERRILL LYNCH
Notional Principal $15,300,000
Fund will Pay: Notional amount times (libor rate + 1.00%) times actual days
divided by 360
Effective LIBOR rate: 1.7900%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to Merrill Lynch Capital Services.
Index: U.S. High Yield Cash Pay Index
Payment Date: Quarterly on the 2nd
Net unrealized gain: $944,014
Termination date: July 2, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
<Table>
SWAP COUNTER PARTY MERRILL LYNCH
Notional Principal $9,205,000
Fund will Pay: Notional amount times (libor rate + 0.90%) times actual days
divided by 360
Effective LIBOR rate: 1.7900%
Fund will receive: Notional amount times Index Return [1]. Positive amounts are
paid to the Fund. The absolute value of negative amounts are
paid to Merrill Lynch Capital Services.
Index: U.S. High Yield Cash Pay Index
Payment Date: Quarterly on the 2nd
Net unrealized gain: $570,278
Termination date: July 2, 2003
</Table>
<Table>
[1] Index return calculation: (Ending Index Level -- Starting
Index Level) / Starting Index Level.
</Table>
See Accompanying Notes to Financial Statements
76
ING
VP
MONEY
MARKET
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- -------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES: 31.67%
$ 2,158,435 Carmax Auto Owner Trust,
1.890%, due 06/16/03 $ 2,159,277
12,050,913 Caterpillar Financial Asset,
1.818%, due 07/25/03 12,059,108
14,000,000 Corporate Asset Funding,
1.330%, due 02/03/03 13,983,449
16,000,000 Credit Suisse First Boston USA,
1.350%, due 01/14/03 15,992,800
16,000,000 Credit Suisse First Boston USA,
1.370%, due 01/27/03 15,984,778
16,000,000 Delaware Funding Corp.,
1.310%, due 02/05/03 15,980,204
16,000,000 Delaware Funding Corp.,
1.330%, due 01/27/03 15,985,222
16,000,000 Deutsche Bank A.G.,
1.330%, due 02/12/03 16,000,182
16,000,000 Edison Asset Security LLC,
1.520%, due 02/06/03 15,976,356
16,000,000 Edison Asset Security LLC,
1.670%, due 02/13/03 15,968,827
15,000,000 Enterprise Funding Corp,
1.340%, due 01/07/03 14,997,208
12,432,000 Enterprise Funding Corp,
1.360%, due 01/09/03 12,428,712
11,650,000 First Union National Bank,
2.080%, due 02/18/03 11,652,877
343,125 Franklin Auto Trust,
1.960%, due 06/20/03 343,218
25,500,000 General Electric Capital,
2.019%, due 10/22/03 25,513,515
20,000,000 General Electric Capital,
5.840%, due 01/22/03 20,000,286
4,000,000 General Electric Capital,
8.700%, due 02/15/03 4,029,657
2,561,590 Honda Auto Receivable,
1.950%, due 06/13/03 2,562,691
1,861,086 MMCA Auto Owner Trust,
1.843%, due 06/16/03 1,861,477
13,500,000 MMKT Trust,
1.890%, due 12/03/03 13,499,865
19,262,644 Nissan Auto Receivables,
1.704%, due 09/08/03 19,272,853
16,000,000 Park Avenue Receivable,
1.360%, due 01/16/03 15,991,538
16,000,000 Park Avenue Receivable,
1.370%, due 01/14/03 15,992,693
52,000,000 Permanent Financing,
1.816%, due 06/10/03 52,000,520
16,000,000 Preferred Receivable Funding,
1.350%, due 01/08/03 15,996,400
16,000,000 Preferred Receivable Funding,
1.360%, due 01/28/03 15,984,284
15,869,264 Triad Auto Receivables,
1.723%, due 09/12/03 15,877,516
48,000,000 Verizon Global Funding,
1.880%, due 03/18/03 48,003,840
29,308,138 WFS Financial Owner Trust,
1.733%, due 08/20/03 29,323,378
16,000,000 Windmill Funding Corp,
1.330%, due 01/16/03 15,991,724
--------------
Total Asset-Backed Securities
(Cost $491,379,204) 491,414,455
--------------
</Table>
<Table>
<Caption>
Principal
Amount Value
- -------------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT: 7.61%
$ 15,000,000 ABN Amro Bank NV,
1.360%, due 02/05/03 $ 15,000,278
16,000,000 ABN Amro Bank NV,
1.340%, due 01/13/03 16,000,048
16,000,000 Barclays Bank PLC,
1.320%, due 02/10/03 16,000,000
16,000,000 Barclays Bank PLC,
1.340%, due 01/13/03 15,999,949
20,000,000 Canadian Imperial Bank Commercial,
1.370%, due 04/28/03 20,003,800
15,000,000 Canadian Imperial Bank,
1.680%, due 03/06/03 15,010,500
20,000,000 State Street Bank & Trust,
1.770%, due 12/05/03 20,057,400
--------------
Total Certificate of Deposit
(Cost $118,000,806) 118,071,975
--------------
COMMERCIAL PAPERS: 35.74%
16,000,000 Bristol-Myers Squibb Co.,
1.370%, due 03/10/03 15,961,760
16,000,000 Bristol-Myers Squibb Co.,
1.400%, due 02/24/03 15,967,022
16,000,000 CDC Commercial Paper,
1.330%, due 01/24/03 15,986,996
24,000,000 Citigroup, Inc.,
3.848%, due 07/17/03 24,015,600
26,000,000 First Chicago,
5.765%, due 02/18/03 26,005,447
13,000,000 Fleet Boston Corporation,
6.913%, due 07/31/03 13,002,340
16,000,000 Goldman Sachs,
1.350%, due 09/26/03 16,003,360
32,000,000 Goldman Sachs,
1.604%, due 08/01/03 32,052,800
16,000,000 HBOS Treasury Services,
1.340%, due 03/10/03 15,999,970
16,000,000 HBOS Treasury Services,
1.770%, due 03/03/03 16,013,280
16,000,000 Household Finance Corp.,
1.560%, due 01/29/03 15,981,280
15,000,000 Household Finance Corp.,
1.600%, due 02/20/03 14,967,333
21,500,000 International Lease Finance Corp.,
1.820%, due 01/30/03 21,469,566
10,000,000 J P Morgan Chase,
1.530%, due 03/06/03 10,007,000
16,000,000 Merrill Lynch & Co., Inc.,
1.670%, due 02/07/03 15,973,280
12,800,000 Merrill Lynch & Co., Inc.,
1.987%, due 08/01/03 12,824,789
16,000,000 Morgan Stanley Dean,
1.340%, due 01/21/03 15,988,684
11,000,000 Morgan Stanley Dean,
1.350%, due 02/21/03 10,979,375
16,000,000 Morgan Stanley Dean,
1.360%, due 01/06/03 15,997,582
16,000,000 Morgan Stanley Dean,
1.370%, due 01/07/03 15,996,956
16,000,000 Morgan Stanley Dean,
1.750%, due 01/17/03 15,988,333
19,384,392 RASC Home Equity Mortgage,
1.730%, due 08/25/03 19,393,891
20,000,000 Royal Bank Of Scotland,
1.810%, due 11/03/03 20,065,800
10,000,000 Salomon Smith Barney Holdings,
1.721%, due 06/12/03 10,009,800
</Table>
See Accompanying Notes to Financial Statements
77
ING
VP
MONEY
MARKET
PORTFOLIO
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal
Amount Value
- -------------------------------------------------------------------------------------
$ 16,000,000 Southtrust Bank,
1.380%, due 05/07/03 $ 16,003,360
16,000,000 Svenska Handelsbaken,
1.340%, due 01/10/03 15,995,236
10,900,000 Svenska Handelsbaken,
1.350%, due 01/13/03 10,895,504
31,000,000 Toyota Motor Credit Corp,
1.370%, due 01/16/04 31,002,790
16,000,000 Transamerica Financial,
1.350%, due 02/06/03 15,979,000
16,000,000 Transamerica Financial,
1.510%, due 02/11/03 15,973,156
16,000,000 Wells Fargo Bank,
1.321%, due 11/24/03 16,000,480
10,000,000 Wells Fargo Bank,
1.338%, due 01/02/04 10,000,800
16,000,000 Wells Fargo Bank,
1.680%, due 04/01/03 16,009,280
--------------
Total Commercial Papers
(Cost $554,369,178) 554,511,850
--------------
MEDIUM-TERM NOTES: 13.48%
20,000,000 American Express Centurion,
1.929%, due 04/29/03 20,001,600
25,000,000 American Express Cr Corp.,
1.691%, due 02/14/03 24,999,100
15,000,000 American Honda Finance,
1.724%, due 01/17/03 15,000,134
20,000,000 American Honda Finance,
1.940%, due 04/21/03 20,011,000
26,000,000 Bank One Corp.,
6.980%, due 02/14/03 26,007,512
13,000,000 Bank One,
5.688%, due 03/31/03 13,016,380
2,600,784 Chase Manhattan Auto,
1.929%, due 06/16/03 2,601,408
16,500,000 Chase Manhattan Bank USA,
1.330%, due 02/19/03 16,500,000
16,000,000 Chase Manhattan Bank USA,
1.650%, due 02/04/03 16,000,000
15,000,000 General Electric,
1.870%, due 12/09/03 15,006,750
11,000,000 Lehman Brothers Holding,
2.750%, due 01/13/03 11,000,970
29,000,000 Syndicated Loan Funding,
2.080%, due 01/15/03 29,000,000
--------------
Total Medium-Term Notes
(Cost $209,112,161) 209,144,854
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS: 3.09%
20,000,000 Federal Home Loan Bank,
1.850%, due 11/10/03 20,004,200
20,000,000 Federal Home Loan Bank,
2.000%, due 11/14/03 20,007,000
8,000,000 Federal National Mortgage Association,
1.600%, due 12/24/03 8,004,800
--------------
Total U.S. Government Agency
Obligations
(Cost $48,000,000) 48,016,000
--------------
<Caption>
Principal
Amount Value
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 7.50%
$ 116,410,000 State Street Bank Repurchase Agreement,
1.200%, due 01/02/03, $116,417,760 to be
received upon repurchase (Collateralized by
$51,004,800 FHLMC, 0.000%, due 09/10/03,
$51,004,375 FHLMC, 0.000%, due 12/04/03 and
$16,742,375 FHLB, 2.375%, due 03/07/03) $ 116,410,000
--------------
Total Repurchase Agreement
(Cost $116,410,000) 116,410,000
--------------
</Table>
<Table>
TOTAL INVESTMENTS IN SECURITIES 99.09% $1,537,569,134
(COST $1,537,271,349)*
OTHER ASSETS AND LIABILITIES-NET 0.91% 14,097,315
------- --------------
NET ASSETS 100.00% $1,551,666,449
======= ==============
</Table>
<Table>
* Cost for federal income tax purposes is the same as for
financial statement purposes. Net unrealized appreciation
consists of:
</Table>
<Table>
Gross Unrealized Appreciation $332,273
Gross Unrealized Depreciation (34,488)
--------
Net Unrealized Appreciation $297,785
========
</Table>
<Table>
<Caption>
Percentage of
Industry Net Assets
- --------------------------------------------------------------------------
Banks 23.22%
Diversified Financial Service 16.05%
F-Commercial 2.06%
Finance -- Automobile 5.14%
Finance -- Broker 16.12%
Finance -- Credit Card 1.61%
Finance -- Leasing 1.77%
Financial Guarantors 1.89%
Medical 2.06%
Mortgage Receivable 3.35%
Other ABS 0.78%
Pharmaceutical 0.87%
Sovereign 10.91%
Special Purpose Entity 13.26%
Other Assets and Liabilities, Net 0.91%
-------
NET ASSETS 100.00%
=======
</Table>
See Accompanying Notes to Financial Statements
78
SHAREHOLDER MEETING INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
A Special Meeting of the ING Portfolios was held on August 29, 2002 at 7337 E.
Doubletree Ranch Rd., Scottsdale, Arizona 85258-2034.
A brief description of each matter voted upon as well as the results are
outlined below:
<Table>
<Caption>
SHARES VOTED
AGAINST OR SHARES TOTAL
SHARES VOTED FOR WITHHELD ABSTAINED SHARES VOTED
---------------- -------- --------- ------------
1. To approve or disapprove a new Subadvisory Agreement on behalf of the Fund, between
ING Investments, LLC and AIC Asset Management, LLC (formerly known as Elijah Asset
Management, LLC)
ING VP Technology Portfolio 10,142,673 263,514 1,395,383 11,801,570
</Table>
79
TAX INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
Dividends paid during the year ended December 31, 2002 were as follows:
<Table>
<Caption>
FUND NAME TYPE PER SHARE AMOUNT
- --------- ---- ----------------
International Equity
Class R NII $0.0151
Small Company
Class R NII $0.0653
Class S NII $0.0578
Value Opportunity
Class R NII $0.0472
Class S NII $0.0373
Balanced
Class R NII $0.1185
Growth and Income
Class R NII $0.1595
Bond
Class R NII $0.4264
Class S NII $0.4186
Class R STCG $0.0662
Class S STCG $0.0662
Money Market
Class R NII $0.5097
</Table>
- ------------------
NII -- Net investment income
STCG -- Short-term capital gain
Of the ordinary distributions made during the fiscal year ended December 31,
2002, the following percentages qualify for the dividends received deduction
available to corporate shareholders, 11.37%, 11.74%, 19.76%, and 100% for the
Small Company Portfolio, Value Opportunity Portfolio, Balanced Portfolio and the
Growth and Income Portfolio, respectively.
The foreign taxes paid or withheld of $81,037 in total and $0.0162 per share for
the International Equity Portfolio represents taxes incurred by the portfolio
from foreign sources. Foreign taxes paid or withheld should be included in
taxable income with an offsetting deduction from gross income or as a credit for
taxes paid to foreign governments.
The above figure may differ from those cited elsewhere in this report due to
differences in the calculation of income and gains for Securities and Exchange
Commission (book) purposes and Internal Revenue Service (tax) purposes.
Shareholder are strongly advised to consult their own tax advisers with respect
to the tax consequences of their Investments in the Funds. In January 2003,
shareholders, excluding corporate shareholders, received an IRS 1099-DIV
regarding the federal tax status of the dividends and distributions received by
them in calendar 2002.
80
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
The business and affairs of the Series are managed under the direction of the
Series' Board of Trustees. Information pertaining to the Trustees and Officers
of the Series is set forth below:
<Table>
<Caption>
POSITION(S) TERM OF OFFICE
HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH FUND TIME SERVED DURING THE PAST FIVE YEARS
- --------------------- ----------- -------------- --------------------------
NON-INTERESTED TRUSTEES:
Albert E. DePrince, Jr. Trustee June 1998 to Director, Business and Economic Research
7337 E. Doubletree Ranch Rd. Present Center, 1999 to present, and Professor
Scottsdale, AZ 85258 of Economics and Finance, Middle
Born: 1941 Tennessee State University, 1991 to
present.
Maria T. Fighetti Trustee April 1994 to Associate Commissioner for Contract
7337 E. Doubletree Ranch Rd. Present Management, Health Services, New York
Scottsdale, AZ 85258 City Department of Mental Health, Mental
Born: 1943 Retardation and Alcohol Services, 1996
to October 2002.
David L. Grove Trustee June 1991 to Private Investor; Economic/Financial
7337 E. Doubletree Ranch Rd. Present Consultant, December 1985 to present.
Scottsdale, AZ 85258
Born: 1918
Sidney Koch Trustee April 1994 to Financial Adviser, self-employed,
7337 E. Doubletree Ranch Rd. Present January 1993 to present.
Scottsdale, AZ 85258
Born: 1935
Corine T. Norgaard Trustee June 1991 to Dean of the Barney School of Business,
7337 E. Doubletree Ranch Rd. Present University of Hartford
Scottsdale, AZ 85258 (West Hartford, CT), August 1996
Born: 1937 to present.
Edward T. O'Dell Trustee June 2002 to Formerly, Partner/Chairman of Financial
7337 E. Doubletree Ranch Rd. Present Service Group, Goodwin Proctor LLP
Scottsdale, AZ 85258 (January 1970 to September 2000);
Born: 1935 Chairman, Committee I -- International
Bar Association (1995 to 1999).
INTERESTED TRUSTEES:
J. Scott Fox(1) Trustee Since 1997 Chief Executive Officer (July 2001 to
7337 E. Doubletree Ranch Rd. present), President (April 2001 to
Scottsdale, AZ 85258 present), Director, Chief Operating
Born: 1955 Officer (April 1994 to present), Chief
Financial Officer (April 1994 to July
2001), Managing Director (April 1994 to
April 2001), Aeltus Investment
Management, Inc.; Executive Vice
President (April 2001 to present),
Director, Chief Operating Officer
(February 1995 to present), Chief
Financial Officer, Managing Director
(February 1995 to April 2001), Aeltus
Capital, Inc.; Senior Vice President --
Operations, Aetna Life Insurance and
Annuity Company, March 1997 to December
1997.
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX OTHER DIRECTORSHIPS
OVERSEEN BY HELD BY
NAME, ADDRESS AND AGE TRUSTEE TRUSTEE
- --------------------- ----------- -------------------
NON-INTERESTED TRUSTEES:
Albert E. DePrince, Jr. 54 --
7337 E. Doubletree Ranch Rd.
Scottsdale, AZ 85258
Born: 1941
Maria T. Fighetti 54 --
7337 E. Doubletree Ranch Rd.
Scottsdale, AZ 85258
Born: 1943
David L. Grove 54 --
7337 E. Doubletree Ranch Rd.
Scottsdale, AZ 85258
Born: 1918
Sidney Koch 54 --
7337 E. Doubletree Ranch Rd.
Scottsdale, AZ 85258
Born: 1935
Corine T. Norgaard 54 --
7337 E. Doubletree Ranch Rd.
Scottsdale, AZ 85258
Born: 1937
Edward T. O'Dell 54 --
7337 E. Doubletree Ranch Rd.
Scottsdale, AZ 85258
Born: 1935
INTERESTED TRUSTEES:
J. Scott Fox(1) 54 Mr. Fox serves as Director of
7337 E. Doubletree Ranch Rd. the Board of IPC Financial
Scottsdale, AZ 85258 Network, Inc. (January 2001 to
Born: 1955 present).
</Table>
81
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION(S) TERM OF OFFICE
HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH FUND TIME SERVED DURING THE PAST FIVE YEARS
- --------------------- ----------- -------------- --------------------------
INTERESTED TRUSTEES:
Thomas J. McInerney(2) Trustee February 2001 Chief Executive Officer, ING U.S.
7337 E. Doubletree Ranch Rd. to Present Financial Services (October 2001 to
Scottsdale, AZ 85258 present); President, Chief Executive
Born: 1956 Officer, and Director of Northern Life
Insurance Company (2001 to present); and
President and Director of Aetna Life
Insurance and Annuity Company (1997 to
present), Aetna Retirement Holdings,
Inc. (1997 to present), Aetna Investment
Adviser Holding Co. (2000 to present),
and Aetna Retail Holding Company (2000
to present). Mr. McInerney was formerly
General Manager and Chief Executive
Officer of ING Worksite Division (since
December 2000 to October 2001);
President of Aetna Financial Services
(August 1997 to December 2000); Head of
National Accounts and Core Sales and
Marketing for Aetna U.S. Healthcare
(April 1996 to March 1997); Head of
Corporate Strategies for Aetna Inc.
(July 1995 to April 1996); and has held
a variety of line and corporate staff
positions since 1978.
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX OTHER DIRECTORSHIPS
OVERSEEN BY HELD BY
NAME, ADDRESS AND AGE TRUSTEE TRUSTEE
- --------------------- ----------- -------------------
INTERESTED TRUSTEES:
Thomas J. McInerney(2) 158 Mr. McInerney serves as a
7337 E. Doubletree Ranch Rd. Director/ Trustee of Aeltus
Scottsdale, AZ 85258 Investment Management, Inc.
Born: 1956 (1997 to present); each of the
Aetna Funds (April 2002 to
present); Ameribest Life
Insurance Co. (2001 to
present); Equitable Life
Insurance Co. (2001 to
present); First Columbine Life
Insurance Co. (2001 to
present); Golden American Life
Insurance Co. (2001 to
present); Life Insurance
Company of Georgia (2001 to
present); Midwestern United
Life Insurance Co. (2001 to
present); ReliaStar Life
Insurance Co. (2001 to
present); Security Life of
Denver (2001 to present);
Security Connecticut Life
Insurance Co. (2001 to
present); Southland Life
Insurance Co. (2001 to
present); USG Annuity and Life
Company (2001 to present);
United Life and Annuity
Insurance Co. Inc. (2001 to
present); and the GCG Trust
(February 2002 to present).
Mr. McInerney is a member of
the Board of the National
Commission on Retirement
Policy, the Governor's Council
on Economic Competitiveness
and Technology of Connecticut,
the Board of Directors of the
Connecticut Business and
Industry Association, the
Board of Trustees of the
Bushnell, the Board for the
Connecticut Forum, and the
Board of the Metro Hartford
Chamber of Commerce, and is
Chairman of Concerned Citizens
for Effective Government.
</Table>
- ---------------
(1) Mr. Fox is an "interested person", as defined by the Investment Company Act
of 1940 Act, as amended ("1940 Act"), because of his relationship with
Aeltus Investment Management, Inc., an affiliate of ING Investments, LLC.
(2) Mr. McInerney is an "interested person", as defined by the 1940 Act, because
of his affiliation with ING U.S. Worksite Financial Services, an affiliate
of ING Investments, LLC.
82
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
TERM OF OFFICE
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH FUND TIME SERVED DURING THE PAST FIVE YEARS
- --------------------- ---------------- -------------- --------------------------
OFFICERS:
James M. Hennessy President, Chief March 2002 to President and Chief Executive Officer of
7337 E. Doubletree Ranch Rd. Executive Officer, Present ING Capital Corporation, LLC, ING Funds
Scottsdale, AZ 85258 and Chief Services, LLC, ING Advisors, Inc., ING
Born: 1949 Operating Officer Investments, LLC, Lexington Funds
Distributor, Inc., Express America T.C.
Inc. and EAMC Liquidation Corp. (since
December 2001); Executive Vice President
and Chief Operating Officer of ING Funds
Distributor, LLC (since June 2000).
Formerly, Senior Executive Vice
President (June 2000 to December 2000)
and Secretary (April 1995 to December
2000) of ING Capital Corporation, LLC,
ING Funds Services, LLC, ING
Investments, LLC, ING Advisors, Inc.,
Express America T.C. Inc., and EAMC
Liquidation Corp.; and Executive Vice
President, ING Capital Corporation, LLC
and its affiliates (May 1998 to June
2000) and Senior Vice President, ING
Capital Corporation, LLC and its
affiliates (April 1995 to April 1998).
Stanley D. Vyner Executive Vice March 2002 to Executive Vice President of ING
7337 E. Doubletree Ranch Rd. President Present Advisors, Inc. and ING Investments, LLC
Scottsdale, AZ 85258 (since July 2000) and Chief Investment
Born: 1950 Officer of the International Portfolios,
ING Investments, LLC (since July 1996).
Formerly, President and Chief Executive
Officer of ING Investments, LLC (August
1996 to August 2000).
Mary Lisanti Executive Vice March 2002 to Executive Vice President of ING
7337 E. Doubletree Ranch Rd. President Present Investments, LLC and ING Advisors, Inc.
Scottsdale, AZ 85258 (since November 1999); Chief Investment
Born: 1958 Officer of the Domestic Equity
Portfolios, ING Investments, LLC (since
1999). Formerly, Executive Vice
President and Chief Investment Officer
for the Domestic Equity Portfolios of
Northstar Investment Management
Corporation, whose name changed to
Pilgrim Advisors, Inc. and subsequently
became part of ING Investments, LLC (May
1998 to October 1999); Portfolio Manager
with Strong Capital Management (May 1996
to 1998); a Managing Director and Head
of Small- and Mid-Capitalization Equity
Strategies at Bankers Trust Corp. (1993
to 1996).
Michael J. Roland Executive Vice March 2002 to Executive Vice President, Chief
7337 E. Doubletree Ranch Rd. President, Present Financial Officer and Treasurer of ING
Scottsdale, AZ 85258 Assistant Funds Services, LLC, ING Funds
Born: 1958 Secretary and Distributor, LLC, ING, Advisors, Inc.,
Principal ING Investments, LLC, Lexington Funds
Financial Officer Distributor, Inc., Express America T.C.
Inc. and EAMC Liquidation Corp. (since
December 2001). Formerly, Senior Vice
President, ING Funds Services, LLC, ING
Investments, LLC, and ING Funds
Distributor, LLC (June 1998 to December
2001) and Chief Financial Officer of
Endeavor Group (April 1997 to June
1998).
Robert S. Naka Senior Vice March 2002 to Senior Vice President and Assistant
7337 E. Doubletree Ranch Rd. President and Present Secretary of ING Funds Services, LLC,
Scottsdale, AZ 85258 Assistant ING Funds Distributor, LLC, ING
Born: 1963 Secretary Advisors, Inc., ING Investments, LLC,
and Lexington Funds Distributor, Inc.
(since December 2001). Formerly, Vice
President, ING Investments, LLC (April
1997 to October 1999), ING Funds
Services, LLC (February 1997 to August
1999) and Assistant Vice President, ING
Funds Services, LLC (August 1995 to
February 1997).
Robyn L. Ichilov Vice President and March 2002 to Vice President of ING Funds Services,
7337 E. Doubletree Ranch Rd. Treasurer Present LLC (since October 2001) and ING
Scottsdale, AZ 85258 Investments, LLC (since August 1997);
Born: 1967 Accounting Manager, ING Investments, LLC
(since November 1995).
Kimberly A. Anderson Vice President and March 2002 to Vice President and Assistant Secretary
7337 E. Doubletree Ranch Rd. Secretary Present of ING Funds Services, LLC, ING Funds
Scottsdale, AZ 85258 Distributor, LLC, ING Advisors, Inc.,
Born: 1964 ING Investments, LLC (since October
2001) and Lexington Funds Distributor,
Inc. (since December 2001). Formerly,
Assistant Vice President of ING Funds
Services, LLC (November 1999 to January
2001) and has held various other
positions with ING Funds Services, LLC
for more than the last five years.
Todd Modic Assistant Vice March 2002 to Director of Financial Reporting of ING
7337 E. Doubletree Ranch Rd. President Present Investments, LLC (since March 2001).
Scottsdale, AZ 85258 Formerly, Director of Financial
Born: 1967 Reporting, Axient Communications, Inc.
(May 2000 to January 2001) and Director
of Finance, Rural/Metro Corporation
(March 1995 to May 2000).
Maria M. Anderson Assistant Vice March 2002 to Assistant Vice President of ING Funds
7337 E. Doubletree Ranch Rd. President Present Services, LLC (since October 2001).
Scottsdale, AZ 85258 Formerly, Manager of Fund Accounting and
Born: 1958 Fund Compliance, ING Investments, LLC
(September 1999 to November 2001);
Section Manager of Fund Accounting,
Stein Roe Mutual Funds (July 1998 to
August 1999); and Financial Reporting
Analyst, Stein Roe Mutual Funds (August
1997 to July 1998).
</Table>
83
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
1-800-992-0180
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIANS
State Street Bank & Trust
801 Pennsylvania Avenue
Kansas City, Missouri 64105
Brown Brothers Harriman
40 Water Street
Boston, Massachusetts 02109-3661
LEGAL COUNSEL
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
99 High Street
Boston, MA 02110-2371
Contact your investment professional, or call (800) 992-0180 for
a current ING Funds prospectus. The prospectuses contain more
complete information on all charges, fees, risks and expenses.
Please read the prospectus carefully before investing or sending
money.
[ING LOGO]
AVPAR1202 -- 021803
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEMS 4-8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Not applicable.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
(a) The officer certifications required by Section 906 of the Sarbanes-Oxley
Act of 2002 are attached hereto as EX-99.CERT.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act (17
CFR 270.30a-2) is attached hereto as a part of EX-99.CERT.
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 Bond Portfolio
--------------------------------------------------------------
By /s/ James M. Hennessy
--------------------------------------------------------
James M. Hennessy
President and Chief Executive Officer
Date March 3, 2003
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James M. Hennessy
--------------------------------------------------------
James M. Hennessy
President and Chief Executive Officer
Date March 3, 2003
---------------------------
By /s/ Michael J. Roland
---------------------------------------------------------
Michael J. Roland
Executive Vice President and Chief Financial Officer
Date March 3, 2003
---------------------------