As filed with the Securities and Exchange Commission on April 30, 2004
Securities Act File No. _____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No.
ING FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034
(Address of Principal Executive Offices) (Zip Code)
1-800-992-0180
(Registrant's Area Code and Telephone Number)
Huey P. Falgout, Jr.
ING Investments, LLC
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
(Name and Address of Agent for Service)
With copies to:
Jeffrey S. Puretz, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
---------------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective on May 30, 2004
pursuant to Rule 488 under the Securities Act of 1933, as amended
- --------------------------------------------------------------------------------
Title of Securities Being Registered: Class A, Class B, Class C, Class I and
Class O Shares of Beneficial Interest
Registrant is relying on Section 24(f) of the Investment Company Act of 1940, as
amended. An indefinite number of Class A, Class B, Class C, Class I and Class O
shares of the ING Intermediate Bond Fund, a series of the Registrant, are being
registered in this Registration Statement under the Securities Act of 1933, as
amended, pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. In reliance upon such Rule, no filing fee is being paid at this time.
================================================================================
ING BOND FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
June 16, 2004
Dear Shareholder:
Your Board of Directors has called a Special Meeting of shareholders
("Special Meeting") of ING Bond Fund ("Bond Fund"), which is scheduled for 10:00
a.m., Local time, on August 3, 2004 at 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034.
The Board of Directors of Bond Fund has reviewed and recommends the
proposed reorganization (the "Reorganization") of Bond Fund into ING
Intermediate Bond Fund ("Intermediate Bond Fund") (each a "Fund", and
collectively, the "Funds"). Both Funds are members of the mutual fund group
called the "ING Funds." Bond Fund is a series of ING Series Fund, Inc., and
Intermediate Bond Fund is a series of ING Funds Trust.
If approved by shareholders, you will become a shareholder of
Intermediate Bond Fund on the date that the Reorganization occurs. The
Reorganization would provide shareholders of Bond Fund with an opportunity to
participate in a larger fund with substantially similar investment objectives
and strategies.
You are being asked to vote to approve an Agreement and Plan of
Reorganization. The accompanying document describes the proposed transaction and
compares the strategies and expenses of each of the Funds for your evaluation.
After careful consideration, the Board of Directors of Bond Fund
unanimously approved this proposal and recommends shareholders vote "FOR" the
proposal.
A Proxy Statement/Prospectus that describes the Reorganization is
enclosed. We hope that you can attend the Special Meeting in person; however, we
urge you in any event to vote your shares by completing and returning the
enclosed proxy card in the envelope provided at your earliest convenience.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO
AVOID THE ADDED COST OF FOLLOW-UP SOLICITATIONS AND POSSIBLE ADJOURNMENTS,
PLEASE TAKE A FEW MINUTES TO READ THE PROXY STATEMENT/PROSPECTUS AND CAST YOUR
VOTE. IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED NO LATER THAN AUGUST 2, 2004.
Bond Fund is using Georgeson Shareholder Communications, Inc., a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the Special Meeting approaches, if we have not already
heard from you, you may receive a telephone call from Georgeson Shareholder
Communications, Inc., reminding you to exercise your right to vote.
We appreciate your participation and prompt response in this matter and
thank you for your continued support.
Sincerely,
/s/ James M. Hennessy
-------------------------------------
James M. Hennessy,
President and Chief Executive Officer
ING BOND FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF ING BOND FUND
SCHEDULED FOR AUGUST 3, 2004
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders ("Special
Meeting") of ING Bond Fund ("Bond Fund") is scheduled for August 3, 2004 at
10:00 a.m., Local time, at 7337 East Doubletree Ranch Road, Scottsdale, Arizona
85258-2034.
At the Special Meeting, you will be asked to consider and approve the
following proposals:
(1) To approve an Agreement and Plan of Reorganization by and
between Bond Fund and ING Intermediate Bond Fund, providing
for the reorganization of Bond Fund with and into ING
Intermediate Bond Fund; and
(2) To transact such other business, not currently contemplated,
that may properly come before the Special Meeting or any
adjournment(s) thereof in the discretion of the proxies or
their substitutes.
Shareholders of record as of the close of business on May 12, 2004, are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof. Your attention is called to the accompanying Proxy
Statement/Prospectus. Regardless of whether you plan to attend the Special
Meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD so
that a quorum will be present and a maximum number of shares may be voted.
Proxies may be revoked at any time before they are exercised by executing and
submitting a revised proxy, by giving written notice of revocation to Bond Fund
or by voting in person at the Special Meeting.
By Order of the Board of Directors
/s/ Huey P. Falgout, Jr.
----------------------------------
Huey P. Falgout, Jr.,
Secretary
June 16, 2004
ING BOND FUND
PROXY STATEMENT/PROSPECTUS
JUNE 16, 2004
TABLE OF CONTENTS
INTRODUCTION.................................................................................................... 1
SUMMARY......................................................................................................... 3
The Proposed Reorganization.................................................................................. 3
Comparison of Investment Objectives and Strategies........................................................... 5
Comparison of Fund Characteristics........................................................................... 7
Relative Performance......................................................................................... 10
Performance of Intermediate Bond Fund........................................................................ 11
Comparison of Investment Techniques and Principal Risks of Investing in the Funds............................ 13
COMPARISON OF FEES AND EXPENSES................................................................................. 15
Management Fees.............................................................................................. 15
Administration Fees.......................................................................................... 15
Distribution and Service Fees................................................................................ 15
Expense Limitation Arrangements.............................................................................. 15
Expense Tables............................................................................................... 16
General Information.......................................................................................... 16
INFORMATION ABOUT THE REORGANIZATION............................................................................ 20
The Reorganization Agreement................................................................................. 20
Reasons for the Reorganization............................................................................... 21
Board Considerations......................................................................................... 21
Tax Considerations........................................................................................... 22
Expenses of the Reorganization............................................................................... 23
ADDITIONAL INFORMATION ABOUT THE FUNDS.......................................................................... 23
Form of Organization......................................................................................... 23
Distributor.................................................................................................. 23
Dividends and Other Distributions............................................................................ 23
Capitalization............................................................................................... 23
GENERAL INFORMATION ABOUT THE PROXY STATEMENT................................................................... 24
Solicitation of Proxies...................................................................................... 24
Voting Rights................................................................................................ 25
Other Matters to Come Before the Special Meeting............................................................. 25
Shareholder Proposals........................................................................................ 25
Reports to Shareholders...................................................................................... 26
APPENDIX A...................................................................................................... A-1
APPENDIX B...................................................................................................... B-1
APPENDIX C...................................................................................................... C-1
APPENDIX D...................................................................................................... D-1
APPENDIX E...................................................................................................... E-1
PROXY STATEMENT/PROSPECTUS
JUNE 16, 2004
ING INTERMEDIATE BOND FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
INTRODUCTION
This combined Proxy Statement/Prospectus is being furnished to you in
connection with a Special Meeting of shareholders of ING Bond Fund ("Bond Fund")
to be held on August 3, 2004 ("Special Meeting"). As more fully described in
this Proxy Statement, the purpose of the Special Meeting is to vote on a
proposed reorganization ("Reorganization") of Bond Fund into ING Intermediate
Bond Fund ("Intermediate Bond Fund") (each a "Fund" and collectively, the
"Funds").
Under an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), Bond Fund would transfer all of its assets to Intermediate Bond
Fund in exchange for shares of beneficial interest of Intermediate Bond Fund and
the assumption by Intermediate Bond Fund of Bond Fund's liabilities as of the
effective date of the Reorganization ("Closing Date").
Because you, as a shareholder of Bond Fund, are being asked to approve
the Reorganization Agreement that will result in a transaction in which you will
ultimately hold shares of Intermediate Bond Fund, this Proxy Statement also
serves as a Prospectus for Intermediate Bond Fund. Intermediate Bond Fund is a
diversified mutual fund. Intermediate Bond Fund's investment objective is to
seek a high level of current income, consistent with the preservation of capital
and liquidity. The Fund, under normal market conditions, seeks to achieve its
investment objective by investing at least 80% of its assets in a portfolio of
bonds, including but not limited to, corporate, government and mortgage bonds,
which, at the time of investment, are rated investment grade or have an
equivalent rating by a nationally recognized statistical rating organization, or
of comparable quality if unrated.
This Proxy Statement/Prospectus, which should be read and retained for
future reference, sets forth concisely the information that a shareholder should
know before voting on the Reorganization Agreement. A Statement of Additional
Information ("SAI") relating to this Proxy Statement/Prospectus dated June 16,
2004 containing additional information about the Reorganization and the parties
thereto, has been filed with the U.S. Securities and Exchange Commission (the
"SEC") and is incorporated herein by reference. Each Fund also provides periodic
reports to its shareholders, which highlight certain important information about
the Funds, including investment results and financial information. Each Fund's
annual reports dated March 31, 2004 are incorporated herein by reference. Each
Fund offers its shares by a prospectus (Class A, B, C and I Fixed Income Funds
Prospectus for the Bond Fund, dated August 1, 2003, the Class O Prospectus for
Bond Fund dated March 1, 2004, the Class A, B, C and M Fixed Income Funds
Prospectus for Intermediate Bond Fund, dated August 1, 2003, and the Class I
Institutional Shares Prospectus for the Intermediate Bond Fund, dated August 1,
2003), each of which has more information about the pertinent Fund. For
additional information about the Funds, see the Class A, B, C and I Fixed Income
Funds SAI that relates to the Prospectus for the Bond Fund, dated August 1,
2003, the Class O SAI for the Bond Fund, dated March 1, 2004, and the ING Funds
Trust SAI with respect to Intermediate Bond Fund dated August 1, 2003. For a
copy of the current prospectus, SAI, annual report and semi-annual report for
either of the Funds without charge, or for a copy of the SAI relating to the
Proxy Statement/Prospectus, contact the Funds at ING Funds, 7337 East Doubletree
Ranch Road, Scottsdale, Arizona 85258-2034 or by calling 1-800-992-0180.
You can copy and review information about each Fund (including the SAI)
at the SEC's Public Reference Room in Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-202-942-8090. Reports and other information about the Funds are available on
the EDGAR Database on the SEC's internet site at http://www.sec.gov. You may
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following e-mail address: publicinfo@sec.gov, or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. You
should also review the Reorganization Agreement, which is attached hereto as
APPENDIX B. Also, you should consult the Class A, B, C and M Fixed Income Funds
Prospectus and the Class I Institutional Shares Prospectus for more information
about the Intermediate Bond Fund.
THE PROPOSED REORGANIZATION
The proposed Reorganization was approved by the Board of Directors of
Bond Fund at a meeting held on March 24, 2004 and the Board of Trustees of the
Intermediate Bond Fund at a meeting held on February 25, 2004. Subject to
shareholder approval, the Reorganization Agreement provides for:
- the transfer of all of the assets of Bond Fund to Intermediate
Bond Fund in exchange for shares of beneficial interest of
Intermediate Bond Fund;
- the assumption by Intermediate Bond Fund of the liabilities of
Bond Fund known as of the Closing Date;
- the distribution of Intermediate Bond Fund shares to the
shareholders of Bond Fund; and
- the complete liquidation of Bond Fund.
Intermediate Bond Fund shares would then be distributed to shareholders
of Bond Fund so that each shareholder would receive a number of full and
fractional shares of Intermediate Bond Fund equal to the aggregate value of
shares of Bond Fund held by such shareholder.
As a result of the Reorganization, each owner of Class A, Class B,
Class C, Class I and Class O shares of Bond Fund would become a shareholder of
the corresponding class of shares of Intermediate Bond Fund. The Reorganization
is expected to be effective on August 14, 2004, or such other date as the
parties may agree (the "Closing Date").
Each shareholder will hold, immediately after the Closing Date, shares
of the corresponding class of Intermediate Bond Fund having an aggregate value
equal to the aggregate value of the shares of the corresponding class of Bond
Fund held by that shareholder as of the Closing Date.
In considering whether to approve the Reorganization, you should note
that:
- The Funds have substantially similar investment objectives;
- The portfolio manager for both Bond Fund and Intermediate Bond
Fund invests in high quality bonds of intermediate maturity;
- Both Funds have the same sub-adviser, Aeltus Investment
Management, Inc., and the same portfolio management team;
- Intermediate Bond Fund is the larger fund ($421.6 million
versus $141.3 million as of March 31, 2004);
- After application of expense subsidies by management, the
proposed Reorganization is expected to result in the same net
operating expenses per share (excluding short-term,
nonrecurring, reorganization expenses) for shareholders of all
Classes of the disappearing Bond Fund, and gross expenses
prior to management subsidies are expected to be slightly
lower. The (unaudited) gross and net operating expenses before
and after the Reorganization, expressed as an annual
percentage of average daily net asset value per share for
Class A, B, C, I and O shares of each Fund as of March 31,
2004 are as follows:
2
CLASS A CLASS B CLASS C CLASS I CLASS O
------- ------- ------- ------- -------
GROSS EXPENSES BEFORE THE
REORGANIZATION
Expenses of Bond Fund 1.13% 1.88% 1.88% 0.88% 1.13%
Expenses of Intermediate Bond Fund 1.10%(1) 1.85% 1.85% 0.85% N/A
CLASS A CLASS B CLASS C CLASS I CLASS O
------- ------- ------- ------- -------
NET EXPENSES BEFORE THE REORGANIZATION
(AFTER FEE WAIVER)
Expenses of Bond Fund 1.00% 1.75% 1.75% 0.75% 1.00%
Expenses of Intermediate Bond Fund(3) 1.00%(1) 1.75% 1.75% 0.75% N/A
CLASS A CLASS B CLASS C CLASS I CLASS O
------- ------- ------- ------- -------
AFTER THE REORGANIZATION: PRO FORMA
Gross Expenses of Intermediate Bond Fund 1.10% 1.85% 1.85% 0.85% 1.10%
Net Expenses of Intermediate Bond Fund (After
Fee Waiver)(4) 1.00%(1) 1.75% 1.75% 0.75% 1.00%(2)
- --------------
(1) Includes 10 basis points waiver of 12b-1 fee on Class A shares to
remain in effect through at least March 31, 2005.
(2) Apart from the Reorganization, the Intermediate Bond Fund has not yet
begun to offer Class O shares to the public.
(3) Ratios reflect new expense limits effective February 1, 2004.
(4) Net Expenses after the Reorganization do not reflect short-term
nonrecurring reorganization expenses. For more information, see
"Comparison of Fees and Expenses - Annual Fund Operating Expenses."
Approval of the Reorganization Agreement requires, if a quorum is
present at the Special Meeting, a vote of the lesser of: (i) 67% or more of the
voting securities present at the Special Meeting, if the holders of more than
50% of the outstanding voting securities of Bond Fund are present, in person or
by proxy, at the Special Meeting; or (ii) more than 50% of the outstanding
voting securities of Bond Fund.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF BOND FUND
UNANIMOUSLY APPROVED THE PROPOSED REORGANIZATION. THE BOARD RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSED REORGANIZATION.
3
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
The following summarizes the investment objective, strategies and
management differences between Bond Fund and Intermediate Bond Fund:
BOND FUND INTERMEDIATE BOND FUND
INVESTMENT Seeks to provide as high a level of total Seeks to provide investors with a high level
OBJECTIVE return as is consistent with reasonable of current income, consistent with the
risk, primarily through investment in a preservation of capital and liquidity. The
diversified portfolio of investment-grade Fund's investment objective is not
corporate bonds, and debt securities issued fundamental and may be changed without a
or guaranteed by the U.S. government, its shareholder vote.
agencies or instrumentalities
INVESTMENT - Normally invests at least 80% of its assets - Normally invests at least 80% of its assets in a
STRATEGIES in bonds, consisting of: high grade portfolio of bonds, including but not limited to
corporate bonds; mortgage-related and other corporate, government and mortgage bonds, which at
asset-backed securities; and securities the time of investment, are rated investment grade
issued or guaranteed by the U.S. Government, or have an equivalent rating by a nationally
its agencies or instrumentalities. recognized statistical rating organization, or of
comparable quality if unrated.
- The Fund will provide shareholders with at - The Fund will provide shareholders with at
least 60 days' prior notice of any change in least 60 days' prior notice of any change in
this investment policy. this investment policy.
- The Fund may invest up to 15% of its total - Although the Fund may invest a portion of
assets in high-yield instruments, and up to its assets in high yield (high risk) debt
25% of its total assets in foreign debt securities rated below investment grade, the
securities. The Fund may invest in zero Fund will seek to maintain a minimum average
coupon securities. portfolio quality rating of at least
investment grade. The dollar-weighted
average portfolio maturity of the Fund will
generally range between three and ten years.
- Although the Fund may invest a portion of
its assets in high yield (high risk) debt
securities rated below investment grade, the
Fund will seek to maintain a minimum average
portfolio quality rating of at least
investment grade.
- The Fund may invest in securities of foreign - The Fund may also invest in: preferred
governments and supranational organizations, stocks; U.S. Government securities,
high-quality money market instruments that securities of foreign governments and
the Sub-Adviser believes are appropriate in supranational organizations; high-quality
light of the Fund's investment objective; money market instruments that the
and municipal bonds, notes and commercial Sub-Adviser believes are appropriate in
paper. light of the Fund's investment objective;
municipal bonds, notes and commercial paper;
and debt securities of foreign issuers.
4
BOND FUND INTERMEDIATE BOND FUND
- The Fund may also engage in dollar roll - The Fund may engage in dollar roll
transactions and swap agreements and may use transactions and swap agreements. The Fund
options and futures contracts involving may use options and futures contracts
securities, securities indices and interest involving securities, securities indices and
rates. A portion of the Fund's assets may be interest rates. A portion of the Fund's
invested in mortgage-backed and asset-backed assets may be invested in mortgage-backed
debt securities. and asset-backed debt securities.
- The Sub-Adviser looks to construct an - The Sub-Adviser uses a disciplined,
intermediate-term (generally consisting of five-step investment process which uses
securities with an average maturity of fundamental economic and market research to
between 5-10 years), high-quality portfolio identify bond market sectors and individual
by selecting investments with the securities expected to provide above-average
opportunity to enhance the portfolio's returns. First, the Sub-Adviser examines the
overall total return and yield, while sensitivity to interest rate movements of
managing volatility. the portfolio and of the specific holdings
of the portfolio to position the Fund in a
- The Sub-Adviser uses quantitative computer way that attempts to maximize return while
models to identify issuers whose perceived minimizing volatility. Second, the
value is not reflected in their security Sub-Adviser reviews yields relative to
prices. maturity and risk of bonds to determine the
risk/reward characteristics of bonds of
different maturity classes. Third, the
Sub-Adviser identifies sectors that offer
attractive value relative to other sectors.
Fourth, the Sub-Adviser selects securities
within identified sectors that offer
attractive value relative to other
securities within their sectors. Finally,
the Sub-Adviser seeks trading opportunities
to take advantage of market inefficiencies
to purchase bonds at prices below the
Sub-Adviser's view of their intrinsic value.
- The Fund also may lend portfolio securities - The Fund also may lend portfolio securities
on a short-term or long-term basis, up to 33 on a short-term or long-term basis, up to 33
1/3% of its total assets. 1/3% of its total assets.
- The Sub-Adviser may sell securities for a - The Sub-Adviser may sell securities for a
variety of reasons, such as to secure gains, variety of reasons, such as to secure gains,
limit losses, or redeploy assets into limit losses, or redeploy assets into
opportunities it believes are more opportunities it believes are more
promising. promising.
- The Fund may engage in frequent and active - The Fund may engage in frequent and active
trading of portfolio securities to achieve trading of portfolio securities to achieve
its investment objective. its investment objective.
PRINCIPAL The Fund invests primarily in investment The Fund invests primarily in investment
INVESTMENTS grade bonds with a minimum average portfolio grade bonds with a minimum average portfolio
quality being investment grade, and dollar quality being investment grade, and dollar
weighted average maturity generally ranging weighted average maturity generally ranging
between five to ten years. between three to ten years.
INVESTMENT ING Investments, LLC ("ING Investments") (1) ING Investments
ADVISER
5
BOND FUND INTERMEDIATE BOND FUND
SUB- ING Aeltus Investment Management, Inc. ING Aeltus
ADVISER ("ING Aeltus") (2)(3)
PORTFOLIO James B. Kauffmann James B. Kauffmann
MANAGER(2)
- -----------------------
(1) Prior to March 31, 2002, ING Aeltus served as investment adviser,
rather than sub-adviser, to the Bond Fund. There was no change in
advisory fees paid by the Fund in connection with the change in
investment adviser.
(2) Prior to September 2, 2003, the Intermediate Bond Fund was subadvised
by another affiliate of ING Investments. As part of an internal
reorganization plan undertaken by ING Groep, N.V., the parent company
of ING Investments, the sub-advisory contractual functions were
transferred to ING Aeltus. The portfolio management team headed by Mr.
Kauffmann since December 1998 did not change as a result of this
internal reorganization.
(3) In June 2004, ING Aeltus will change its name to ING Investment
Management Co.
As you can see from the chart above, the investment objectives and
strategies of the Funds are substantially similar. The Funds also invest in
substantially similar types of bonds, as both Funds invest 80% of their assets
in investment grade bonds and asset-backed securities. Key differences among the
Funds are highlighted below:
- In contrast to the Bond Fund's investment objective, the
Intermediate Bond Fund's investment objective is not
fundamental and may be changed without shareholder vote.
- The Bond Fund may invest up to 15% of its total assets in
high-yield instruments. The Intermediate Bond Fund's
investment in high yield securities is normally limited to a
maximum of 20%.
- The Bond Fund's investment in foreign debt securities is
limited to a maximum of 25% of its total assets. The
Intermediate Bond Fund does not have this limitation with
respect to investment in foreign debt securities.
- The dollar-weighted average portfolio maturity of the
Intermediate Bond Fund normally ranges between 3-10 years,
whereas, the average maturity of the securities of the Bond
Fund is normally 5-10 years.
6
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the Bond Fund
and the Intermediate Bond Fund as of March 31, 2004:
BOND FUND INTERMEDIATE BOND FUND
Net Assets $141.3 million $421.6 million
Number of Holdings 319 355
Portfolio Turnover Rate 487% 554%
Average Dollar Weighted Duration 3.82 years 3.82 years
Average Dollar Weighted Rating AA AA
As a Percentage of Net Assets:
Corporate Bonds 17.61% 18.18%
High Yield Bonds 13.00% 12.47%
U.S. Treasury Obligations 10.08% 13.14%
U.S. Government Agency Obligations 35.57% 36.04%
Collateralized Mortgage Obligations and
Asset-Backed Securities 28.83% 25.96%
Other Bonds/Sovereign Bonds 4.23% 4.15%
Preferred Securities 0.55% 0.47%
Emerging Markets Debt Securities 0.00% 0.00%
Swaps 0.00% 0.00%
Options and Futures 0.00% 0.00%
Short-term Money Market Instruments 2.42% 6.02%
Top 5 Industries (as a % of Net Assets) FNMA 24.32% FNMA 22.92%
WL CMO 12.40% WL CMO 13.65%
FHLMC 9.10% FHLMC 12.74%
Banks 6.74% U.S. Treasury Notes 9.92%
U.S. Treasury Notes 6.65% Banks 6.57%
United States Treasury
Top 10 Holdings (as a % of Net Assets) FNMA, 5.000%, 4/1/2033 3.28% Note, 2.250%, 7/31/2004 5.30%
FNMA, 6.000%, 5/1/2033 3.10% FNMA, 5.000%, 4/1/2033 3.94%
FNMA, 5.000%, 4/1/2018 2.59% FNMA, 5.000%, 4/1/2018 2.69%
United States Treasury Note, United States Treasury
2.250%, 7/31/2004 2.13% Note, 1.625%, 2/28/2006 2.00%
FNMA, 5.500%, 4/1/2033 2.10% FHLMC, 5.500%, 4/1/2033 1.98%
FHLMC, 2.700%, 3/16/2007 1.96% FHLMC, 2.700%, 3/16/2007 1.95%
United States Treasury Note, Residential Funding Mtg,
5.375%, 2/15/2031 1.78% 1.59125%, 11/25/2018 1.95%
FHLMC, 1.740%, 4/15/2032 1.71% FHLMC, 6.500%, 5/15/2004 1.78%
FNMA, 3.250%, 8/15/2008 1.48% FNMA, 6.000%, 5/1/2033 1.72%
United States Treasury
FNMA, 5.250%, 4/15/2007 1.46% Note, 5.375%, 2/15/2031 1.60%
7
CREDIT RATING COMPARISON OF HOLDINGS
The following table compares the credit rating of the securities held
by the Funds to help you compare the credit risk presented by the two Funds.
Generally, the lower the rating, the greater the credit risk presented by an
instrument (CC is the lowest rating shown and AAA is the highest). Normally,
lower rated securities pay higher rates of interest. As of March 31, 2004, the
percentage of each Fund's assets invested in securities with the following
ratings (based on month-end holdings) were as follows:
S&P Rating Bond Fund Intermediate Bond Fund
- ---------- --------- ----------------------
AAA 68.80% 68.93%
AA 0.56% 0.54%
A 5.87% 6.70%
BBB 11.77% 11.36%
BB 6.64% 6.26%
B 2.35% 2.34%
CCC 0.61% 0.55%
CC 0.00% 0.00%
Unrated 3.40% 3.32%
RELATIVE PERFORMANCE
The following table shows, for the periods shown, the (unaudited)
average annual total return for: (i) Class A shares of Bond Fund; (ii) Class A
shares of Intermediate Bond Fund; and (iii) the Lehman Brothers Aggregate Bond
("LBAB") Index. Performance of the Funds in the table below does not reflect the
deduction of sales loads, and would be lower if it did. An index has an inherent
performance advantage over the Funds since the index has no cash in its
portfolio, imposes no sales charges and incurs no operating expenses. An
investor cannot invest directly in an index. Total return is calculated assuming
reinvestment of all dividends and capital gain distributions at net asset value
and excluding the deduction of sales charges. Each Fund's past performance is
not an indication of its future performance.
CALENDAR LEHMAN BROTHERS
YEAR/PERIOD BOND INTERMEDIATE BOND AGGREGATE BOND
ENDED FUND (1) FUND (2) INDEX(3)
----- ------- ------- -------
12/31/95 16.26% N/A 18.47%
12/31/96 2.46% N/A 3.63%
12/31/97 7.19% N/A 9.65%
12/31/98 8.09% N/A 8.69%
12/31/99 -1.00% -0.94% -0.82%
12/31/00 9.21% 11.59% 11.63%
12/31/01 8.36% 15.18% 8.44%
12/31/02 8.17% 10.64% 10.25%
12/31/03 5.74% 5.15% 4.10%
- ----------------
(1) Prior to March 31, 2002, ING Aeltus served as investment adviser, as
opposed to sub-adviser, to the Bond Fund. There was no change in
advisory fees paid by the Fund in connection with the change in
investment adviser.
(2) Prior to September 2, 2003, the Intermediate Bond Fund was subadvised
by another affiliate of ING Investments. As part of an internal
reorganization plan undertaken by ING Groep, N.V., the parent company
of ING Investments, the sub-advisory contractual functions were
transferred to ING Aeltus. The portfolio management team headed by Mr.
Kauffmann since December 1998 did not change as a result of this
internal reorganization.
(3) The LBAB Index is a widely recognized, unmanaged index of publicly
issued investment grade U.S. Government, mortgage-backed, asset-backed
and corporate debt securities.
8
PERFORMANCE OF INTERMEDIATE BOND FUND
The following bar chart and tables provide an indication of the risks
of investing in Intermediate Bond Fund. The bar chart shows (on a calendar year
basis) changes in Intermediate Bond Fund's annual total return from year to
year. The table shows how Intermediate Bond Fund's average annual returns for
one year, five years, and since its inception on December 15, 1998 compare to
those of the Lehman Brothers Aggregate Bond Index. The information in the bar
chart is based on the performance of the Class A shares of the Fund although the
bar chart does not reflect the deduction of the sales load on Class A shares. If
the bar chart included the sales load, returns would be less than those shown.
Intermediate Bond Fund's past performance (before and after income taxes) is not
necessarily an indication of how the Fund will perform in the future. Total
returns include reinvestment of dividends and capital gains distributions, if
any. The Index is unmanaged. Investors cannot invest directly in an index.
CALENDAR YEAR-BY-YEAR RETURNS(1)(2)(3)
[BAR CHART]
1998 -
1999 -0.94%
2000 11.59%
2001 15.18%
2002 10.64%
2003 5.15%
- -------------
(1) These figures are for the year ended December 31 of each year. They do
not reflect sales charges and would be lower if they did.
(2) During the period shown in the chart, the Fund's best quarterly
performance was 6.14% for the quarter ended March 31, 2001, and the
Fund's worst quarterly performance was -1.85% for the quarter ended
June 30, 1999.
(3) Prior to September 2, 2003, the Intermediate Bond Fund was subadvised
by another affiliate of ING Investments. As part of an internal
reorganization plan undertaken by ING Groep, N.V., the parent company
of ING Investments, the sub-advisory contractual functions were
transferred to ING Aeltus. The portfolio management team headed by Mr.
Kauffmann since December 1998 did not change as a result of this
internal reorganization.
9
The following table shows what the average annual total returns of
Intermediate Bond Fund would equal if you averaged out actual performance over
various lengths of time assuming that a shareholder paid the maximum front-end
or contingent deferred sales charge compared to the Lehman Brothers Aggregate
Bond Index, an unmanaged index. The Lehman Brothers Aggregate Bond Index has an
inherent performance advantage over Intermediate Bond Fund since the index has
no cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index. Intermediate Bond
Fund's performance reflected in the table below assumes the deduction of the
maximum sales charge in all cases. The tables also show returns on a before-tax
and after-tax basis. After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not reflect the
impact of state and local taxes.
Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their Fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
In some cases, the return after-taxes may exceed the return before
taxes due to an assumed tax benefit from any losses on a sale of Fund shares at
the end of the measurement period.
After tax-returns are shown for Class A shares only. After-tax returns
for other Classes will vary.
INTERMEDIATE BOND FUND -- AVERAGE ANNUAL TOTAL RETURNS
for the periods ended December 31, 2003
5 YEARS OR 10 YEARS OR
1 YEAR SINCE INCEPTION(1) SINCE INCEPTION(1)
------ --------------- ---------------
Class A return before taxes(2) 0.15% 7.12% 7.03%
Class A return after taxes on distributions(2) -1.38% 4.35% 4.27%
Class A return after taxes on distributions and sale
of fund shares(2) 0.09% 4.31% 4.24%
Class B return before taxes(3) -0.73% 7.05% 7.07%
Class C return before taxes(4) 3.28% 7.34% 7.25%
Class I return before taxes(5) 5.55% 8.12% N/A
Index (reflects no deduction for fees, expenses or
taxes)(6) 4.10% 6.62% 6.57% (7)
- ---------------
(1) Class A, B, and C shares commenced operations on December 15, 1998.
Class I shares commenced operations on January 8, 2002.
(2) Reflects deduction of a maximum sales charge of 4.75%.
(3) Reflects deduction of deferred sales charge of 5.00%, 2.00% and 1.00%
for the 1 year, 5 year and since inception returns, respectively.
(4) Reflects deduction of deferred sales charge of 1.00% for the 1 year
return.
(5) Class I does not impose sales charges or deferred sales charges.
(6) The Lehman Brothers Aggregate Bond Index is a widely recognized,
unmanaged index of publicly issued investment grade U.S. Government,
mortgage-backed, asset-backed and corporate debt securities.
(7) Index return for Class A, B, and C is for the period beginning December
1, 1998. Index return for Class I is 7.14% for the period beginning
January 1, 2002.
10
The following table shows the performance of Intermediate Bond Fund if
sales charges are not reflected.
INTERMEDIATE BOND FUND -- AVERAGE ANNUAL TOTAL RETURNS
for the periods ended December 31, 2003
5 YEARS OR 10 YEARS OR
1 YEAR SINCE INCEPTION(1) SINCE INCEPTION(1)
------ --------------- ---------------
Class A return before taxes 5.15% 8.16% 8.06%
Class B return before taxes 4.27% 7.35% 7.22%
Class C return before taxes 4.28% 7.34% 7.25%
Class I return before taxes 5.55% 8.12% N/A
Lehman Brothers Aggregate Bond Index(2) 4.10% 6.62% 6.57%(3)
- ---------------
(1) Classes A, B, and C commenced operations on December 15, 1998. Class I
shares commenced operations on January 8, 2002.
(2) The Lehman Brothers Aggregate Bond Index is a widely recognized,
unmanaged index of publicly issued investment grade U.S. Government,
mortgage-backed, asset-backed and corporate debt securities.
(3) Index return for Class A, B, and C is for the period beginning December
1, 1998. Index return for Class I is 7.14% for the period beginning
January 1, 2002.
For a discussion by the Adviser regarding the performance of
Intermediate Bond Fund for the annual period ended March 31, 2004, see APPENDIX
A to this Proxy Statement/Prospectus. Additional information about Intermediate
Bond Fund is included in APPENDIX C to this Proxy Statement/Prospectus.
COMPARISON OF INVESTMENT TECHNIQUES AND PRINCIPAL RISKS OF INVESTING IN THE
FUNDS
Because the Funds have investment objectives and strategies that are
substantially similar, many of the risks of investing in Intermediate Bond Fund
are substantially the same as the risks of investing in Bond Fund. You may lose
money on your investment in either Fund. The value of each Fund's shares may go
up or down, sometimes rapidly and unpredictably. Market conditions, financial
conditions of issuers represented in the portfolio, investment strategies,
portfolio management, and other factors affect the volatility of each Fund's
shares. The following summarizes the principal investment techniques and risks
of investing in the Funds.
Price Volatility. Each Fund invests primarily in debt securities, which face
market, issuer and other risks, and their values may go up and down, sometimes
rapidly and unpredictably. Market risk is the risk that securities may decline
in value due to factors affecting securities markets generally or particular
industries. Issuer risk is the risk that the value of a security may decline for
reasons relating to the issuer, such as changes in the financial condition of
the issuer.
Changes in Interest Rates. The value of each Fund's investments may fall when
interest rates rise. The Funds may be sensitive to changes in interest rates
because they may invest in debt securities with intermediate and long terms to
maturity. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Credit Risk. Each Fund could lose money if the issuer of a debt security is or
may be unable to meet its financial obligations or goes bankrupt. This is
especially true during periods of economic uncertainty or economic downturns.
The Funds may be subject to more credit risk than other income funds, because
each may invest in high yield debt securities, which are considered
predominantly speculative with respect to the issuer's continuing ability to
meet interest and principal payments.
Pre-payment Risk. Each Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Funds will
be forced to reinvest this money at lower yields.
Extension Risk. Slower than expected principal payments on a mortgage-backed or
asset-backed security may extend such security's life, thereby locking in a
below-market interest rate, increasing the security's duration and reducing the
value of the security.
11
Risks of High-yield Bonds. Each Fund may invest in high-yield bonds, which carry
particular market risks and may experience greater volatility in market value
than investment grade bonds. Changes in interest rates, the market's perception
of the issuers and the creditworthiness of the issuers may significantly affect
the value of these bonds. Some of these securities may have a structure that
makes their reaction to interest rates and other factors difficult to predict,
causing their value to be highly volatile. The secondary market for high yield
bonds may be less liquid than the markets for higher quality securities, and
this may have an adverse effect on the market values of certain securities.
Risks of Using Derivatives. Each Fund may invest in derivatives. Derivatives are
subject to the risk of changes in the market price of the security, credit risk
with respect to the counterparty to the derivative instrument, and the risk of
loss due to changes in interest rates. The use of certain derivatives may also
have a leveraging effect, which may increase the volatility of the Funds. The
use of derivatives may reduce returns for the Funds.
Risks of Foreign Investments. Each Fund may invest in foreign securities.
Foreign investments may be riskier than U.S. investments for many reasons,
including changes in currency exchange rates; unstable political and economic
conditions; a lack of adequate company information; differences in the way
securities markets operate; less secure foreign banks, securities depositories
or exchanges than those in the U.S.; and foreign controls on investment.
Investments in emerging market countries are generally riskier than other kinds
of foreign investments, partly because emerging market countries may be less
politically and economically stable than other countries. It may also be more
difficult to buy and sell securities in emerging market countries.
Securities Lending. Each Fund may lend portfolio securities, which means the
securities may not be available to the Funds on a timely basis and the Funds
may, therefore, lose the opportunity to sell the securities at a desirable
price. Engaging in securities lending could have a leveraging effect, which may
intensify the market risk, credit risk and other risks associated with
investments in a Fund. When a Fund lends its securities, it is responsible for
investing the cash collateral it receives from the borrower of the securities. A
Fund could incur losses in connection with the investment of such cash
collateral.
Portfolio Turnover. A high portfolio turnover rate involves greater expenses to
the Funds, including brokerage commissions, the spread on principal
transactions, and other transaction costs, and is likely to generate more
taxable short-term gains for shareholders, which may have an adverse impact on
performance.
12
COMPARISON OF FEES AND EXPENSES
The following discussion describes and compares the fees and expenses
of the Funds. For further information on the fees and expenses of Intermediate
Bond Fund, see "APPENDIX C: ADDITIONAL INFORMATION REGARDING INTERMEDIATE BOND
FUND."
MANAGEMENT FEES
Bond Fund pays a management fee of 0.500% on the first $250 million of
the Fund's average daily net assets; 0.4750% on the next $250 million of the
Fund's average daily net assets; 0.450% on the next $250 million of the Fund's
average daily net assets; 0.4250% on the next $1.25 billion of the Fund's
average daily net assets; and 0.4000% on the Fund's average daily net assets
over $2 billion.
If the reorganization is approved, the Intermediate Bond Fund will pay
a management fee of 0.500% on the first $500 million of the Fund's average daily
net assets; 0.450% on the next $500 million of the Fund's average daily net
assets; 0.425% on the next $1 billion of the Fund's average daily net assets;
and 0.400% on the Fund's average daily net assets over $2 billion. The Fund
currently pays the Adviser a management fee of 0.500% of the Fund's average
daily net assets.
Additionally, for the Bond Fund, ING Investments, LLC ("ING
Investments" or "Adviser") pays ING Aeltus Investment Management, Inc. ("ING
Aeltus") a sub-advisory fee of 0.2250% on the first $250 million of the Bond
Fund's average daily net assets; 0.214% on the next $250 million of the Fund's
average daily net assets; 0.203% on the next $250 million of the Fund's average
daily net assets; 0.191% on the next $1.25 billion of the Fund's average daily
net assets; and 0.180% on the Fund's average daily net assets over $2 billion.
If the reorganization is approved, ING Investments will pay ING Aeltus
a sub-advisory fee of 0.2250% on the first $500 million of the Intermediate Bond
Fund's average daily net assets; 0.2025% on the next $500 million of the Fund's
average daily net assets; 0.19125% on the next $1 billion of the Fund's average
daily net assets; and 0.180% on the Fund's average daily net assets over $2
billion. ING Investments currently pays ING Aeltus a sub-advisory fee of
0.2250%.
ADMINISTRATION FEES
ING Fund Services, LLC ("ING Fund Services"), an affiliate of the
Adviser, serves as the administrator to the Bond Fund and Intermediate Bond
Fund. For its services, ING Fund Services receives an annual administration fee
of 0.08% of the Bond Fund's average daily net assets and 0.10% of the
Intermediate Bond Fund's average daily net assets.
DISTRIBUTION AND SERVICE FEES
The annual distribution (12b-1) and service fees for Class A shares of
Intermediate Bond Fund is 0.35% of the Fund's average daily net assets. The
annual distribution (12b-1) and service fees for Class A shares of Bond Fund is
0.25% of the Fund's average daily net assets. Both Intermediate Bond Fund and
Bond Fund have the same distribution (12b-1) and service fees for Class B and
Class C shares (1.00%). In addition, the Funds have the same service fees for
Class O shares (0.25%).
EXPENSE LIMITATION ARRANGEMENTS
An expense limitation agreement is in place for Intermediate Bond Fund.
Under the terms of the expense limitation agreement, ING Investments has agreed
to limit the expenses of the Intermediate Bond Fund (excluding interest, taxes,
brokerage commissions, other investment-related costs, extraordinary expenses
such as, litigation, other expenses not incurred in the ordinary course of
business, and expenses of any counsel or other persons or services retained by
the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Investment Adviser or Sub-Adviser, subject to possible recoupment by ING
Investments within three years. The expense limitation agreement is contractual
and shall renew automatically for one-year terms unless ING Investments provides
written notice of the termination of the expense limitation agreement within 90
days of the end of the then current term or upon termination of the investment
management agreement. The current expense limitation agreement provides that it
will remain in effect through at least March 31, 2007. Pursuant to this expense
limitation
13
agreement, the expense limits for the Intermediate Bond Fund are 1.15%, 1.90%,
1.90%, 0.90%, and 1.15% for Class A, B, C, I, and O, respectively.
Pursuant to a side agreement effective February 1, 2004, the expense
limits for the Intermediate Bond Fund are 1.00%, 1.75%, 1.75%, 0.75%, and 1.00%
for Class A, B, C, I, and O respectively, and will remain in effect until at
least March 31, 2007. There is no guarantee that these expense limits will
continue after this date. If ING Investments elects not to renew the side
agreement and does not terminate the expense limitation agreement, the expense
limits will revert to the limitation under the Fund's current expense limitation
agreement of 1.15%, 1.90%, 1.90%, and .90% for Class A, B, C, and I,
respectively.
An expense limitation agreement is also in place for the Bond Fund.
Under the terms of the expense limitation agreement, ING Investments has agreed
to limit the expenses of the Bond Fund (excluding interest, taxes, brokerage
commissions, other investment related costs, extraordinary expenses such as
litigation, other expenses not incurred in the normal course of the Fund's
business, and expenses of any counsel or other persons or services retained by
the Fund's Directors who are not "interested persons" (as defined in the 1940
Act) of the Adviser) subject to possible recoupment by ING Investments within
three years. The expense limitation agreement is contractual and shall renew
automatically for one-year terms unless ING Investments provides written notice
of the termination of the expense limitation agreement within 90 days of the end
of the then current term or upon termination of the investment management
agreement. The current expense limitation agreement provides that it will remain
in effect through March 31, 2005. There can be no assurance that the expense
limitation agreement will be continued after this date. The expense limits under
the Fund's current expense limitation agreement are 1.00%, 1.75%, 1.75%, 0.75%
and 1.00% for Class A, B, C, I and O, respectively. There is no guarantee that
the expense limit will continue after this date. This information and similar
information is shown in the table below entitled "Annual Fund Operating
Expenses."
EXPENSE TABLES
There are two types of fees and expenses when you invest in mutual
funds: fees, including sales charges, you pay directly when you buy or sell
shares, and operating expenses paid each year by the Funds. The following table
shows the fees and expenses for Class A, Class B, Class C, Class I and Class O
shares of Bond Fund and Intermediate Bond Fund, respectively.
TRANSACTION FEES ON NEW INVESTMENTS
(fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS I CLASS O
------- ------- ------- ------- -------
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.75%(1) None None None None
Maximum deferred sales charge (load) (as a percentage
of the lower of original purchase price or
redemption proceeds) None(2) 5.00%(3) 1.00(4) None None
- ----------------
(1) Reduced for purchases of $50,000 and over. See "Class A Shares: Initial
Sales Charge Alternative" in APPENDIX C.
(2) A contingent deferred sales charge of no more than 1.00% may be
assessed on redemptions of Class A shares that were purchased without
an initial sales charge as part of an investment of $1 million or more.
See "Class A Shares: Initial Sales Charge Alternative" in APPENDIX C.
(3) Imposed upon redemptions within 6 years of purchase. The fee has
scheduled reductions after the first year. See "Class B Shares:
Deferred Sales Charge Alternative" in APPENDIX C.
(4) Imposed upon redemptions within 1 year from purchase.
Neither Bond Fund nor Intermediate Bond Fund has any exchange fees or
sales charges on reinvested dividends.
14
The current expenses of each of the Funds and estimated pro forma
expenses giving effect to the proposed Reorganization are shown in the following
table. Expenses of the Funds are based upon the operating expenses incurred by
Class A, Class B, Class C, Class I and Class O shares of the Funds for the
period ended March 31, 2004. Pro forma fees show estimated fees of Intermediate
Bond Fund after giving effect to the proposed Reorganization. Pro forma numbers
are estimated in good faith and are hypothetical.
ANNUAL FUND OPERATING EXPENSES AS OF MARCH 31, 2004 (UNAUDITED)
(expenses that are deducted from Fund assets, shown as a ratio of expenses to
average daily net assets) (1)(2)
DISTRIBUTION
(12b-1) AND TOTAL
SHAREHOLDER FUND FEE WAIVER
MANAGEMENT SERVICING OTHER OPERATING BY NET
FEES FEES(3) EXPENSES(4)(5) EXPENSES ADVISER(6) EXPENSES
---- ------- -------------- -------- ---------- --------
CLASS A
Bond Fund 0.50% 0.25% 0.38% 1.13% -0.13% 1.00%
Intermediate Bond Fund 0.50% 0.35% 0.33% 1.18% -0.18% 1.00%
Intermediate Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.50% 0.35% 0.32% 1.17% -0.17% 1.00%
CLASS B
Bond Fund 0.50% 1.00% 0.38% 1.88% -0.13% 1.75%
Intermediate Bond Fund 0.50% 1.00% 0.33% 1.83% -0.08% 1.75%
Intermediate Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.50% 1.00% 0.32% 1.82% -0.07% 1.75%
CLASS C
Bond Fund 0.50% 1.00% 0.38% 1.88% -0.13% 1.75%
Intermediate Bond Fund 0.50% 1.00% 0.33% 1.83% -0.08% 1.75%
Intermediate Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.50% 1.00% 0.32% 1.82% -0.07% 1.75%
CLASS I
Bond Fund 0.50% - 0.38% 0.88% -0.13% 0.75%
Intermediate Bond Fund 0.50% - 0.33% 0.83% -0.08% 0.75%
Intermediate Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.50% - 0.32% 0.82% -0.07% 0.75%
CLASS O
Bond Fund 0.50% 0.25% 0.38% 1.13% -0.13% 1.00%
Intermediate Bond Fund N/A N/A N/A N/A N/A N/A
Intermediate Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.50% 0.25% 0.32% 1.07% -0.07% 1.00%
- ----------
(1) The fiscal year end for Bond Fund and Intermediate Bond Fund is March
31.
(2) The information in the table has been restated with respect to the
Intermediate Bond Fund, as a result of changes to the Intermediate Bond
Fund's fees, which are effective as of February 1, 2004.
(3) As a result of distribution (Rule 12b-1) fees, a long-term investor may
pay more than the economic equivalent of the maximum sales charge
allowed by the Rules of the National Association of Securities Dealers,
Inc.
(4) ING Fund Services receives an annual administration fee equal to 0.08%
and 0.10% respectively, of the Bond Fund and Intermediate Bond Fund's
average daily net assets.
(5) "Other Expenses" excludes short-term, nonrecurring expenses related to
the Reorganization of the Bond Fund with and into the Intermediate Bond
Fund.
(6) ING Investments has entered into an expense limitation agreement with
Bond Fund to limit expenses of the Fund (excluding interest, taxes,
brokerage commissions, other investment related costs, extraordinary
expenses such as litigation, other expenses not incurred in the normal
course of the Fund's business, and expenses of any counsel or other
persons or services retained by the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) of the Adviser)
subject to possible recoupment by ING Investments within three years.
The expense limitation
15
agreement is contractual and shall renew automatically for one-year
terms unless ING Investments provides written notice of the termination
of the expense limitation agreement within 90 days of the end of the
then current term or upon termination of the investment management
agreement. The current expense limitation agreement provides that it
will remain in effect through March 31, 2005. There can be no assurance
that the expense limitation agreement will be continued after this
date. The expense limits under the Fund's current expense limitation
agreement are 1.00%, 1.75%, 1.75%, 0.75% and 1.00% for Class A, B, C, I
and O, respectively.
ING Investments has entered into an expense limitation agreement with
Intermediate Bond Fund, to limit that Fund's expenses (excluding
interest, taxes, brokerage and extraordinary expenses), subject to
possible recoupment by ING Investments within three years. The expense
limitation agreement is contractual and shall renew automatically for
one-year terms unless ING Investments provides written notice of the
termination of the expense limitation agreement within 90 days of the
end of the then current term or upon termination of the investment
management agreement. The current expense limitation agreement provides
that it will remain in effect through at least March 31, 2007. Pursuant
to this expense limitation agreement, the expense limits for the
Intermediate Bond Fund are 1.15%, 1.90%, 1.90%, 0.90%, and 1.15% for
Class A, B, C, , and O respectively.
Pursuant to a side agreement effective February 1, 2004, the expense
limits for the Intermediate Bond Fund are 1.00%, 1.75%, 1.75%, 0.75%,
and 1.00% for Class A, B, C, I and O, respectively, and will remain in
effect until at least March 31, 2007. There is no guarantee that the
expense limit will continue after this date. If ING Investments elects
not to renew the side agreement and does not terminate the expense
limitation agreement, the expense limits will revert to the limitation
under the Fund's current expense limitation agreement of 1.15%, 1.90%,
1.90%, 0.90% and 1.15% for Class A, B, C, I and O, respectively.
16
Examples. The following examples are intended to help you compare the
cost of investing in each Fund and the combined Fund. The examples assume that
you invest $10,000 in each Fund and in the combined Fund after the
Reorganization for the time periods indicated. The examples also assume that
your investment has a 5% return each year and that each Fund's operating
expenses remain the same. The 5% return is an assumption and is not intended to
portray past or future investment results. Based on the above assumptions, you
would pay the following expenses if you redeem your shares at the end of each
period shown. Your actual costs may be higher or lower.
BOND FUND INTERMEDIATE BOND FUND(1)
--------- -------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $572 $805 $1,056 $1,773 $572 $778 $1,041 $1,790
CLASS B* $678 $878 $1,204 $1,995 $678 $851 $1,167 $1,956
CLASS C $278 $578 $1,004 $2,190 $278 $551 $ 967 $2,127
CLASS I $ 77 $268 $ 475 $1,072 $ 77 $240 $ 436 $1,002
CLASS O $102 $346 $ 610 $1,363 N/A N/A N/A N/A
ESTIMATED PRO FORMA:
THE FUNDS COMBINED(1)**
-----------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
CLASS A $572 $778 $1,039 $1,782
CLASS B* $678 $851 $1,165 $1,948
CLASS C $278 $551 $ 965 $2,119
CLASS I $ 77 $240 $ 433 $ 993
CLASS O $102 $318 $ 569 $1,286
You would pay the following expenses if you did not redeem your shares:
BOND FUND INTERMEDIATE BOND FUND(1)
--------- -------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $572 $805 $1,056 $1,773 $572 $788 $1,041 $1,790
CLASS B* $178 $578 $1,004 $1,995 $178 $551 $ 967 $1,956
CLASS C $178 $578 $1,004 $2,190 $178 $551 $ 967 $2,127
CLASS I $ 77 $268 $ 475 $1,072 $ 77 $240 $ 436 $1,002
CLASS O $102 $346 $ 610 $1,363 N/A N/A N/A N/A
ESTIMATED PRO FORMA:
THE FUNDS COMBINED (1)**
------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
CLASS A $572 $778 $1,039 $1,782
CLASS B* $178 $551 $ 965 $1,948
CLASS C $178 $551 $ 965 $2,119
CLASS I $ 77 $240 $ 433 $ 993
CLASS O $102 $318 $ 569 $1,286
- ----------
(1) The example reflects the contractual expense limitation for the
one-year period, three-year period and the first three years of the
five- and ten-year periods.
* The ten year calculations for Class B shares assume conversion of the
Class B shares to Class A shares at the end of the end of the eighth
year following the date of purchase.
** Estimated.
GENERAL INFORMATION
Class A shares of Intermediate Bond Fund issued to a shareholder in
connection with the Reorganization will not be subject to an initial sales
charge, but Class B and Class C shares will be subject to the same contingent
17
deferred sales charge, if any, applicable to the corresponding shares of Bond
Fund held by that shareholder immediately prior to the Reorganization.
In addition, the period that the shareholder held shares of Bond Fund
will be included in the holding period of Intermediate Bond Fund shares for
purposes of calculating any contingent deferred sales charge. Similarly, Class B
shares of Intermediate Bond Fund issued to a shareholder in connection with the
Reorganization will convert to Class A shares eight years after the date that
the Class B shares of Bond Fund were purchased by the shareholder. Bond Fund and
Intermediate Bond Fund are both subject to the sales load structure described in
the table above in the section "Expense Tables."
Following the Reorganization, certain holdings of Bond Fund that are
transferred to Intermediate Bond Fund in connection with the Reorganization may
be sold. Such sales may result in increased transaction costs for Intermediate
Bond Fund, and the realization of taxable gains or losses for Intermediate Bond
Fund.
MATERIAL DIFFERENCES IN RIGHTS OF INTERMEDIATE BOND SHAREHOLDERS AND BOND
SHAREHOLDERS
The Intermediate Bond Fund is organized as a series of a Delaware
statutory trust and is governed by a Trust Instrument and Bylaws. The Bond Fund
is organized as a series of a Maryland corporation and is governed by Articles
of Incorporation and Bylaws. Material difference under the Intermediate Bond
Fund's Trust Instrument or Delaware law and the Bond Fund's Articles of
Incorporation/Bylaws or Maryland Law are presented below.
INTERMEDIATE BOND FUND BOND FUND
The Trust Instrument permits the Trustees, without a The Articles of Incorporation does not specifically
shareholder vote, to amend the Trust Instrument, except address amendments to the charter documents;
that shareholders have the right to vote on: (i) the consequently, amendments to the Fund's Articles of
election of a Trustee; (ii) the removal of the Trustee (by Incorporation would be governed by Maryland General
a vote of at least two-thirds of the outstanding shares); Corporation Law, which generally provides that an
(iii) on any amendment required by law or by the Trust's amendment to the Articles of Incorporation is required
most current registration statement; (iv) any amendment to (except with respect to amendments to increase or
section 11.8 of the Trust Instrument, which governs the decrease the number of shares of stock (or class of
rights of shareholders to vote on amendments; and (v) any such stock) of the corporation that it has the
amendment submitted to the shareholders. authority to issue) to be submitted to shareholders at
an annual or special meeting of the shareholders.
The Trust Instrument permits the Trustees pursuant to a Both the Directors and shareholders have the right at
majority vote to amend the By-laws. any annual or special meeting, as long as appropriate
notice has been given to alter or repeal any Bylaws of
the Corporation and to make new Bylaws.
18
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION AGREEMENT
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Reorganization Agreement. Significant
provisions of the Reorganization Agreement are summarized below; however, this
summary is qualified in its entirety by reference to the Reorganization
Agreement, a copy of which is attached as APPENDIX B.
The Reorganization Agreement provides for the transfer, as of the
Closing Date, of all of the assets of Bond Fund in exchange for shares of
beneficial interest of Intermediate Bond Fund and the assumption by Intermediate
Bond Fund of the Bond Fund's liabilities as set forth in that Fund's statement
of assets and liabilities as of the Closing Date. Potential liabilities of the
Bond Fund that are not known as of the closing date are not assumed by the
Intermediate Bond Fund under the terms of the Reorganization Agreement. Shares
of Intermediate Bond Fund will then be distributed to shareholders of Bond Fund,
as provided for in the Reorganization Agreement. Bond Fund will then be
liquidated.
After the Reorganization, each shareholder of Bond Fund will own shares
of Intermediate Bond Fund having an aggregate value equal to the aggregate value
of the shares in Bond Fund held by that shareholder as of the Closing Date.
Shareholders of Class A, Class B, Class C, Class I and Class O shares of Bond
Fund will receive the same Class of shares of Intermediate Bond Fund. In the
interest of economy and convenience, shares of Intermediate Bond Fund generally
will not be represented by physical certificates, unless you request the
certificates in writing.
Until the Closing Date, shareholders of Bond Fund will continue to be
able to redeem their shares. Redemption requests received after the Closing Date
will be treated as requests received by Intermediate Bond Fund for the
redemption of its shares.
The obligations of the Funds under the Reorganization Agreement are
subject to various conditions, including approval of the shareholders of Bond
Fund. The Reorganization Agreement also requires that each of the Funds take, or
cause to be taken, all actions, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by the Reorganization Agreement. The Reorganization
Agreement may be terminated by mutual agreement of the parties or on certain
other grounds. Please refer to APPENDIX B to review the terms and conditions of
the Reorganization Agreement.
REASONS FOR THE REORGANIZATION
The Reorganization is one of several reorganizations that have taken
place among various ING Funds. The ING fund complex has grown in recent years
through the addition of many funds. Management of the ING Funds has proposed the
consolidation of several of the ING Funds that they believe have similar or
compatible investment strategies. The reorganizations are designed to reduce the
substantial overlap in funds offered in the ING Funds complex, thereby
eliminating inefficiencies and potential confusion about overlapping funds. ING
Investments also believes that the reorganizations may benefit Fund shareholders
by resulting in surviving funds with a greater asset base. This is expected to
provide greater investment opportunities for the surviving funds and the
potential to take larger portfolio positions.
The proposed Reorganization was presented to the Board of Directors of
Bond Fund for consideration at a meeting held on March 24, 2004 and the Board of
Trustees of Intermediate Bond Fund for consideration at a meeting held on
February 25, 2004. For the reasons discussed below, the Board of Directors of
the Bond Fund, including all of the Directors who are not "interested persons"
(as defined in the Investment Company Act of 1940, as amended) of the Fund,
determined that the interests of the shareholders of Bond Fund would not be
diluted as a result of the proposed Reorganization, and that the proposed
Reorganization is in the best interests of the Fund and its shareholders.
Likewise, for the reasons set forth below, the Board of Trustees of the
Intermediate Bond Fund, including all of the Trustees who are not "interested
persons" (as defined in the Investment Company Act of 1940, as amended) of the
Fund, determined that the interests of the shareholders of Intermediate Bond
Fund would not be diluted as a result of the proposed Reorganization, and that
the proposed Reorganization is in the best interests of the Fund and its
shareholders.
19
The Reorganization will allow Bond Fund's shareholders to continue to
participate in a professionally-managed portfolio that invests primarily in
investment grade bonds. Additionally, as shown in the fee table, the proposed
Reorganization is expected to result in the same net operating expenses
(excluding short-term, nonrecurring, reorganization expenses) per share for
shareholders of all Classes. As shareholders of Intermediate Bond Fund,
shareholders will be able to continue to exchange into the ING Funds that offer
the same Class of shares in which such shareholder is currently invested. A list
of the ING Funds and the Classes available after the Reorganization is contained
in APPENDIX D.
BOARDS' CONSIDERATIONS
The Board of Directors of Bond Fund and the Board of Trustees of the
Intermediate Bond approved the Reorganization upon consideration of a number of
factors, including the following:
- the plans of management to reduce overlap in funds in the ING
fund complex;
- the relative investment performance of Intermediate Bond Fund
as compared to Bond Fund, and the Funds' comparative
Morningstar ratings;
- expense ratios and information regarding fees and expenses of
Bond Fund and Intermediate Bond Fund;
- the relative size of the Funds and the possibility that the
increased asset size of the Reorganized Fund could provide the
Reorganized Fund with more trading leverage and opportunities
to purchase larger positions;
- whether the Reorganization would dilute the interests of their
respective Fund's current shareholders;
- the similarity of investment objectives and strategies of
Intermediate Bond Fund with those of Bond Fund;
- that no fees or expenses would be borne by the Funds in
connection with the reorganization; and
- the tax consequences of the Reorganization to Bond Fund and
its shareholders, including the tax-free nature of the
transaction.
The Board of Directors and the Board of Trustees also considered the
future potential benefits to ING Investments in that its costs to administer the
Funds may be reduced if the Reorganization is approved, and its costs may be
reduced under its obligation to limit expenses of the Intermediate Bond Fund.
The Board of Directors of the Bond Fund also considered (i) issues
raised under Maryland law with respect to liquidating the Fund; (ii) the 10
basis point waiver of 12b-1 fee on Class A shares on the Intermediate Bond Fund;
(iii) the expense limitation agreement and the side expense limitation
agreement, which would continue in effect at least through March 31, 2007; and
(iv) ING Investments agreement to bear the full cost of the proxy solicitation.
THE DIRECTORS OF BOND FUND RECOMMEND THAT SHAREHOLDERS APPROVE THE
REORGANIZATION WITH AND INTO INTERMEDIATE BOND FUND.
TAX CONSIDERATIONS
The Reorganization is intended to qualify for Federal income tax
purposes as a tax-free reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended. Accordingly, pursuant to this treatment, neither Bond
Fund nor its shareholders, nor Intermediate Bond Fund nor its shareholders, are
expected to recognize any gain or loss for federal income tax purposes from the
transactions contemplated by the Reorganization Agreement. As a condition to the
Closing of the Reorganization, the Funds will receive an opinion from the law
firm of Dechert LLP to the effect that the Reorganization will qualify as a
tax-free reorganization for Federal income tax purposes. That opinion will be
based in part upon certain assumptions and upon certain representations made by
the Funds.
20
Immediately prior to the Reorganization, Bond Fund will pay a dividend or
dividends which, together with all previous dividends, will have the effect of
distributing to its shareholders all of Bond Fund's investment company taxable
income for taxable years ending on or prior to the Reorganization (computed
without regard to any deduction for dividends paid) and all of its net capital
gain, if any, realized in taxable years ending on or prior to the Reorganization
(after reduction for any available capital loss carryforward). Such dividends
will be included in the taxable income of Bond Fund's shareholders. Bond Fund
shareholders' holding period in the Intermediate Bond Fund shares received in
the Reorganization will include the Bond Fund shares surrendered in the
Reorganization provided that they held those shares as capital assets. Bond Fund
shareholders' aggregate basis in the Intermediate Bond Fund shares received in
the Reorganization will be the same as shareholders' aggregate basis in the Bond
Fund.
EXPENSES OF THE REORGANIZATION
ING Investments will bear the cost of the Reorganization, including,
but not limited to, the costs of solicitation of voting instructions and any
necessary filings with the SEC.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION
Bond Fund is a diversified series of ING Series Fund, Inc., an open-end
management investment company organized as a Maryland corporation. ING Series
Fund, Inc. is governed by a Board of Directors consisting of 7 members.
Intermediate Bond Fund is a diversified series of ING Funds Trust, an
open-end management investment company organized as a Delaware statutory trust.
ING Funds Trust is governed by a Board of Trustees consisting of 11 members. The
Trustees of ING Funds Trust and the Directors of ING Series Fund, Inc. share one
board member.
For more information on the history of the Funds, see the SAI.
DISTRIBUTOR
ING Funds Distributor, LLC (the "Distributor"), whose address is 7337
East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034, is the principal
distributor for both Funds.
DIVIDENDS AND OTHER DISTRIBUTIONS
Both Intermediate Bond Fund and Bond Fund pay dividends from net
income, if any, on a monthly basis. Each Fund distributes capital gains, if any,
on an annual basis. Dividends and distributions of each of the Funds are
automatically reinvested in additional shares of the respective Class of the
particular Fund, unless the shareholder elects to receive distributions in cash.
If the Reorganization Agreement is approved by Bond Fund's
shareholders, then as soon as practicable before the Closing Date, Bond Fund
will pay its shareholders a cash distribution of substantially all undistributed
net investment income and undistributed realized net capital gains.
21
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of
each of the Funds as of March 31, 2004 and on a pro forma basis as of March 31,
2004 giving effect to the Reorganization:
NET ASSET VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING
---------- --------- -----------
BOND FUND
Class A $ 83,022,105 $10.71 7,706,790
Class B $ 3,530,928 $10.74 328,674
Class C $ 2,305,596 $10.73 214,913
Class I $ 30,103,386 $10.78 2,793,583
Class O $ 22,386,170 $10.77 2,078,659
Total Bond Fund $ 141,348,185 13,122,619
INTERMEDIATE BOND FUND
Class A $ 268,598,457 $10.67 25,181,123
Class B $ 67,318,750 $10.65 6,323,091
Class C $ 71,158,604 $10.65 6,679,243
Class I $ 14,502,146 $10.67 1,359,499
Class R $ 501 $10.67 47
Total Intermediate Bond Fund $ 421,578,458 39,543,003
PRO FORMA - INTERMEDIATE BOND FUND INCLUDING BOND FUND(1)
Class A $ 351,620,562 $10.67 32,962,014
Class B $ 70,849,678 $10.65 6,654,634
Class C $ 73,464,200 $10.65 6,895,731
Class I $ 44,605,532 $10.67 4,180,810
Class O $ 22,386,170 $10.77 2,078,659
Class R $ 501 $10.67 47
Total Pro Forma Intermediate Bond $ 562,926,643 52,771,894
- ------------------
(1) Capitalization table does not include one time Reorganization related
expenses estimated at $150,000.
GENERAL INFORMATION ABOUT THE PROXY STATEMENT
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of the
Notice and this Proxy Statement/Prospectus with its enclosures on or about June
16, 2004. Shareholders of Bond Fund whose shares are held by nominees, such as
brokers, can vote their proxies by contacting their respective nominee. In
addition to the solicitation of proxies by mail, employees of ING Investments
and its affiliates, without additional compensation, may solicit proxies in
person or by telephone, telegraph, facsimile, or oral communications. Bond Fund
has retained Georgeson Shareholder Communications, Inc. (the "Solicitor"), a
professional proxy solicitation firm, to assist with any necessary solicitation
of proxies. The estimated cost of the proxy solicitation is $12,000. ING
Investments will bear the cost of the proxy solicitation. Shareholders of Bond
Fund may receive a telephone call from the professional proxy solicitation firm
asking the shareholder to vote.
In all cases where a proxy is solicited by telephone, the Solicitor is
required to ask the person to provide identifying registration data, including
full name and address, and, if known, the number of shares owned. If the
shareholder is a corporation or other entity, the Solicitor will ask for the
title of the person and for confirmation that the person is authorized to direct
the voting of the shares. The Solicitor will advise the shareholder that the
22
shareholder can vote his or her shares over the telephone and will ask if the
shareholder would like to cast a vote. Although the Solicitor's representative
is permitted to answer questions about the process, he or she is not permitted
to recommend to the shareholder how to vote, other than to read any
recommendation set forth in the Proxy Statement/Prospectus. The Solicitor will
then record the shareholder's instructions on the Proxy Card. Within 72 hours,
the shareholder will be sent a confirmation of his or her vote asking the
shareholder to call the Solicitor immediately if his or her instructions are not
correctly reflected in the confirmation.
If a shareholder wishes to participate in the Special Meeting, but does
not wish to give a proxy by telephone, the shareholder may still submit the
proxy originally sent with the Proxy Statement/Prospectus, attend in person or
vote online. Should shareholders require additional information regarding the
proxy or require replacement of the proxy, they may contact the Solicitor
toll-free at 1-866-800-0416.
A shareholder may revoke the accompanying proxy at any time prior to
its use by filing with Bond Fund, a written revocation or duly executed proxy
bearing a later date. In addition, any shareholder who attends the Special
Meeting in person may vote by ballot at the Special Meeting, thereby canceling
any proxy previously given. The persons named in the accompanying proxy will
vote as directed by the proxy, but in the absence of voting directions in any
proxy that is signed and returned, they intend to vote "FOR" the Reorganization
proposal and may vote in their discretion with respect to other matters not now
known to the Board of Bond Fund that may be presented at the Special Meeting.
VOTING RIGHTS
As a shareholder of Bond Fund you are entitled to one vote for each
share held as to any matter on which you are entitled to vote and for each
fractional share that you own, you shall be entitled to a proportionate
fractional vote. Shares have no preemptive or subscription rights.
Only shareholders of Bond Fund at the close of business on May 12, 2004
(the "Record Date") will be entitled to be present and give voting instructions
for Bond Fund at the Special Meeting with respect to their shares owned as of
that Record Date. As of the Record Date, [______] shares of Bond Fund were
outstanding and entitled to vote.
Approval of the Reorganization Agreement requires the vote, if a quorum
is present, of the lesser of (i) 67% or more of the voting securities present,
provided that more than 50% of the outstanding voting securities are present in
person or represented by proxy at the Special Meeting, or (ii) more than 50% of
the outstanding voting securities. Holders of a majority of outstanding shares
present in person or by proxy shall constitute a quorum. In the absence of a
quorum, a majority of outstanding shares entitled to vote present in person or
by proxy may adjourn the meeting from time to time until a quorum is present.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
the shares represented by the abstention or non-vote will be deemed present at
the Special Meeting for purposes of determining a quorum. However, abstentions
and broker non-votes will not be deemed represented at the Special Meeting for
purposes of calculating the vote on any matter. For this reason, with respect to
matters requiring the affirmative majority of the total shares outstanding, an
abstention or broker non-vote will have the effect of a vote against the
Reorganization.
Bond Fund expects that, before the Special Meeting, broker-dealer firms
holding shares of the Fund in "street name" for their customers will request
voting instructions from their customers and beneficial owners. If these
instructions are not received by the date specified in the broker-dealer firms'
proxy solicitation materials, Bond Fund understands that the broker-dealers that
are members of the New York Stock Exchange may consider whether the rules of the
New York Stock Exchange permit the broker-dealers to vote on the items to be
considered at the Special Meeting on behalf of their customers and beneficial
owners. If permitted, such broker-dealers may so vote.
To the knowledge of ING Investments, as of [____], 2004, no current
Director/Trustee owns 1% or more of the outstanding shares of either Fund, and
the officers and Directors/Trustees own, as a group, less than 1% of the shares
of either Fund.
23
APPENDIX E hereto lists the persons that, as of [____], 2004, owned
beneficially or of record 5% or more of the outstanding shares of any Class of
Bond Fund or Intermediate Bond Fund.
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
Bond Fund does not know of any matters to be presented at the Special
Meeting other than those described in this Proxy Statement/Prospectus. If other
business should properly come before the Special Meeting, the proxyholders will
vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Bond Fund is not required to hold regular annual meetings and, in order
to minimize its costs, does not intend to hold meetings of shareholders unless
so required by applicable law, regulation, regulatory policy or if otherwise
deemed advisable by Bond Fund's management. Therefore, it is not practicable to
specify a date by which shareholder proposals must be received in order to be
incorporated in an upcoming proxy statement for an annual meeting.
REPORTS TO SHAREHOLDERS
ING Investments will furnish, without charge, a copy of the most recent
Annual Report regarding either of the Funds and any more recent Semi-Annual
Report succeeding the Annual Report, if any, on request. Requests for such
reports should be directed in writing to the Fund at ING Funds, 7337 East
Doubletree Ranch Road, Scottsdale, Arizona 85258-2034 or by calling Shareholder
Services at 1-800-992-0180.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING MAY BE
ASSURED, PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
/s/ Huey P. Falgout, Jr.,
--------------------------------
Huey P. Falgout, Jr.,
Secretary
June 16, 2004
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
24
APPENDIX A
REPORT FOR ING INTERMEDIATE BOND FUND
Set forth below is an excerpt from ING Intermediate Bond Fund's Annual
Report, dated March 31,2004, regarding the Fund's performance.
* * * *
A-1
APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ___ day of __________, 2004, by and between ING Funds Trust, a Delaware
statutory trust with its principal place of business at 7337 East Doubletree
Ranch Road, Scottsdale, Arizona 85258-2034, on behalf of its series, ING
Intermediate Bond (the "Acquiring Fund"), and ING Series Fund, Inc., a Maryland
corporation (the "Company") with its principal place of business at 7337 East
Doubletree Ranch Road, Scottsdale, Arizona 85258-2034, on behalf of its series,
ING Bond Fund (the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange solely for Class
A, Class B, Class C, Class I and Class O voting shares of beneficial interest of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of the liabilities of the Acquired Fund described in paragraph
1.3, and the distribution of the Acquiring Fund Shares to the shareholders of
the Acquired Fund in complete liquidation of the Acquired Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are series of
open-end, registered investment companies of the management type and the
Acquired Fund owns securities which generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, the Trustees of ING Funds Trust have determined that the
exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares and
the assumption of the liabilities of the Acquired Fund described in paragraph
1.3 by the Acquiring Fund is in the best interests of the Acquiring Fund and its
shareholders and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of this transaction; and
WHEREAS, the Directors of the Company have determined that the exchange
of all of the assets of the Acquired Fund for Acquiring Fund Shares and the
assumption of all liabilities of the Acquired Fund by the Acquiring Fund is in
the best interests of the Acquired Fund and its shareholders and that the
interests of the existing shareholders of the Acquired Fund would not be diluted
as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN
EXCHANGE FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the requisite approval of the Acquired Fund
shareholders and the other terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the Acquired Fund
agrees to transfer all of the Acquired Fund's assets, as set forth in paragraph
1.2, to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefore:
(i) to deliver to the Acquired Fund the number of full and fractional Class A,
Class B, Class C, Class I and Class O Acquiring Fund Shares determined by
dividing the value of the Acquired Fund's net assets with respect to each class,
computed in the manner and as of the time and date set forth in paragraph 2.1,
by the net asset value of one Acquiring Fund Share of the same class, computed
in the manner and as of the time and date set forth in paragraph 2.2; and (ii)
to assume all liabilities of the Acquired Fund, as set forth in paragraph 1.3.
Such transactions shall take place at the closing provided for in paragraph 3.1
(the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all assets and property, including, without limitation,
all cash, securities, commodities and futures interests and dividends or
interests receivable that are owned by the Acquired Fund and any deferred or
prepaid expenses shown as an asset on
B-1
the books of the Acquired Fund on the closing date provided for in paragraph 3.1
(the "Closing Date") (collectively, "Assets").
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
assume the liabilities of the Acquired Fund set forth in the Acquired Fund's
statement of assets and liabilities as of the Closing Date delivered by the
Company, on behalf of the Acquired Fund, to the Trust, on behalf of the
Acquiring Fund, pursuant to paragraph 7.2 hereof. On or as soon as practicable
prior to the Closing Date, the Acquired Fund will declare and pay to its
shareholders of record one or more dividends and/or other distributions so that
it will have distributed substantially all (and in no event less than 98%) of
its investment company taxable income (computed without regard to any deduction
for dividends paid) and realized net capital gain, if any, for the current
taxable year through the Closing Date.
1.4. Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Fund will distribute to the Acquired Fund's shareholders of
record with respect to each class of its shares, determined as of immediately
after the close of business on the Closing Date (the "Acquired Fund
Shareholders"), on a pro rata basis within that class, the Acquiring Fund Shares
of the same class received by the Acquired Fund pursuant to paragraph 1.1, and
will completely liquidate. Such distribution and liquidation will be
accomplished, with respect to each class of the Acquired Fund's shares, by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Class A, Class B, Class C, Class I and Class O
Acquiring Fund Shares to be so credited to Class A, Class B, Class C, Class I
and Class O Acquired Fund Shareholders shall, with respect to each class, be
equal to the aggregate net asset value of the Acquired Fund shares of that same
class owned by such shareholders on the Closing Date. All issued and outstanding
shares of the Acquired Fund will simultaneously be canceled on the books of the
Acquired Fund, although share certificates representing interests in Class A,
Class B, Class C, Class I and Class O shares of the Acquired Fund will represent
a number of the same class of Acquiring Fund Shares after the Closing Date, as
determined in accordance with Section 2.3. The Acquiring Fund shall not issue
certificates representing the Class A, Class B, Class C, Class I and Class O
Acquiring Fund Shares in connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent, as defined in paragraph 3.3.
1.6. Any reporting responsibility of the Acquired Fund including, but
not limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the U.S. Securities and Exchange Commission
(the "Commission"), any state securities commission, and any federal, state or
local tax authorities or any other relevant regulatory authority, is and shall
remain the responsibility of the Acquired Fund.
2. VALUATION
2.1. The value of the Assets shall be the value computed as of
immediately after the close of business of the New York Stock Exchange and after
the declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures in the
then-current prospectus and statement of additional information with respect to
the Acquiring Fund, and valuation procedures established by the Acquiring Fund's
Board of Trustees.
2.2. The net asset value of a Class A, Class B, Class C, Class I and
Class O Acquiring Fund Share shall be the net asset value per share computed
with respect to that class as of the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus and
statement of additional and valuation procedures established by the Acquiring
Fund's Board of Trustees.
2.3. The number of the Class A, Class B, Class C, Class I and Class O
Acquiring Fund Shares to be issued (including fractional shares, if any) in
exchange for the Acquired Fund's assets shall be determined with respect to each
such class by dividing the value of the net assets with respect to the Class A,
Class B, Class C, Class I and Class O shares of the Acquired Fund, as the case
may be, determined using the same valuation procedures referred to in paragraph
2.1, by the net asset value of an Acquiring Fund Share, determined in accordance
with paragraph 2.2.
B-2
2.4. All computations of value shall be made by the Acquired Fund's
designated record keeping agent and shall be subject to review by Acquiring
Fund's record keeping agent and by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be August 14, 2004, or such other date as
the parties may agree. All acts taking place at the Closing shall be deemed to
take place simultaneously as of immediately after the close of business on the
Closing Date unless otherwise agreed to by the parties. The close of business on
the Closing Date shall be as of 4:00 p.m., Eastern Time. The Closing shall be
held at the offices of the Acquiring Fund or at such other time and/or place as
the parties may agree.
3.2. The Acquired Fund shall direct The Bank of New York, as custodian
for the Acquired Fund (the "Custodian"), to deliver, at the Closing, a
certificate of an authorized officer stating that (i) the Assets shall have been
delivered in proper form to the Acquiring Fund within two business days prior to
or on the Closing Date, and (ii) all necessary taxes in connection with the
delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
The Acquired Fund's portfolio securities represented by a certificate or other
written instrument shall be presented for examination by the Acquired Fund
Custodian to the custodian for the Acquiring Fund no later than five business
days preceding the Closing Date, and shall be transferred and delivered by the
Acquired Fund as of the Closing Date for the account of the Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Custodian shall deliver as of the Closing Date by book
entry, in accordance with the customary practices of the Custodian and any
securities depository (as defined in Rule 17f-4 under the Investment Company Act
of 1940, as amended (the "1940 Act")) in which the Acquired Fund's Assets are
deposited, the Acquired Fund's portfolio securities and instruments deposited
with such depositories. The cash to be transferred by the Acquired Fund shall be
delivered by wire transfer of federal funds on the Closing Date.
3.3. The Acquired Fund shall direct DST Systems, Inc. (the "Transfer
Agent"), on behalf of the Acquired Fund, to deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding Class A, Class B, Class C, Class I and Class O shares
owned by each such shareholder immediately prior to the Closing. The Acquiring
Fund shall issue and deliver a confirmation evidencing the Acquiring Fund Shares
to be credited on the Closing Date to the Secretary of the Acquiring Fund, or
provide evidence satisfactory to the Acquired Fund that such Acquiring Fund
Shares have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request.
3.4. In the event that on the Valuation Date (a) the New York Stock
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereupon shall be restricted, or (b) trading or the reporting of trading on
such Exchange or elsewhere shall be disrupted so that, in the judgment of the
Board of Directors of the Acquired Fund or the Board of Trustees of the
Acquiring Fund, accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. Except as has been disclosed to the Acquiring Fund in a written
instrument executed by an officer of the Company, the Company, on behalf of the
Acquired Fund, represents and warrants to ING Funds Trust as follows:
(a) The Acquired Fund is duly organized as a series of the
Company, which is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, with power under the Company's
Articles of Incorporation to own all of its properties and assets and to carry
on its business as it is now being conducted;
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(b) The Company is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and the registration of
shares of the Acquired Fund under the Securities Act of 1933, as amended ("1933
Act"), is in full force and effect;
(c) No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act")
and the 1940 Act and such as may be required by state securities laws;
(d) The current prospectus and statement of additional
information of the Acquired Fund and each prospectus and statement of additional
information of the Acquired Fund used during the three years previous to the
date of this Agreement conforms or conformed at the time of its use in all
material respects to the applicable requirements of the 1933 Act and the 1940
Act and the rules and regulations of the Commission thereunder and does not or
did not at the time of its use include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and
marketable title to the Assets and full right, power, and authority to sell,
assign, transfer and deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the
execution, delivery and performance of this Agreement will not result, in (i) a
material violation of the Company's Articles of Incorporation or By-Laws or of
any agreement, indenture, instrument, contract, lease or other undertaking to
which the Company, on behalf of the Acquired Fund, is a party or by which it is
bound, or (ii) the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the Company, on behalf of the Acquired Fund, is a party or by
which it is bound;
(g) All material contracts or other commitments of the
Acquired Fund (other than this Agreement and certain investment contracts
including options, futures, and forward contracts) will terminate without
liability to the Acquired Fund prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted
by ING Funds Trust, on behalf of the Acquiring Fund, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or, to its knowledge, threatened against
the Acquired Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect its financial condition or the
conduct of its business. The Company, on behalf of the Acquired Fund, knows of
no facts which might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated;
(i) The Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets, and Schedule of Investments of the
Acquired Fund dated March 31, 2004 have been audited by KPMG LLP, independent
auditors, and are in accordance with generally accepted accounting principles in
the United States ("GAAP") consistently applied, and such statements (copies of
which have been furnished to the Acquiring Fund) present fairly, in all material
respects, the financial condition of the Acquired Fund as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Acquired Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(j) Since March 31, 2004, there has not been any material
adverse change in the Acquired Fund's financial condition, assets, liabilities
or business, other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (j), a
decline in net asset value per share of the Acquired Fund due to declines in
market values
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of securities in the Acquired Fund's portfolio, the discharge of Acquired Fund
liabilities, or the redemption of Acquired Fund Shares by shareholders of the
Acquired Fund shall not constitute a material adverse change;
(k) On the Closing Date, all Federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Acquired Fund
required by law to have been filed by such date (including any extensions) shall
have been filed and are or will be correct in all material respects, and all
Federal and other taxes shown as due or required to be shown as due on said
returns and reports shall have been paid or provision shall have been made for
the payment thereof, and to the best of the Acquired Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with respect
to such returns;
(l) For each taxable year of its operation (including the
taxable year ending on the Closing Date), the Acquired Fund has met (or will
meet) the requirements of Subchapter M of the Code for qualification as a
regulated investment company, has been (or will be) eligible to and has computed
(or will compute) its federal income tax under Section 852 of the Code, and will
have distributed all of its investment company taxable income and net capital
gain (as defined in the Code) that has accrued through the Closing Date, and
before the Closing Date will have declared dividends sufficient to distribute
all of its investment company taxable income and net capital gain for the period
ending on the Closing Date;
(m) All issued and outstanding shares of the Acquired Fund
are, and on the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable and have been offered and sold in every state and
the District of Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. All of the
issued and outstanding shares of the Acquired Fund will, at the time of Closing,
be held by the persons and in the amounts set forth in the records of the
Transfer Agent, on behalf of the Acquired Fund, as provided in paragraph 3.3.
The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the shares of the Acquired Fund, nor
is there outstanding any security convertible into any of the Acquired Fund
shares;
(n) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the Directors of the Company, on behalf of the
Acquired Fund, and, subject to the approval of the shareholders of the Acquired
Fund, this Agreement will constitute a valid and binding obligation of the
Acquired Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(o) The information to be furnished by the Acquired Fund for
use in registration statements, proxy materials and other documents filed or to
be filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable thereto;
and
(p) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.6, insofar as it relates to the Acquired Fund, will, on the
effective date of the Registration Statement and on the Closing Date (i) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
misleading provided, however, that the representations and warranties in this
subparagraph (p) shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in conformity
with information that was furnished by the Acquiring Fund for use therein, and
(ii) comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder.
4.2. Except as has been disclosed to the Acquired Fund in a written
instrument executed by an officer of ING Funds Trust, ING Funds Trust, on behalf
of the Acquiring Fund, represents and warrants to the Company as follows:
(a) The Acquiring Fund is duly organized as a series of ING
Funds Trust, which is a statutory trust duly organized, validly existing and in
good standing under the laws of the State of Delaware, with power
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under ING Funds Trust to own all of its properties and assets and to carry on
its business as it is now being conducted;
(b) ING Funds Trust is a registered investment company
classified as a management company of the open-end type, and its registration
with the Commission as an investment company under the 1940 Act and the
registration of the shares of the Acquired Fund under the 1933 Act, is in full
force and effect;
(c) No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by the Acquiring Fund
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional
information of the Acquiring Fund and each prospectus and statement of
additional information of the Acquiring Fund used during the three years
previous to the date of this Agreement conforms or conformed at the time of its
use in all material respects to the applicable requirements of the 1933 Act and
the 1940 Act and the rules and regulations of the Commission thereunder and does
not or did not at the time of its use include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens of other
encumbrances, except those liens or encumbrances as to which the Acquired Fund
has received notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the
execution, delivery and performance of this Agreement will not result, in (i) a
material violation of ING Funds Trust's Trust Instrument or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
ING Funds Trust, on behalf of the Acquiring Fund, is a party or by which it is
bound, or (ii) the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which ING Funds Trust, on behalf of the Acquiring Fund, is a party
or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted
by the Company, on behalf of the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against ING Funds Trust, on
behalf of the Acquiring Fund, or any of the Acquiring Fund's properties or
assets that, if adversely determined, would materially and adversely affect the
Acquiring Fund's financial condition or the conduct of the Acquiring Fund's
business. ING Funds Trust, on behalf of the Acquiring Fund, knows of no facts
which might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated;
(h) The Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets and Schedule of Investments of the
Acquiring Fund at March 31, 2004 have been audited by KPMG LLP, independent
auditors, and are in accordance with GAAP consistently applied, and such
statements (copies of which have been furnished to the Acquired Fund) present
fairly, in all material respects, the financial condition of the Acquiring Fund
as of such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquiring Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of such date not
disclosed therein;
(i) Since March 31, 2004 there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities
or business, other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquired Fund. For purposes of this subparagraph (i), a
decline in net asset value per share of the Acquiring Fund due to declines in
market values of securities in the Acquiring Fund's portfolio, the discharge of
Acquiring Fund liabilities, or the redemption of Acquiring Fund Shares by
shareholders of the Acquiring Fund, shall not constitute a material adverse
change;
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(j) On the Closing Date, all Federal and other tax returns,
dividend reporting forms, and other tax-related reports of the Acquiring Fund
required by law to have been filed by such date (including any extensions) shall
have been filed and are or will be correct in all material respects, and all
Federal and other taxes shown as due or required to be shown as due on said
returns and reports shall have been paid or provision shall have been made for
the payment thereof, and to the best of the Acquiring Fund's knowledge no such
return is currently under audit and no assessment has been asserted with respect
to such returns;
(k) For each taxable year of its operation (including the
taxable year that includes the Closing Date), the Acquiring Fund has met (or
will meet) the requirements of Subchapter M of the Code for qualification as a
regulated investment company, has been eligible to (or will be eligible to) and
has computed (or will compute) its federal income tax under Section 852 of the
Code, and has distributed all of its investment company taxable income and net
capital gain (as defined in the Code) for periods ending prior to the Closing
Date;
(l) All issued and outstanding Acquiring Fund Shares are, and
on the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by ING Funds Trust and have been offered and sold in every
state and the District of Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
The Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into any Acquiring Fund Shares;
(m) The execution, delivery and performance of this Agreement
will have been fully authorized prior to the Closing Date by all necessary
action, if any, on the part of the Trustees of ING Funds Trust, on behalf of the
Acquiring Fund, and this Agreement will constitute a valid and binding
obligation of the Acquiring Fund, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The Class A, Class B, Class C, Class I and Class O
Acquiring Fund Shares to be issued and delivered to the Acquired Fund, for the
account of the Acquired Fund Shareholders, pursuant to the terms of this
Agreement, will on the Closing Date have been duly authorized and, when so
issued and delivered, will be duly and validly issued Acquiring Fund Shares, and
will be fully paid and non-assessable;
(o) The information to be furnished by ING Funds Trust for use
in the registration statements, proxy materials and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(p) That insofar as it relates to the Acquiring Fund, the
Registration Statement relating to the Acquiring Fund Shares issuable hereunder,
and the proxy materials of the Acquired Fund to be included in the Registration
Statement, and any amendment or supplement to the foregoing, will, from the
effective date of the Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading, provided,
however, that the representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration Statement made in
reliance upon and in conformity with information that was furnished by the
Acquired Fund for use therein, and (ii) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distribution that may be advisable.
5.2. The Acquired Fund will call a meeting of the shareholders of the
Acquired Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
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5.3. The Acquired Fund covenants that the Class A, Class B, Class C,
Class I and Class O Acquiring Fund Shares to be issued hereunder are not being
acquired for the purpose of making any distribution thereof, other than in
accordance with the terms of this Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.5. Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.6. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the 1934 Act and the
1940 Act, in connection with the meeting of the shareholders of the Acquired
Fund to consider approval of this Agreement and the transactions contemplated
herein.
5.7. As soon as is reasonably practicable after the Closing, the
Acquired Fund will make a liquidating distribution to its shareholders
consisting of the Class A, Class B, Class C, Class I and Class O Acquiring Fund
Shares received at the Closing.
5.8. The Acquiring Fund and the Acquired Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Agreement as promptly
as practicable.
5.9. The Company, on behalf of the Acquired Fund, covenants that the
Company will, from time to time, as and when reasonably requested by the
Acquiring Fund, execute and deliver or cause to be executed and delivered all
such assignments and other instruments, and will take or cause to be taken such
further action as ING Funds Trust, on behalf of the Acquiring Fund, may
reasonably deem necessary or desirable in order to vest in and confirm (a) the
Company's, on behalf of the Acquired Fund's, title to and possession of the
Acquiring Fund's Shares to be delivered hereunder, and (b) the Company's, on
behalf of the Acquiring Fund's, title to and possession of all the assets and
otherwise to carry out the intent and purpose of this Agreement.
5.10. The Acquiring Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Company, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at the
Company's election, to the performance by ING Funds Trust, on behalf of the
Acquiring Fund, of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of ING Funds Trust, on behalf
of the Acquiring Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;
6.2. ING Funds Trust shall have delivered to the Company a certificate
executed in its name by its President or Vice President and its Treasurer or
Assistant Treasurer, in a form reasonably satisfactory to the Company and dated
as of the Closing Date, to the effect that the representations and warranties of
ING Funds Trust, on behalf of the Acquiring Fund, made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement and as to such other matters
as the Company shall reasonably request;
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6.3. ING Funds Trust, on behalf of the Acquiring Fund, shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by ING Funds Trust, on behalf
of the Acquiring Fund, on or before the Closing Date; and
6.4. The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each Class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of ING Funds Trust, on behalf of the Acquiring Fund, to
complete the transactions provided for herein shall be subject, at ING Funds
Trust's election, to the performance by the Company, on behalf of the Acquired
Fund, of all of the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1. All representations and warranties of the Company, on behalf of
the Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;
7.2. The Company shall have delivered to the Acquiring Fund a statement
of the Acquired Fund's assets and liabilities, as of the Closing Date, certified
by the Treasurer of the Company;
7.3. The Company shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to ING Funds Trust and dated as of the Closing Date, to the effect
that the representations and warranties of the Company, on behalf of the
Acquired Fund, made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as ING Funds Trust shall reasonably
request;
7.4. The Company, on behalf of the Acquired Fund, shall have performed
all of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by the Company, on behalf of the
Acquired Fund, on or before the Closing Date;
7.5. The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1; and
7.6. The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00
p.m. Eastern time on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to the extent not
otherwise already distributed.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the Company, on behalf of the Acquired
Fund, or ING Funds Trust, on behalf of the Acquiring Fund, the other party to
this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Company's Articles of
Incorporation, By-Laws, applicable Maryland law and the 1940 Act, and certified
copies of the resolutions evidencing such approval shall have been delivered to
the Acquiring Fund. Notwithstanding
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anything herein to the contrary, neither the ING Funds Trust nor the Company may
waive the conditions set forth in this paragraph 8.1;
8.2. On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
ING Funds Trust or the Company to permit consummation, in all material respects,
of the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Acquiring Fund or
the Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.4. The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5. The parties shall have received the opinion of Dechert LLP
addressed to the Company and ING Funds Trust substantially to the effect that,
based upon certain facts, assumptions, and representations, the transaction
contemplated by this Agreement shall constitute a tax-free reorganization for
Federal income tax purposes. The delivery of such opinion is conditioned upon
receipt by Dechert LLP of representations it shall request of ING Funds Trust
and the Company. Notwithstanding anything herein to the contrary, neither ING
Funds Trust nor the Company may waive the condition set forth in this paragraph
8.5.
9. BROKERAGE FEES AND EXPENSES
9.1. The Company, on behalf of the Acquired Fund, and ING Funds Trust,
on behalf of the Acquiring Fund, represent and warrant to each other that there
are no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2. The expenses relating to the proposed Reorganization will be borne
by the investment adviser to the Acquiring Fund. The costs of the Reorganization
shall include, but not be limited to, costs associated with obtaining any
necessary order of exemption from the 1940 Act, preparation of the Registration
Statement, printing and distributing the Acquiring Fund's prospectus and the
Acquired Fund's proxy materials, legal fees, accounting fees, securities
registration fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event be paid by the
party directly incurring such expenses if and to the extent that the payment by
another person of such expenses would result in the disqualification of such
party as a "regulated investment company" within the meaning of Section 851 of
the Code.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. ING Funds Trust and the Company agree that neither party has made
any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the parties,
or (ii) by either party if the Closing shall not have occurred on or before
November 30, 2004, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall
B-10
become void and there shall be no liability hereunder on the part of any party
or their respective Trustees or Directors or officers, except for any such
material breach or intentional misrepresentation, as to each of which all
remedies at law or in equity of the party adversely affected shall survive.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be deemed necessary or advisable by the authorized officers of the
Company and ING Funds Trust; provided, however, that following the meeting of
the shareholders of the Acquired Fund called by the Company pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Class A, Class B, and
Class C, Class I and Class O Acquiring Fund Shares to be issued to the Acquired
Fund Shareholders under this Agreement to the detriment of such shareholders
without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to ING Funds
Trust or the Series Fund, Inc., 7337 East Doubletree Ranch Road, Scottsdale,
Arizona 85258-2034, attn: Huey Falgout, in each case with a copy to Dechert LLP,
1775 I Street, N.W., Washington, D.C. 20006, attn: Jeffrey S. Puretz.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1. The Article and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its principles of
conflicts of laws.
14.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5. It is expressly agreed that the obligations of the parties
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Company personally, but shall bind only
the trust property of the Acquired Fund, as provided in the Articles of
Incorporation of the Company. The execution and delivery by such officers shall
not be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
such party.
B-11
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its President or Vice President and its seal to be affixed thereto
and attested by its Secretary or Assistant Secretary.
ING FUNDS TRUST on behalf of its
ING INTERMEDIATE BOND FUND series
Attest:
______________________________
SECRETARY By: _____________________________________
Title: _____________________________________
THE SERIES FUND, INC. on behalf of its
ING BOND FUND series
Attest:
______________________________
SECRETARY By: _____________________________________
Title: _____________________________________
B-12
APPENDIX C
ADDITIONAL INFORMATION REGARDING ING INTERMEDIATE BOND FUND
("INTERMEDIATE BOND FUND")
SHAREHOLDER GUIDE
ING PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to five separate Classes of
shares of Intermediate Bond Fund: Class A, Class B, Class C, Class I, and Class
O each of which represents an identical interest in Intermediate Bond Fund's
investment portfolio, but are offered with different sales charges and
distribution (Rule 12b-1) and service fee arrangements. As described below and
elsewhere in this Proxy Statement/Prospectus, the contingent deferred sales load
structure and conversion characteristics of Intermediate Bond Fund shares that
will be issued to you in the Reorganization will be the same as those that apply
to ING Bond Fund ("Bond Fund") shares held by you immediately prior to the
Reorganization, and the period that you held shares of Bond Fund will be
included in the holding period of Intermediate Bond Fund shares for purposes of
calculating any contingent deferred sales charges and determining any conversion
rights. Purchases of the shares of Intermediate Bond Fund after the
Reorganization will be subject to the sales load structure and conversion rights
discussed below.
The sales charges and fees for each Class of shares of Intermediate
Bond Fund are shown and contrasted in the chart below.
CLASS A CLASS B CLASS C CLASS I CLASS O
------- ------- ------- ------- -------
Maximum Initial Sales Charge on Purchases 4.75%(1) None None None None
Contingent Deferred Sales Charge ("CDSC") None(2) 5.00%(3) 1.00%(4) None None
Annual Distribution (12b-1) and Service Fees
(5) 0.35% 1.00% 1.00% None 0.25%
Maximum Purchase Unlimited $ 250,000 Unlimited Unlimited Unlimited
Automatic Conversion to Class A N/A 8 Years(6) N/A N/A N/A
- ---------------
(1) Reduced for purchases of $50,000 and over.
(2) For investments of $1 million or more, a CDSC of no more than 1% may be
assessed on redemptions of shares that were purchased without an
initial sales charge. See "Class A Shares: Initial Sales Charge
Alternative" in this APPENDIX C.
(3) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales
Charge Alternative" in this APPENDIX C.
(4) Imposed upon redemption within 1 year from purchase. (5) Annual
asset-based distribution charge.
(6) Class B shares of Intermediate Bond Fund issued to shareholders of Bond
Fund in the Reorganization will convert to Class A shares in the eighth
year from the original date of purchase of the Class B shares of Bond
Fund.
The relative impact of the initial sales charges and ongoing annual
expenses will depend on the length of time a share is held. Orders for Class B
shares in excess of $250,000 will be accepted as orders for Class A shares or
declined.
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of
Intermediate Bond Fund are sold at the net asset value ("NAV") per share in
effect plus a sales charge as described in the following table. For waivers or
reductions of the Class A shares sales charges, see "Special Purchases Without a
Sales Charge" and "Reduced Sales Charges" below.
C-1
CLASS A SHARES(1)(2)(3)
AS A % OF THE AS A %
YOUR INVESTMENT OFFERING PRICE OF NAV
- --------------- -------------- ------
Less than $50,000 4.75% 4.99%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $1,000,000 2.00% 2.04%
$1,000,000 and over See below
- ----------------------------
(1) Shareholders that purchased funds that were part of the Lexington
family of funds at the time of purchase are not subject to sales
charges for the life of their account.
(2) Shareholders that purchased funds prior to February 2, 1998 that were a
part of the Aetna family of funds at the time of purchase, are not
subject to sales charges for the life of their account.
(3) The term "offering price" includes the front-end sales charge.
There is no initial sales charge on purchases of Class A shares of
$1,000,000 or more. However, the shares will be subject to a CDSC if they are
redeemed within one or two years of purchase, depending on the amount of the
purchase, as follows:
PERIOD DURING
YOUR INVESTMENT CDSC WHICH CDSC APPLIES
- --------------- ---- ------------------
$1,000,000 - $2,499,999 1.00% 2 years
$2,500,000 - $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
REDUCED SALES CHARGES. An investor may immediately qualify for a
reduced sales charge on a purchase of Class A shares of Intermediate Bond Fund
or other open-end funds in the ING Funds which offer Class A shares, or shares
with front-end sales charges ("Participating Funds") by completing the Letter of
Intent section of an Application to purchase Intermediate Bond Fund shares.
Executing the Letter of Intent expresses an intention to invest during the next
13 months a specified amount, which, if made at one time, would qualify for a
reduced sales charge. An amount equal to the Letter of Intent amount multiplied
by the maximum sales charge imposed on purchases of the applicable fund and
class will be restricted within your account to cover additional sales charges
that may be due if your actual total investment fails to qualify for the reduced
sales charges. See the Statement of Additional Information ("SAI") for
Intermediate Bond Fund for details on the Letter of Intent option or contact the
Shareholder Services Representative, as described below, at 1-800-992-0180 for
more information.
A sales charge may also be reduced by taking into account the current
value of your existing holdings in Intermediate Bond Fund or any other open-end
funds in the ING fund complex (excluding ING Aeltus Money Market Fund and ING
Classic Money Market Funds, ING Money Market and ING Lexington Money Market
Trust) ("Rights of Accumulation"). The reduced sales charges apply to quantity
purchases made at one time or on a cumulative basis over any period of time. See
the SAI for Intermediate Bond Fund for details or contact the Shareholder
Services Representative, as defined below, at 1-800-992-0180 for more
information.
For the purposes of Rights of Accumulation and the Letter of Intent
Privilege, shares held by investors in the ING Funds that impose a CDSC may be
combined with Class A shares for a reduced sales charge but this will not affect
any CDSC that may be imposed upon the redemption of shares of Intermediate Bond
Fund.
SPECIAL PURCHASES WITHOUT A SALES CHARGE. Class A shares may be
purchased without a sales charge by certain individuals and institutions. For
additional information, contact the Shareholder Services Representative at
1-800-992-0180, or see the SAI for Intermediate Bond Fund.
CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. Class B shares are
offered at their NAV per share without any initial sales charge. Class B shares
that are redeemed within six years of purchase, however, will be subject to a
CDSC as described in the table that follows. Class B shares of Intermediate Bond
Fund are subject to distribution and service fees at an annual rate of 1.00% of
the average daily net assets of the Class, which is higher
C-2
than the distribution and service fees of Class A shares. The higher
distribution and service fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower NAV than Class A shares.
Orders for Class B shares in excess of $250,000 will be accepted as orders for
Class A shares or declined. The amount of the CDSC is based on the lesser of the
NAV of the Class B shares at the time of purchase or redemption. There is no
CDSC on Class B shares acquired through the reinvestment of dividends and
capital gains distributions. The CDSCs are as follows:
YEAR OF REDEMPTION AFTER PURCHASE(1) CDSC
- --------------------------------- ----
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
After Sixth Year None
(1) Class B shares that were purchased through funds that were
part of the Northstar family of funds at the time of purchase
are subject to a different CDSC. Please see the SAI for
further information.
Class B shares will automatically convert into Class A shares eight
years after purchase. Class B shares of Intermediate Bond Fund issued in
connection with the Reorganization will convert to Class A shares eight years
after the purchase of the original shares of Bond Fund. For additional
information on the CDSC and the conversion of Class B, see Intermediate Bond
Fund's SAI.
CLASS B AND CLASS C SHARES CDSCS. To keep shareholders' CDSCs as low as
possible, each time a shareholder places a request to redeem shares of the
Intermediate Bond Fund or other open-end funds in the ING Funds with Class B or
Class C shares, shares that are not subject to a CDSC will be the first to be
redeemed, then same shares that have the lowest CDSC will be sold.
CLASS C SHARES. Class C shares are offered at their NAV per share
without an initial sales charge. Class C shares may be subject to a CDSC of 1%
if redeemed within one year of purchase. The amount of the CDSC is based on the
lesser of the NAV of the Class C shares at the time of purchase or redemption.
There is no CDSC on Class C shares acquired through the reinvestment of
dividends and capital gains distributions.
WAIVERS OF CDSC. The CDSC will be waived in the following cases. In
determining whether a CDSC is applicable, it will be assumed that shares held in
the shareholder's account that are not subject to such charge are redeemed
first.
(i) The CDSC will be waived in the case of redemption following
the death or permanent disability of a shareholder if made
within one year of death or the initial determination of
permanent disability. The waiver is available only for those
shares held at the time of death or initial determination of
permanent disability.
(ii) The CDSC also may be waived for Class B and Class C shares
redeemed pursuant to a Systematic Withdrawal Plan, up to a
maximum of 12% per year of a shareholder's account value based
on the value of the account at the time the plan is
established and annually thereafter, provided all dividends
and distributions are reinvested and the total redemptions do
not exceed 12% annually.
(iii) The CDSC also will be waived in the case of mandatory
distributions from a tax-deferred retirement plan or an IRA.
If you think you may be eligible for a CDSC waiver, contact a
Shareholder Servicing Representative at 1-800-992-0180.
C-3
CLASS I SHARES. Class I shares are offered at NAV without a sales
charge to qualified retirement plans, financial and other institutions and "wrap
accounts." The minimum initial investment is $1,000,000. The Distributor may
waive the minimum from time to time.
CLASS O SHARES. Class O shares are offered without sales charge to
customers purchasing shares through ING DIRECT Securities, Inc. ("ING Direct"),
a broker-dealer affiliate of the Investment Adviser and ING Funds Distributor,
LLC (the "Distributor"). Class O shares are also offered to members of such
other groups as may be approved by the Board from time to time.
REINSTATEMENT PRIVILEGE. Class B or Class C shareholders who have
redeemed their shares in any open-end ING Fund may reinvest some or all of the
proceeds in the same share class within 90 days without a sales charge.
Reinstated Class B and Class C shares will retain their original cost and
purchase date for purposes of the CDSC. This privilege can be used only once per
calendar year. See the SAI for Intermediate Bond Fund for details or contact the
Shareholder Servicing Representative at 1-800-992-0180 for more information.
RULE 12B-1 PLAN. Intermediate Bond Fund has a distribution plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
("1940 Act") applicable to Class A, Class B, Class C and Class O shares of
Intermediate Bond Fund ("Rule 12b-1 Plan"). Under the Rule 12b-1 Plan, the
"Distributor" may receive from Intermediate Bond Fund an annual fee in
connection with the offering, sale and shareholder servicing of Intermediate
Bond Fund's Class A, Class B, Class C and Class O shares
DISTRIBUTION AND SERVICING FEES. As compensation for services rendered
and expenses borne by the Distributor in connection with the distribution of
shares of Intermediate Bond Fund and in connection with services rendered to
shareholders of Intermediate Bond Fund, Intermediate Bond Fund pays the
Distributor servicing fees and distribution fees up to the annual rates set
forth below (calculated as a percentage of Intermediate Bond Fund's average
daily net assets attributable to that Class) [ING TO CONFIRM ]:
SERVICING FEE DISTRIBUTION FEE
------------- ----------------
Class A 0.00% 0.35%
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class O 0.25% 0.00%
Fees paid under the Rule 12b-1 Plan may be used to cover the expenses
of the Distributor from the sale of Class A, Class B, Class C or Class O shares
of Intermediate Bond Fund, including payments to Authorized Dealers, and for
shareholder servicing. In connection with Class O shares, the Distributor may
use the service fee received under the Rule 12b-1 Plan for Class O to compensate
ING Direct for servicing and maintaining shareholder accounts. The Distributor
or its affiliates may make payments to ING Direct in an amount up to 0.15% of
the total Fund assets held in customer accounts that designate such firm as the
selling broker-dealer.
Because these fees are paid out of Intermediate Bond Fund's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
OTHER EXPENSES. In addition to the management fee and other fees
described previously, Intermediate Bond Fund pays other expenses, such as legal,
audit, transfer agency and custodian fees, proxy solicitation costs and the
compensation of Directors who are not affiliated with ING Investments, LLC ("ING
Investments"). Most Intermediate Bond Fund expenses are allocated
proportionately among all of the outstanding shares of Intermediate Bond Fund.
However, the Rule 12b-1 Plan fees for each Class of shares are charged
proportionately only to the outstanding shares of that Class.
PURCHASING SHARES
The minimum initial investment in Intermediate Bond Fund is $1,000
($1,000,000 for Class I shares or $250 for IRAs) . The minimum initial
investment for a pre-authorized retirement plan is $100, plus monthly
installments of at least $100. Intermediate Bond Fund reserves the right to
liquidate sufficient shares to recover annual Transfer Agent fees should the
investor fail to maintain his/her account value at a minimum of $1,000 ($10,000
for Class I shares or $250 for IRAs).
C-4
Intermediate Bond Fund and the Distributor reserve the right to reject
any purchase order. Please note that cash, travelers checks, third party checks,
money orders and checks drawn on non-U.S. banks (even if payment may be effected
through a U.S. bank) will not be accepted. The ING Funds reserve the right to
waive minimum investment amounts.
If you wish to purchase Class O shares of the Intermediate Bond Fund,
you must submit a completed application to the Fund. The completed and signed
application must be sent to ING Direct Securities, Inc., P.O. Box 15647,
Wilmington, DE 19885-5647. If you can't invest at least $1,000, you may open
your account with a suitable Automatic Investment Plan ("AIP"). An AIP will
allow you to invest regular amounts at regular intervals. If you wish to
purchase other Classes of the Intermediate Bond Fund, contact an investment
professional with an authorized firm or contact the ING Operations Department at
1-800-992-0180.
MARKET TIMERS. The Fund is intended for long-term investment and not as a
short-term trading vehicle. Accordingly, organizations or individuals that use
market timing investment strategies and make frequent transfers should not
purchase shares of the Fund. The Fund reserves the right, in its sole discretion
and without prior notice, to reject, restrict or refuse purchase orders whether
directly or by exchange, including orders that have been accepted by a
shareholder's or retirement plan participant's intermediary, that the Fund
determines not to be in the best interest of the Fund.
The Fund believes that market timing or frequent, short-term trading in
any account, including a retirement plan account, is not in the best interest of
the Fund or its shareholders. Due to the disruptive nature of this activity, it
can adversely impact the ability of the Adviser or Sub-Adviser to invest assets
in an orderly, long-term manner. Frequent trading can disrupt the management of
the Fund and raise its expenses through: increased trading and transaction
costs; forced and unplanned portfolio turnover; lost opportunity costs; and
large asset swings that decrease the Fund's ability to provide maximum
investment return to all shareholders. This in turn can have an adverse effect
on Fund performance.
In order to discourage frequent, short-term trading within the Fund,
the Administrator, ING Fund Services, LLC ("ING") monitors trading activity.
With regard to frequent, short-term trading, in the event that an individual's
or organization's trading activity:
1) exceeds the current monitoring standard for identifying
frequent trading;
2) is identified as problematic in accordance with ING's trade
monitoring policies, discussed below, even if the activity
does not exceed the monitoring standard for frequent trading;
or
3) if ING determines, in its sole discretion, that such trading
activity may not be in the best interests of shareholders,
ING reserves the right to take any necessary action to deter such
activity. Such action may include, but not be limited to:
1) rejecting additional purchase or exchange orders if a
shareholder exceeds the current monitoring standard for
frequent trading;
2) rejecting all trades from broker-dealers or their registered
representatives associated with frequent trading;
3) termination of the selling group agreement with broker-dealers
associated with frequent trading; or
4) imposition of redemption fees on trades in certain Funds.
ING's current monitoring standard for identifying frequent trading is
more than four exchanges of a specified monitoring amount within a one-year
period, other than transactions associated with scheduled dollar cost averaging
and rebalancing in connection with investments by Funds-of-Funds. The exchange
limit does not apply to money market Funds. However, exchanges between a money
market Fund and another Fund will be included in the four exchanges per year
limit. Additionally, in accordance with ING's trade monitoring policies, the
following would be indicative of possible market timing:
C-5
1) serial purchases and redemptions, or serial exchanges,
involving more than one Fund, particularly if they involve
Funds managed in a similar investment style (e.g.,
international Funds);
2) a series of transactions at dollar levels just below the
amount used as the monitoring standard; and
3) trading activity of persons or entities that have been
associated with market timing historically.
If an activity is identified as problematic after further
investigation, ING reserves the right to take measures to deter such activity.
ING also reserves the right to modify the monitoring standard, or the standard
as it may apply to a particular Fund, at any time without prior notice,
depending on the needs of the particular Fund and/or state or federal regulatory
requirements. A different monitoring standard may apply for accounts held by
certain institutional retirement plans to conform to plan exchange limits and
Department of Labor regulations. See your retirement plan materials for further
information.
Although the restrictions described above are designed to discourage
frequent, short-term trading, none of them alone, nor all of them taken
together, can eliminate the possibility that frequent, short-term trading
activity in the Funds will occur. Moreover, in enforcing such restrictions, ING
is often required to make decisions that are inherently subjective. ING strives
to make these decisions to the best of its abilities in a manner that it
believes is in the best interest of shareholders.
Shareholders may invest in the Funds through omnibus account
arrangements with financial intermediaries, which are common forms of holding
shares of a Fund. Such intermediaries include broker-dealers, banks, investment
advisers, record-keepers, retirement plans, variable insurance products, trusts
and approved fee-based program accounts. Omnibus accounts generally do not
identify customers' trading activity on an individual basis. The ability of ING
to monitor exchanges made by the underlying shareholders in omnibus accounts
maintained by financial intermediaries therefore is severely limited.
Consequently, ING must rely on the financial intermediary to monitor frequent,
short-term trading within a Fund by the financial intermediary's customers. ING
seeks assurances from the financial intermediary that it has procedures adequate
to monitor and address frequent, short-term trading. There is, however, no
guarantee that ING will be able to identify individual shareholders who may be
making frequent, short-term trades or curtail their trading activity.
CUSTOMER IDENTIFICATION. To help the government fight the funding of
terrorism and money laundering activities, Federal law requires all financial
institutions to obtain, verify and record information that identifies each
person that opens an account, and to determine whether such person that opens an
account, and to determine whether such person's name appears on government lists
of known or suspected terrorists and terrorist organizations.
What this means for you: The Fund and the Distributor must obtain the
following information for each person that opens an account:
- Name;
- Date of Birth
- Physical residential address (although post office
boxes are still permitted for mailing); and
- Social security number, taxpayer identification
number, or other identifying number.
You may also be asked to show your driver's license, passport or other
identifying documents in order to verify your identity. In addition, it may be
necessary to verify your identity by cross-referencing your identification
information with a consumer report or other electronic database. Additional
information may be required to open accounts for corporations and other
non-natural persons.
EFFECTIVE OCTOBER 1, 2003, FEDERAL LAW PROHIBITS THE FUNDS, THE
DISTRIBUTOR AND OTHER FINANCIAL INSTITUTIONS FORM OPENING ACCOUNTS UNLESS THEY
RECEIVE THE MINIMUM IDENTIFYING INFORMATION LISTED ABOVE. THEY ALSO MAY BE
REQUIRED TO CLOSE YOUR ACCOUNT IF THEY ARE UNABLE TO VERIFY YOUR IDENTITY WITHIN
A REASONABLE TIME.
C-6
PRICE OF SHARES. When you buy shares, you pay the NAV plus any
applicable sales charge. When you sell shares, you receive the NAV minus any
applicable deferred sales charge. Exchange orders are effected at NAV.
DETERMINATION OF NET ASSET VALUE. The net asset value (NAV) per share
for each class of each Fund is determined each business day as of the close of
regular trading on the New York Stock Exchange ("NYSE") (usually 4:00 p.m.
Eastern Time). The Funds are open for business every day the NYSE is open. The
NYSE is closed on all weekends and on national holidays and Good Friday. Fund
shares will not be priced on those days. The NAV per share of each class of each
Fund is calculated by taking the value of the Fund's assets attributable to that
class, subtracting the Fund's liabilities attributable to that class, and
dividing by the number of shares of that class that are outstanding.
In general, assets are valued based on actual or estimated market
value, with special provisions for assets not having readily available market
quotations and short-term debt securities, and for situations where market
quotations are deemed unreliable. Investments in securities maturing in less
than 60 days are valued at amortized cost, which, when combined with accrued
interest, approximates market value. Securities prices may be obtained from
automated pricing services.
Trading of foreign securities may not take place every day the NYSE is
open. Also, trading in some foreign markets and on some electronic trading
networks may occur on weekends or holidays when a Fund's NAV is not calculated.
As a result, the NAV of a Fund may change on days when shareholders will not be
able to purchase or redeem a Fund's shares.
When market quotations are not readily available or are deemed
unreliable, the Adviser may determine a fair value for the security in
accordance with procedures adopted by the Fund's Board. The types of securities
for which such fair value pricing might be required include, but are not limited
to:
- Foreign securities, where an event occurs after the close of
the foreign market on which such security principally trades,
but before the close of the NYSE, that is likely to have
changed the value of such security, or the daily fluctuation
in the S&P 500 Index exceeds certain thresholds, or the
closing value is otherwise deemed unreliable;
- Securities of an issuer that has entered into a restructuring;
- Securities whose trading has been halted or suspended;
- Fixed income securities that have gone into default and for
which there is not current market value quotation;
The Fund or Adviser may use a fair value pricing service approved by
the Board in valuing foreign securities. Valuing securities at fair value
involves greater reliance on judgment than securities that have readily
available market quotations. The Adviser makes such determinations in good faith
in accordance with procedures adopted by the Fund's Board. Fair value
determinations can also involve reliance on quantitative models employed by a
fair value pricing service. There can be no assurance that a Fund could obtain
the fair value assigned to a security if it were to sell the security at
approximately the time at which the Fund determines its NAV per share.
PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized
investment plan to purchase shares with automatic bank account debiting. For
further information on pre-authorized investment plans, contact the Shareholder
Services Representative at 1-800-992-0180. For Class O shares, a Systematic
Investment feature is available, see the SAI for additional information.
RETIREMENT PLANS. Intermediate Bond Fund has available prototype
qualified retirement plans for both corporations and for self-employed
individuals. Also available are prototype IRA, Roth IRA and Simple IRA plans
(for both individuals and employers), Simplified Employee Pension Plans, Pension
and Profit Sharing Plans and Tax Sheltered Retirement Plans for employees of
public educational institutions and certain non-profit, tax-exempt
organizations. State Street Bank and Trust Company ("SSB") acts as the custodian
under these plans. For further information, contact the Shareholder Services
Representative at 1-800-992-0180. SSB currently receives a $12 custodian fee
annually for the maintenance of such accounts.
C-7
EXECUTION OF REQUESTS. Purchase and sale requests are executed at the
NAV next determined after the order is received in proper form by the Transfer
Agent or Distributor. A purchase order will be deemed to be in proper form when
all of the required steps set forth in Intermediate Bond Fund's Prospectus under
the section "How to Purchase Shares" have been completed. If you purchase by
wire, however, the order will be deemed to be in proper form after the telephone
notification and the federal funds wire have been received. If you purchase by
wire, you must submit an application form in a timely fashion. If an order or
payment by wire is received after the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern Time), the shares will not be
credited until the next business day. For your transaction to be counted on the
day you place your order with your broker-dealer or other financial institution,
your order must be received before 4:00 p.m. Eastern Time and your broker-dealer
or financial institution must promptly transmit the order to the Transfer Agent
or Distributor.
You will receive a confirmation of each new transaction in your
account, which also will show you the number of Fund shares you own including
the number of shares being held in safekeeping by the Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Certificates representing shares of Intermediate Bond Fund
will not be issued unless you request them in writing.
TELEPHONE ORDERS. Intermediate Bond Fund and its Transfer Agent will
not be responsible for the authenticity of phone instructions or losses, if any,
resulting from unauthorized shareholder transactions if they reasonably believe
that such instructions were genuine. Intermediate Bond Fund and its Transfer
Agent have established reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include recording
telephone instructions for exchanges and expedited redemptions, requiring the
caller to give certain specific identifying information, and providing written
confirmation to shareholders of record not later than five days following any
such telephone transactions. If Intermediate Bond Fund and its Transfer Agent do
not employ these procedures, they may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in
writing to the Transfer Agent or by calling the Shareholder Services
Representative at 1-800-992-0180. There is no specific limit on exchange
frequency; however, Intermediate Bond Fund is intended for long-term investment
and not as a trading vehicle. ING Investments or the Distributor may prohibit
excessive exchanges (more than four per year). ING Investments reserves the
right, upon 60 days' prior notice, to cancel the exchange policy or restrict the
frequency of, otherwise modify, or impose charges of up to $5.00 upon exchanges.
The total value of shares being exchanged must at least equal the minimum
investment requirement of Intermediate Bond Fund into which they are being
exchanged.
Shares of one class of Intermediate Bond Fund generally may be
exchanged for shares of that same Class of any other open-end ING Fund without
payment of any additional sales charge. In most instances, if you exchange and
subsequently redeem your shares, any applicable CDSC will be based on the full
period of the share ownership. Shareholders exercising the exchange privilege
with any other open-end ING Fund should carefully review the Prospectus of that
Fund. Exchanges of shares are sales and may result in a gain or loss for federal
and state income tax purposes. You will automatically be assigned the telephone
exchange privilege unless you mark the box on the Account Application that
signifies you do not wish to have this privilege. The exchange privilege is only
available in states where shares of Intermediate Bond Fund being acquired may be
legally sold.
If you exchange into ING Senior Income Fund, your ability to sell or
liquidate your investment will be limited. ING Senior Income Fund is a
closed-end interval fund and does not redeem its shares on a daily basis, and it
is not expected that a secondary market for the fund's shares will develop, so
you will not be able to sell them through a broker or other investment
professional. To provide a measure of liquidity, ING Senior Income Fund will
normally make monthly repurchase offers for 5% of its outstanding common shares.
If more than 5% of the fund's common shares are tendered, you may not be able to
completely liquidate your holdings in any one month. You also would not have
liquidity between these monthly repurchase dates. Investors exercising the
exchange privilege with ING Senior Income Fund should carefully review the
prospectus of that fund. Investors may obtain a copy of the ING Senior income
Fund prospectus or any other ING prospectus by calling 1-800-992-0180.
You will automatically have the ability to request an exchange by
calling the Shareholder Services Representative at 1-800-992-0180 unless you
mark the box on the Account Application that indicates that you do not wish to
have the telephone exchange privilege.
C-8
CDSC ON EXCHANGE INTO ING SENIOR INCOME FUND. You are not required to
pay an applicable CDSC upon any exchange from Intermediate Bond Fund into the
ING Senior Income Fund. However, if you exchange into ING Senior Income Fund and
subsequently offer your shares for repurchase by that fund, the CDSC will apply
from the fund from which you exchanged. The time period for application of the
CDSC will be calculated based on the first date you acquired your shares in
Intermediate Bond Fund.
SYSTEMATIC EXCHANGE PRIVILEGE. With an initial account balance of at
least $5,000, subject to the information and limitations outlined above, you may
elect to have a specified dollar amount of shares systematically exchanged,
monthly, quarterly, semi-annually or annually (on or about the 10th of the
applicable month), from your account to an identically registered account in the
same class of any other open-end ING Fund (not applicable to Class I). This
exchange privilege may be modified at any time or terminated upon 60 days'
written notice to shareholders.
SMALL ACCOUNTS. Due to the relatively high cost of handling small
investments, Intermediate Bond Fund reserves the right upon 30 days' written
notice to redeem, at NAV, the shares of any shareholder whose account (except
for IRAs) has a value of less than $1,000 ($10,000 for Class I) other than as a
result of a decline in the NAV per share.
HOW TO REDEEM SHARES
Shares of Intermediate Bond Fund will be redeemed at the NAV (less any
applicable CDSC and/or federal income tax withholding) next determined after
receipt of a redemption request in good form on any day the New York Stock
Exchange is open for business. Under unusual circumstances, a Fund may suspend
the right at redemption as allowed by federal securities laws.
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount of $100 ($50 in the case of
Class O and $1,000 in the case of Class I) or more made to yourself, or to
anyone else you properly designate, as long as the account has a current value
of at least $10,000 ($250,000 for Class I). For additional information, contact
the Shareholder Services Representative at 1-800-992-0180, or see Intermediate
Bond Fund's SAI. For additional information regarding the Class O shares contact
ING Direct at 1-866-289-3863.
PAYMENTS. Payment to shareholders for shares redeemed ordinarily will
be made within seven days (or the maximum period allowed by law, if shorter)
after the redemption request is received in proper form by the Transfer Agent.
Intermediate Bond Fund may delay the mailing of a redemption check until the
check used to purchase the shares being redeemed has cleared which may take up
to 15 days or more. To reduce such delay, all purchases should be made by bank
wire or federal funds. Intermediate Bond Fund may suspend the right of
redemption under certain extraordinary circumstances in accordance with the
Rules of the U.S. Securities and Exchange Commission. Intermediate Bond Fund
intends to pay in cash for all shares redeemed, but under abnormal conditions
that make payment in cash harmful to Intermediate Bond Fund, Intermediate Bond
Fund may make payment wholly or partly in securities at their then current
market value equal to the redemption price. In such case, Intermediate Bond Fund
could elect to make payment in securities for redemptions in excess of $250,000
or 1% of its net assets during any 90-day period for any one shareholder. An
investor may incur brokerage costs in converting such securities to cash. To the
extent possible, the Fund will distribute readily marketable securities, in
conformity with applicable rules of the SEC. In the event such redemption is
requested by institutional investors, the Fund will weigh the effects on
nonredeeming shareholders in applying this policy. Securities distributed to
shareholders may be difficult to sell and may result in additional costs to
shareholders.
Certain brokers or other designated intermediaries such as third party
administrators or plan trustess may accept purchase and redemption orders on
behalf of the Fund. The transfer Agent will be deemed to have received such an
order when the broker or the designee has accepted the order. Customer orders
are priced at the NAV next computed after such acceptance. Such order may be
transmitted to the Fund or their agents several hours after the time of the
acceptance and pricing.
If you invest in the Fund through a financial intermediary, you may be
charged a commission or transaction fee by the financial intermediary for
purchase and sale of Fund shares.
C-9
Purchases and exchanges should be made for investment purposes only.
The Fund reserves the right to reject any specific purchase or exchange request.
In the event the Fund rejects an exchange request, neither the redemption nor
the purchase side of the exchange will be processed until the Fund receives
further redemption instructions.
SPECIAL CONSIDERATIONS WITH RESPECT TO CLASS O.
Signature Guarantee. Redemption requests may be made in writing or, in
amounts up to $100,000, by telephone. A medallion signature guarantee is
required if the amount of the redemption request is over $100,000. A medallion
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency, savings association, or other financial
institution, which participates in a medallion program recognized by the
Securities Transfer Association. Signature guarantees from financial
institutions which are not participating in such a medallion program will not be
accepted. Please note that a notary public cannot provide signature guarantees.
Other Shareholder Services. A number of additional investor services
are available with respect to Class O. For example, there is a Systematic
Investment Feature, Automatic Cash Withdrawal Plan, and the ability to elect to
have dividend and/or capital gains distributions automatically investment in
Class O of one other ING open-end fund. To learn about these and other services
see the SAI or call ING Direct at 1-866-289-3863.
ACCOUNT ACCESS
Unless your Fund shares are held through a third-party fiduciary or in
an omnibus registration at your bank or brokerage firm, you may be able to
access your account information over the internet at www.ingfunds.com or via a
touch tone telephone by calling 1-800-992-0180 and selecting Option 1. Should
you wish to speak with a Shareholder Services Representative, you may call the
toll-free number listed above and selection Option 2.
PRIVACY POLICY
Intermediate Bond Fund has adopted a policy concerning investor
privacy. To review the privacy policy, contact a Shareholder Services
Representative at 1-800-992-0180 and select Option 1 or obtain a policy over the
internet at www.ingfunds.com.
MANAGEMENT OF INTERMEDIATE BOND FUND
INVESTMENT ADVISER. ING Investments, an Arizona limited liability
company, serves as the investment adviser to Intermediate Bond Fund. ING
Investments has overall responsibility for management of Intermediate Bond Fund.
ING Investments has engaged a Sub-Adviser to provide the day-to-day management
of the Intermediate Bond Fund's portfolio. ING Investments is responsible for
monitoring the investment program and performance of the Sub-Adviser as well as
the custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services provided to Intermediate Bond Fund. As of March
31, 2004, ING Investments managed over $34.8 billion in assets.
SUB-ADVISER. ING Aeltus Investment Management, Inc. ("ING Aeltus"), a
registered investment adviser, is responsible for providing the day-to-day
management of Intermediate Bond Fund. ING Aeltus is an indirect, wholly-owned
subsidiary of ING Groep, N.V. (NYSE:ING) ("ING Groep") and an affiliate of ING
Investments. ING Aeltus has been managing client assets for more than a quarter
century and as of March 31, 2004, managed over $29.0 billion in assets.
The Sub-Adviser may consider sale of the Intermediate Bond Fund and of
other investment companies advised by the Sub-Adviser as a factor in the
selection of brokerage firms to execute the Fund's portfolio transactions,
subject to the Sub-Adviser's duty to obtain best execution.
PORTFOLIO MANAGER. The Fund has been managed by a team of investment
professionals led by James B. Kauffmann since December 1998. Mr. Kauffmann
joined ING Groep's asset management operations in 1996 and has over 17 years of
investment experience.
C-10
PARENT COMPANY AND DISTRIBUTOR. ING Investments and the Distributor are
indirect, wholly owned subsidiaries of ING Groep. ING Groep is a global
financial institution active in the fields of insurance, banking and asset
management in more than 65 countries, with over 100,000 employees.
From time to time, the Distributor or its affiliates may make payments
to other dealers and/or their registered representatives, who may or may not be
affiliates of ING Groep, who sell shares or who provide shareholder services.
The value of a shareholder's investment will be unaffected by these payments.
SHAREHOLDER SERVICES REPRESENTATIVE. ING Funds Services, LLC serves as
Shareholder Services Representative for Intermediate Bond Fund. The Shareholder
Services Representative is responsible for responding to written and telephonic
inquiries from shareholders. Intermediate Bond Fund pays the Shareholder
Services Representative a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
PORTFOLIO TRANSACTIONS. ING Investments or ING Aeltus will place orders
to execute securities transactions that are designed to implement Intermediate
Bond Fund's investment objectives and policies. ING Investments or ING Aeltus
will use its reasonable efforts to place all purchase and sale transactions with
brokers, dealers and banks ("brokers") that provide "best execution" of these
orders. In placing purchase and sale transactions, ING Investments or ING Aeltus
may consider brokerage and research services provided by a broker to ING
Investments or ING Aeltus or an affiliate, and Intermediate Bond Fund may pay a
commission for effecting a securities transaction that is in excess of the
amount another broker would have charged if ING Investments or ING Aeltus
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the broker. In
addition, ING Investments may place securities transactions with brokers that
provide certain services to Intermediate Bond Fund. ING Investments also may
consider a broker's sale of Fund shares if ING Investments is satisfied that
Intermediate Bond Fund would receive best execution of the transaction from that
broker.
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS. Intermediate Bond Fund generally
distributes most or all of its net earnings in the form of dividends.
Intermediate Bond Fund pays dividends, if any, on a monthly basis. Capital
gains, if any, are distributed annually. Dividends and distributions will be
determined on a class basis.
Any dividends and distributions paid by Intermediate Bond Fund will be
automatically reinvested in additional shares of the respective class of
Intermediate Bond Fund, unless you elect to receive distributions in cash. A
shareholder may elect at any time by writing to the Fund or the Transfer Agent
to have subsequent dividends and/or distributions paid in cash. In the absence
of such an election each purchase of shares of a class of Fund is made upon the
condition and understanding that the Transfer Agent is automatically appointed
the shareholder's agent to receive his dividends and distributions upon all
shares registered in his name and to invest them in full and fractional shares
of the respective class of the Fund at the applicable net asset value in effect
at the close of business on the reinvestment date. For Class O shareholders,
this option will be selected automatically unless one of the other options is
selected when completing your application. A shareholder may still at any time
after a purchase of Fund shares request that dividends and/or capital gains
distributions be made to him in cash. When a dividend or distribution is paid,
the NAV per share is reduced by the amount of the payment. You may, upon written
request or by completing the appropriate section of the Account Application in
the Prospectus, elect to have all dividends and other distributions paid on
Class A, Class B, Class C, Class I and Class O shares of Intermediate Bond Fund
invested into an ING Fund that offers Class A, Class B, Class C, Class I and
Class O shares.
FEDERAL TAXES. The following information is meant as a general summary
for U.S. shareholders. Please see Intermediate Bond Fund's SAI for additional
information. You should rely on your own tax adviser for advice about the
particular federal, state and local tax consequences to you of investing in
Intermediate Bond Fund.
Intermediate Bond Fund will distribute all or substantially all of its
net investment income and net capital gains to its shareholders each year.
Although Intermediate Bond Fund will not be taxed on amounts it distributes,
most shareholders will be taxed on amounts they receive. A particular
distribution generally will be taxable as either ordinary income or long-term
capital gain. Except as described below, it generally does not matter how long
you have held your Fund shares or whether you elect to receive your
distributions in cash or reinvest them in additional
C-11
Fund shares. For example, if Intermediate Bond Fund designates a particular
distribution as a long-term capital gains distribution, it will be taxable to
you at your long-term capital gains rate. Most dividends from the Intermediate
Bond Fund are attributable to interest and, therefore, do not qualify for the
reduced rate of tax that may apply to certain qualifying dividends on corporate
stock, as described below. Recently enacted tax legislation generally provides
of a maximum tax rate for individual taxpayers of 15% on long-term gains from
sales on or after May 6, 2003 and from certain qualifying dividends. These rate
reductions do not apply to corporate taxpayers. The following are guidelines for
how certain distribution by the Intermediate Bond Fund are generally taxed to
individual taxpayers:
- Distributions of earnings from qualifying dividends and
qualifying long-term capital gains will be taxed at a maximum
rate of 15%.
- Note that distributions of earnings from dividends paid by
certain "qualified foreign corporations" can also qualify for
the lower tax rates on qualifying dividends.
- A shareholder will also have to satisfy a more than 60-day
holding period with respect to any distributions of qualifying
dividends in order to obtain the benefit of the lower tax rate.
- Distributions of earnings from non-qualifying dividends,
interest income, other types of ordinary income and short-term
capital gains will be taxed at the ordinary income tax rate
applicable to the taxpayer.
- Distributions of long-term gains from sales by the Fund before
May 6, 2003 will be taxed at the maximum rate of 20%.
Dividends declared by Intermediate Bond Fund in October, November or
December and paid during the following January may be treated as having been
received by shareholders in the year the distributions were declared.
You will receive an annual statement summarizing your dividend and
capital gains distributions.
If you invest through a tax-deferred account, such as a retirement
plan, you generally will not have to pay tax on dividends until they are
distributed from the account. These accounts are subject to complex tax rules,
and you should consult your tax adviser about investment through a tax-deferred
account.
There may be tax consequences to you if you sell or redeem Fund shares.
You will generally have a capital gain or loss, which will be long-term or
short-term, generally depending on how long you hold those shares. If you
exchange shares, you may be treated as if you sold them. You are responsible for
any tax liabilities generated by your transactions.
As with all mutual funds, Intermediate Bond Fund may be required to
withhold U.S. federal income tax at the rate of 28% of all taxable distributions
payable to you if you fail to provide Intermediate Bond Fund with your correct
taxpayer identification number or to make required certifications, or if you
have been notified by the IRS that you are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against your U.S. federal income tax liability.
C-12
FINANCIAL HIGHLIGHTS
The information below for the period ended March 31, 2004 is unaudited.
The information in the table below for the years ended March 31, 2003, March 31,
2002, and the five months ended March 31, 2001, has been derived from ING
Intermediate Bond Fund's financial statements, which, had been audited by other
independent auditors. For all periods prior to March 31, 2001, the financial
information was audited by KPMG LLP.
CLASS A
---------------------------------------------------------------------------
(UNAUDITED) FIVE DECEMBER
YEAR YEAR YEAR MONTHS YEAR 15, 1998(1)
ENDED ENDED ENDED ENDED ENDED TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31, OCTOBER 31, OCTOBER 31,
2004 2003 2002 2001(4) 2000 1999
----------- --------- --------- --------- ----------- -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.51 9.91 10.18 9.52 9.40 10.00
Income (loss) from investment operations:
Net investment income (loss) $ 0.31 0.35 0.51 0.28 0.61 0.45
Net realized and unrealized gain (loss)
on investments $ 0.32 0.77 0.42 0.66 0.12 (0.60)
Total from investment operations $ 0.63 1.12 0.93 0.94 0.73 (0.15)
Less distributions from:
Net investment income $ 0.33 0.37 0.53 0.28 0.61 0.45
Net realized gains on investments $ 0.14 0.15 0.67 - - -
Total distributions $ 0.47 0.52 1.20 0.28 0.61 0.45
Net asset value, end of period $ 10.67 10.51 9.91 10.18 9.52 9.40
TOTAL RETURN(2): % 6.16 11.48 9.27 10.01 8.11 (1.46)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 268,598 146,649 41,503 33,597 29,893 32,013
Ratios to average net assets:
Net expenses after expense
reimbursement/recoupment(3)(5) % 1.10 1.14 1.15 1.13 1.00 0.96
Gross expense prior to expense
reimbursement/recoupment(3) % 1.18 1.24 1.36 1.53 2.08 2.12
Net investment income after expense % 2.91 3.21 4.93 6.94 6.48 5.38
reimbursement/recoupment(3)(5)
Portfolio turnover rate % 553 639 1,216* 838 733 432
- ------------------
(1) Commencement of Operations
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(3) Annualized for periods less than one year.
(4) The Fund changed its fiscal year end to March 31.
(5) The Adviser has agreed to limit expenses, excluding interest, taxes,
brokerage and extraordinary expenses subject to possible reimbursement to
ING Investments within three years.
* Portfolio turnover was greater than expected during this period due to
active trading undertaken in response to market conditions that existed at
that time.
C-13
CLASS B
---------------------------------------------------------------------------
(UNAUDITED) FIVE DECEMBER
YEAR YEAR YEAR MONTHS YEAR 15, 1998(1)
ENDED ENDED ENDED ENDED ENDED TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31, OCTOBER 31, OCTOBER 31,
2004 2003 2002 2001(4) 2000 1999
----------- --------- --------- --------- ----------- -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.50 9.90 10.18 9.52 9.40 10.00
Income (loss) from investment operations:
Net investment income (loss) $ 0.23 0.28 0.44 0.26 0.53 0.40
Net realized and unrealized gain (loss)
on investments $ 0.31 0.76 0.40 0.66 0.13 (0.61)
Total from investment operations $ 0.54 1.04 0.84 0.92 0.66 (0.21)
Less distributions from:
Net investment income $ 0.25 0.29 0.45 0.26 0.54 0.39
Net realized gains on investments $ 0.14 0.15 0.67 - - -
Total distributions $ 0.39 0.44 1.12 0.26 0.54 0.39
Net asset value, end of period $ 10.65 10.50 9.90 10.18 9.52 9.40
TOTAL RETURN(2): % 5.28 10.64 8.37 9.74 7.30 (2.13)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 67,319 61,544 11,216 2,807 1,523 1,958
Ratios to average net assets:
Net expenses after expense
reimbursement/recoupment(3)(5) % 1.85 1.89 1.90 1.88 1.74 1.70
Gross expense prior to expense
reimbursement/recoupment(3) % 1.83 1.89 2.01 2.18 2.33 2.39
Net investment income after expense % 2.16 2.39 4.09 6.20 5.71 4.83
reimbursement/recoupment(3)(5)
Portfolio turnover rate % 553 639 1,216* 838 733 432
- ------------------
(1) Commencement of Operations
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(3) Annualized for periods less than one year.
(4) The Fund changed its fiscal year end to March 31.
(5) The Adviser has agreed to limit expenses, excluding interest, taxes,
brokerage and extraordinary expenses subject to possible reimbursement to
ING Investments within three years.
* Portfolio turnover was greater than expected during this period due to
active trading undertaken in response to market conditions that existed at
that time.
C-14
CLASS C
---------------------------------------------------------------------------
(UNAUDITED) FIVE DECEMBER
YEAR YEAR YEAR MONTHS YEAR 15, 1998(1)
ENDED ENDED ENDED ENDED ENDED TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31, OCTOBER 31, OCTOBER 31,
2004 2003 2002 2001(4) 2000 1999
----------- --------- --------- --------- ----------- -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.50 9.90 10.19 9.52 9.40 10.00
Income (loss) from investment operations:
Net investment income (loss) $ 0.23 0.28 0.44 0.26 0.54 0.42
Net realized and unrealized gain (loss)
on investments $ 0.31 0.76 0.39 0.67 0.12 (0.63)
Total from investment operations $ 0.54 1.04 0.83 0.93 0.66 (0.21)
Less distributions from:
Net investment income $ 0.25 0.29 0.45 0.26 0.54 0.39
Net realized gains on investments $ 0.14 0.15 0.67 - - -
Total distributions $ 0.39 0.44 1.12 0.26 0.54 0.39
Net asset value, end of period $ 10.65 10.50 9.90 10.19 9.52 9.40
TOTAL RETURN(2): % 5.28 10.68 8.24 9.86 7.32 (2.10)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 71,159 52,979 6,382 4,470 5,248 1,082
Ratios to average net assets:
Net expenses after expense
reimbursement/recoupment(3)(5) % 1.85 1.90 1.90 1.85 1.73 1.71
Gross expense prior to expense
reimbursement/recoupment(3) % 1.83 1.90 2.01 2.18 2.32 2.44
Net investment income after expense % 2.16 2.36 4.20 6.37 5.74 4.94
reimbursement/recoupment(3)(5)
Portfolio turnover rate % 553 639 1,216* 838 733 432
- ------------------
(1) Commencement of offering of shares.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(3) Annualized for periods less than one year.
(4) The Fund changed its fiscal year end to March 31.
(5) The Adviser has agreed to limit expenses, excluding interest, taxes,
brokerage and extraordinary expenses subject to possible reimbursement to
ING Investments within three years.
* Portfolio turnover was greater than expected during this period due to
active trading undertaken in response to market conditions that existed at
that time.
C-15
CLASS I
------------------------------------
JANUARY 8,
(UNAUDITED) 2002 (1)
YEAR YEAR TO
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002
----------- --------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.51 9.91 9.99
Income (loss) from investment operations:
Net investment income (loss) $ 0.38 0.39 0.11
Net realized and unrealized gain (loss)
on investments $ 0.30 0.76 (0.07)
Total from investment operations $ 0.68 1.15 0.04
Less distributions from:
Net investment income $ 0.38 0.40 0.12
Net realized gains on investments $ 0.14 0.15 -
Total distributions $ 0.52 0.55 0.12
Net asset value, end of period $ 10.67 10.51 9.91
TOTAL RETURN(2): % 6.60 11.88 0.36
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 14,502 15,046 9,800
Ratios to average net assets:
Net expenses after expense
reimbursement/recoupment(3)(4) % 0.71 0.73 0.82
Gross expense prior to expense
reimbursement/recoupment(3) % 0.68 0.73 0.90
Net investment income after expense % 3.31 3.70 0.05
reimbursement/recoupment(3)(4)
Portfolio turnover rate % 553 639 1,216*
- ------------------
(1) Commencement of operations
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(3) Annualized for periods less than one year.
(4) The Adviser has agreed to limit expenses, excluding interest, taxes,
brokerage and extraordinary expenses subject to possible reimbursement to
ING Investments within three years.
* Portfolio turnover was greater than expected during this period due to
active trading undertaken in response to market conditions that existed at
that time.
C-16
CLASS O
--------------------------------------------------
Financial Highlights Information is not presented because this Class did not
commence operations until the effective date of this Proxy Statement/Prospectus.
C-17
APPENDIX D
ING FUNDS
The following is a list of the ING Funds and the Classes of shares of
each Fund that are expected to be offered at or shortly after the
Reorganization:
FUND CLASSES OFFERED
---- ---------------
U.S. EQUITY
Balanced Fund A, B, C, I [AND O]
Convertible Fund A, B, C and Q
Corporate Leaders Trust Fund A
Disciplined LargeCap Fund A, B, C, I and Q
Equity and Bond Fund A, B, C and Q
Equity Income Fund A, B, C and I
Financial Services Fund A, B [, C] [AND O]
Growth Fund A, B, C and I
Index Plus LargeCap Fund A, B, C, I and R
Index Plus MidCap Fund A, B, C, I and R
Index Plus SmallCap Fund A, B, C, I and R
LargeCap Growth Fund A, B, C, I and Q
LargeCap Value Fund A, B, C and I
MagnaCap Fund A, B, C, I, M [AND Q]
MidCap Opportunities Fund A, B, C, I and Q
MidCap Value Fund A, B, C, I and Q
Real Estate Fund A, B, C, I [,O] and Q
SmallCap Opportunities Fund A, B, C, I and Q
SmallCap Value Fund A, B, C, I and Q
Small Company Fund A, B, C and I
Tax-Efficient Equity Fund A, B and C
Value Opportunity Fund A, B, C and I
GLOBAL/INTERNATIONAL EQUITY
Emerging Countries Fund A, B, C, M and Q
Foreign Fund A, B, C, I and Q
Global Equity Dividend Fund A, B, C, I and Q
Global Real Estate Fund A, B, C and Q
Global Science and Technology Fund A, B, C and I
International Fund A, B, C, I and Q
International Growth Fund A, B, C and I
International SmallCap Growth Fund A, B, C and Q
International Value Fund A, B, C, I and Q
Precious Metals Fund A
Russia Fund A
Worldwide Growth Fund A, B, C and Q
FIXED INCOME
Aeltus Money Market Fund A, B, C and I
Bond Fund A, B, C and I
Classic Money Market Fund A, B, C and I
GNMA Income Fund A, B, C, I, M and Q
D-1
Government Fund A, B, C and I
High Yield Opportunity Fund A, B, C, M and Q
High Yield Bond Fund A, B and C
Intermediate Bond Fund A, B, C, I and R
Lexington Money Market Trust A
Money Market Fund A, B and C
National Tax-Exempt Bond Fund A, B and C
Strategic Bond Fund A, B, C and Q
STRATEGIC ALLOCATION FUNDS
Strategic Allocation Growth Fund A, B, C and I
Strategic Allocation Balanced Fund A, B, C and I
Strategic Allocation Income Fund A, B, C and I
LOAN PARTICIPATION FUND
Senior Income Fund A, B, C and Q
D-2
APPENDIX E
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL AND RECORD OWNERS
The following tables provide information about the persons or entities
who, to the knowledge of each Fund, owned beneficially or of record 5% or more
of any class of that Fund's outstanding shares as of [____], 2004:
ING BOND FUND
PERCENTAGE OF
NAME AND ADDRESS OF PERCENT OF CLASS OF SHARES COMBINED FUND AFTER
SHAREHOLDER AND TYPE OF OWNERSHIP PERCENTAGE OF FUND THE REORGANIZATION*
- ------------------- -------------------------- ------------------ -------------------
ING INTERMEDIATE BOND FUND
PERCENTAGE OF
NAME AND ADDRESS OF PERCENT OF CLASS OF SHARES COMBINED FUND AFTER
SHAREHOLDER AND TYPE OF OWNERSHIP PERCENTAGE OF FUND THE REORGANIZATION*
- ------------------- -------------------------- ------------------ -------------------
- ---------------
* On a pro forma basis, assuming that the value of the shareholder's
interest in the Fund on the date of consummation of the Reorganization
is the same as on [_____], 2004.
E-1
PART B
ING FUNDS TRUST
Statement of Additional Information
June 16, 2004
Acquisition of the Assets and Liabilities of: By and in Exchange for Shares of:
ING Bond Fund ING Intermediate Bond Fund
(a series of ING Series Fund, Inc.) (a series of ING Funds Trust)
7337 East Doubletree Ranch Road 7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034 Scottsdale, Arizona 85258-2034
This Statement of Additional Information ("SAI") is available to the
shareholders of ING Bond Fund in connection with a proposed transaction whereby
all of the assets and known liabilities of the ING Bond Fund will be transferred
to ING Intermediate Bond Fund, a series of ING Funds Trust, in exchange for
shares of ING Intermediate Bond Fund.
This SAI of ING Funds Trust consists of (i) this cover page, (ii) the "ING
Intermediate Bond Fund Additional Information" presented on pages 1-4 of this
SAI, which presents certain information with respect Management of the
Intermediate Bond Fund and information pertaining to Class O shares and other
general information regarding the Fund, and (iii) the following documents, each
of which was filed electronically with the U.S. Securities and Exchange
Commission and is incorporated by reference herein:
1. The SAI for ING Intermediate Bond Fund, dated August 1, 2003, as filed
on July 29, 2003. The SAI for ING Bond Fund (Class A, B, C, and I),
dated August 1, 2003, as filed on July 29, 2003, and the SAI for ING
Bond Fund (Class O), dated March 1, 2004, as filed on February 13,
2004. Supplement dated January 8, 2004 to the SAI for ING Intermediate
Bond Fund, dated August 1, 2003, as filed on January 14, 2004.
2. The Financial Statements of the Intermediate Bond Fund are included in
the Classes A, B, C, and M Annual Report, dated March 31, 2004, as
filed on [____], and the Classes I and Q Annual Report, dated March 31,
2004, as filed on [_____]. The Financial Statements of the Bond Fund
are included in the Classes A, B, C, I and O Annual Report, dated March
31, 2004, as filed on [____].
3. The Financial Statements of the Intermediate Bond Fund are included in
the Classes A, B, C and M Fixed Income Funds Annual Report, dated March
31, 2004, as filed on [_____], and the Classes I and Q Annual Report,
dated March 31, 2004, as filed on [____]. The Financial Statements of
the ING Bond Fund are included in the Classes A, B, C, I and O Annual
Report, dated March 31, 2004, as filed on [___], 2004.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated June 16, 2004 relating to the Reorganization of
ING Bond Fund may be obtained, without charge, by writing to the ING Funds at
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034 or calling
1-800-992-0180. This Statement of Additional Information should be read in
conjunction with the Prospectus/Proxy Statement.
ING INTERMEDIATE BOND FUND
ADDITIONAL INFORMATION
TABLE OF CONTENTS
TRUSTEE OWNERSHIP OF SECURITIES....................................... 1
Share Ownership Policy.................................... 1
INDEPENDENT TRUSTEE OWNERSHIP OF SECURITIES........................... 2
Share Ownership Policy.................................... 2
SHAREHOLDER SERVICING ARRANGEMENTS - Class O.......................... 2
SHAREHOLDER ACCOUNTS AND SERVICES - Class O........................... 3
Systematic Investment................................................. 3
Shareholder Information............................................... 3
Automatic Cash Withdrawal Plan........................................ 3
Cross Investing....................................................... 4
Signature Guarantee................................................... 4
DISCLOSURE of the FUND'S PORTFOLIO SECURITIES......................... 4
ING INTERMEDIATE BOND FUND
ADDITIONAL INFORMATION
TRUSTEE OWNERSHIP OF SECURITIES
SHARE OWNERSHIP POLICY
In order to further align the interests of the Independent Trustees
with shareholders, it is the policy to own beneficially shares of one or more
ING Funds at all times. For this purpose, beneficial ownership of Fund shares
includes ownership of a variable annuity contract or a variable life insurance
policy whose proceeds are invested in a Fund.
Under this Policy, the initial value of investments in the ING Funds
that are beneficially owned by a Trustee must equal at least $50,000. Existing
Trustees shall have a reasonable amount of time from the date of adoption of
this Policy in order to satisfy the foregoing requirements. A new Trustee shall
satisfy the foregoing requirements within a reasonable amount of time of
becoming a Trustee. A decline in the value of any Fund investments will not
cause a Trustee to have to make any additional investments under this Policy
Set forth below is the dollar range of equity securities owned by each
Trustee as of December 31, 2004.
Aggregate Dollar Range of Equity
Securities in all Registered Investment
Companies Overseen by Trustee in
Name of Trustees Intermediate Bond Fund Family of Investment Companies
- --------------------- ---------------------- ---------------------------------------
Paul S. Doherty $0 Over $100,000
J. Michael Earley $0 $10,001 - $50,000
R. Barbara Gitenstein $0 $10,001 - $50,000
Walter H. May $0 Over $100,000
Jock Patton $0 Over $100,000
David W.C. Putnam $0 Over $100,000
Blaine E. Rieke $0 $50,001 - $100,000
Roger B. Vincent $10,001 - $50,000 $50,001 - $100,000
Richard A. Wedemeyer $0 $10,001 - $50,000
Trustees who are
"Interested Persons"
Thomas J. McInerney $0 $50,000 - $100,000
John G. Turner $0 Over $100,000
INDEPENDENT TRUSTEE OWNERSHIP OF SECURITIES
SHARE OWNERSHIP POLICY
As of December 31, 2004, none of the Independent Trustees or their
immediate family members owned any shares of the ING Funds' investment adviser
or principal underwriter or of any entity controlling, controlled by or under
common control with the investment adviser or principal underwriter of the ING
Funds (not including registered investment companies).
SHAREHOLDER SERVICING ARRANGEMENTS - CLASS O [TO BE CONFIRMED WITH DEFINITIVE
SAI FILING]
Class O shares are subject to a Shareholder Services Plan adopted
pursuant to Rule 12b 1 under the Investment Company Act of 1940 ("1940 Act").
Under the Class O Shareholder Services Plan, ING Funds Distributor (the
"Distributor") is paid a servicing fee at an annual rate of 0.25% of the average
daily net assets of the Class O shares of the Fund. The Service Fee may be used
by the Distributor to compensate ING DIRECT Securities Inc. for servicing and
maintaining shareholder accounts. The Distributor or its affiliates may make
payments to ING DIRECT Securities, Inc. in an amount up to 0.15% of the total
Fund assets held in customer accounts that designate such firm as the selling
broker dealer. The value of a shareholder's investment will be unaffected by
these payments. The Fund intends to operate the Shareholder Services Plan in
accordance with its terms and the National Association of Securities Dealers,
Inc. rules concerning sales charges.
If the Shareholder Services Plan is terminated in accordance with its
terms, the obligations of the Fund to make payments to the Distributor pursuant
to the Shareholder Services Plan will cease and the Fund will not be required to
make any payments for expenses incurred after the date the Plan terminates. [IF
THIS IS IN THE CLASS O SHAREHOLDER SERVICES PLAN - KEEP SENTENCE, IF NOT, DELETE
SENTENCE.]
The Shareholder Services Plan has been approved by the Board, including
all of the Trustees who are not interested persons of the Trust as defined in
the 1940 Act. The Plan must be renewed annually by the Board, including a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Rule 12b-1
Plan, cast in person at a meeting called for that purpose. It is also required
that the selection and nomination of such Trustees be committed to the Trustees
who are not interested persons. The Plan and any distribution or service
agreement may be terminated by a Fund at any time, without any penalty, by such
Trustees or by a vote of a majority of the Fund's outstanding shares on written
notice. The Distributor or any dealer or other firm may also terminate their
respective distribution or service agreement at any time upon written notice.
In approving each 12b-1 Plan for the respective classes of the
Intermediate Bond Fund, the Board has determined that differing distribution
arrangements in connection with the sale of new shares of the Fund are necessary
and appropriate to meet the needs of different potential investors. Therefore,
the Board, including those Trustees who are not interested persons of the Trust,
concluded that, in the exercise of their reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Rule
12b-1 Plans as tailored to each class of the Fund will benefit the Fund and its
respective shareholders.
The Shareholder Services Plan and any distribution or service agreement
may not be amended to increase materially the amount spent for shareholder
expenses as to the Fund without approval by a majority of the Fund's outstanding
shares, and all material amendments to a Plan or any distribution or service
agreement shall be approved by the Trustees who are not interested persons of
the Trust, cast in person at a meeting called for the purpose of voting on any
such amendment.
As of the date of this SAI, the Distributor has not incurred any
distribution expenses for the costs of promotion and distribution with respect
to class O shares.
SHAREHOLDER ACCOUNTS AND SERVICES - CLASS O [BASED ON DRAFT SAI. ]
SYSTEMATIC INVESTMENT
The Systematic Investment feature, using the EFT capability, allows you
to make automatic monthly investments in the Class O Shares of the Fund. On the
application, you may select the amount of money to be moved and the Fund in
which it will be invested. In order to elect EFT in respect to the Intermediate
Bond Fun, you must first have established an account, subject to the minimum
amount specified in the Proxy Statement/Prospectus. Thereafter, the minimum
monthly Systematic Investment is currently $50 for the Intermediate Bond Fund,
and we reserve the right to increase that amount. EFT transactions will be
effective 15 days following the receipt by the Transfer Agent of your
application. The Systematic Investment feature and EFT capability will be
terminated upon total redemption of your shares. Payment of redemption proceeds
will be held until a Systematic Investment has cleared, which may take up to 12
calendar days.
SHAREHOLDER INFORMATION
The Fund's transfer agent will maintain your account information.
Account statements will be sent at least quarterly. A Form 1099 generally will
also be sent each year by January 31. Annual and semiannual reports will also be
sent to shareholders. The transfer agent may charge you a fee for special
requests such as historical transcripts of your account and copies of cancelled
checks.
Consolidated statements reflecting current values, share balances and
year to date transactions generally will be sent to you each quarter. All
accounts identified by the same social security number and address will be
consolidated. For example, you could receive a consolidated statement showing
your individual and IRA accounts with the prior permission of the other
shareholders involved, you have the option of requesting that accounts
controlled by other shareholders be shown on one consolidated statement. For
example, information on your individual account, your IRA, your spouse's
individual account and your spouse's IRA may be shown on one consolidated
statement.
AUTOMATIC CASH WITHDRAWAL PLAN
The Automatic Cash Withdrawal Plan permits you to have payments of $100
or more automatically transferred from the Fund to your designated bank account
on a monthly basis. To enroll in this plan, you must have a minimum balance of
$10,000 in the Fund. Your automatic cash withdrawals will be processed on a
regular basis beginning on or about the first day of the month. There may be tax
consequences associated with these transactions. Please consult your tax
adviser.
CROSS INVESTING
Cross investing may only be made in an ING Fund that has been
previously established with the minimum investment. To request information or to
initiate a transaction under this feature, please call 1-866-289-3863.
Dividend Investing
You may elect to have dividend and/or capital gains distributions
automatically invested in the same class of another Fund. See Proxy
Statement/Prospectus for any applicable limitations.
Systematic Exchange
You may establish an automatic exchange of shares from one ING Fund to
another. The exchange will occur on or about the 15th day of each month. Because
this transaction is treated as an exchange, the policies related to the exchange
privilege apply. There may be tax consequences associated with these exchanges.
Please consult your tax adviser. See Proxy Statement/Prospectus for any
applicable limitations.
SIGNATURE GUARANTEE
A signature guarantee is verification of the authenticity of the
signature given by certain authorized institutions. The Trust requires a
medallion signature guarantee for redemption requests in amounts in excess of
$100,000. In addition, if you wish to have your redemption proceeds transferred
by wire to your designated bank account, paid to someone other than the
shareholder of record, or sent somewhere other than the shareholder address
of record, you must provide a medallion signature guarantee with your written
redemption instructions regardless of the amount of redemption.
A medallion signature guarantee may be obtained from a domestic bank or
trust company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (NYSE MSP). Signature guarantees from financial institutions which are
not participating in one of these programs will not be accepted. Please note
that signature guarantees are not provided by notaries public. The Trust
reserves the right to amend or discontinue this policy at any time and establish
other criteria for verifying the authenticity of any redemption request.
DISCLOSURE OF THE FUND'S PORTFOLIO SECURITIES
The Fund is required by the SEC to file its complete portfolio holdings
schedule with the SEC on a quarterly basis. This schedule is filed with the
Funds' annual and semi-annual reports on Form N-CSR for the second and fourth
fiscal quarters and on Form N-Q for the first and third quarters.
Other than in regulatory filings, the Fund may provide its complete
portfolio holdings schedule to third parties when the Fund has a legitimate
business purpose for doing so. Specifically, the Fund's disclosure of its
portfolio holdings may include disclosure: to the Funds' auditors for use in
providing audit opinions; to financial printers for the purpose of preparing
Fund regulatory filings; for the purpose of due diligence regarding a merger or
acquisition; to a new adviser or sub-adviser prior to the commencement of its
management of the Fund; to rating agencies for use in developing a rating for
the Fund; to consultants for use in providing asset allocation advice in
connection with an investment by affiliated funds-of-funds in the Fund; to
service providers, such as proxy voting services providers and
portfolio-management database providers in connection with their providing
services benefiting the Fund; and for purposes of effecting in-kind redemptions
of securities to facilitate orderly redemption of portfolio assets and minimal
impact on remaining Fund shareholders. The Fund is also contractually obligated
to provide portfolio holdings data on a weekly basis to certain third parties
that have financed the Fund's Class B shares. In all instances of such
disclosure, the receiving party is subject to confidentiality agreements with
the Fund that restricts the use of such information.
In addition to the disclosure discussed above, the Funds compile a Top
Ten List composed of their ten largest holdings. This information is produced
monthly and provided to third-parties, and is made available on ING's website
(www.ingfunds.com) on the tenth day of each month. The "Top Ten" holdings
information is as of the last day of the previous month. A third-party
requesting the Fund's Top Ten List must be in possession of the Fund's current
prospectus before the list will be provided. The Top Ten List is provided in
quarterly Fund descriptions that are included in the offering materials of
variable life insurance products and variable annuity contracts.
If a third-party requests specific, current information regarding the
Fund's portfolio holdings, the Funds will refer the third-party to the latest
Top Ten List, the latest regulatory filing or to ING's website.
PRO FORMA FINANCIAL STATEMENTS
Shown below are financial statements for each Fund and pro forma
financial statements for the combined Fund, assuming the Reorganization is
consummated, as of March 31, 2004. The first table presents Statements of Assets
and Liabilities for each Fund and estimated pro forma figures for the combined
Fund. The second table presents Statements of Operations for each Fund and
estimated pro forma figures for the combined Fund. The third table presents
Portfolio of Investments for each Fund and estimated pro forma figures for the
combined Fund. The tables are followed by the Notes to the Pro Forma Financial
Statements.
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 2004 (UNAUDITED)
ING PRO FORMA PRO FORMA
ING INTERMEDIATE COMBINED COMBINED
BOND BOND (PRE-MERGER PRO FORMA (POST MERGER
FUND FUND EXPENSE) ADJUSTMENTS EXPENSE)
------------- ------------- ---------- ------------- ----------- -------------
ASSETS:
Investments in securities at value+* $ 155,287,230 $ 465,506,434 $ 620,793,664 $ 620,793,664
Short-term investments** 1,501,176 - 1,501,176 1,501,176
Repurchase agreement 1,918,000 25,248,000 27,166,000 27,166,000
Cash 32,948 192,080 225,028 225,028
Cash collateral for futures 85,567 163,228 248,795 248,795
Cash collateral for securities loaned 24,215,914 81,796,222 106,012,136 106,012,136
Receivables:
Investment securities sold 8,322,465 32,547,982 40,870,447 40,870,447
Fund shares sold 52 1,351,408 1,351,460 1,351,460
Dividends and interest 1,090,230 3,010,389 4,100,619 4,100,619
Other 2,968 8,685 11,653 11,653
Prepaid expenses 20,619 34,755 55,374 55,374
Reimbursement due from manager 18,277 1,626 19,903 19,903
------------- ------------- ------------- ----------- -------------
Total assets 192,495,446 609,860,809 802,356,255 - 802,356,255
------------- ------------- ------------- ----------- -------------
LIABILITIES:
Payable for investment securities purchased 4,274,604 86,271,284 90,545,888 90,545,888
Payable for investment securities purchased
on a when-issued basis 22,421,006 18,118,366 40,539,372 40,539,372
Payable for fund shares redeemed - 491,330 491,330 491,330
Payable for income distribution - 996,064 996,064 996,064
Payable for futures variation margin 26,499 29,187 55,686 55,686
Payable upon return of securities loaned 24,215,914 81,796,222 106,012,136 106,012,136
Payable to affiliates 94,900 379,204 474,104 474,104
Payable for director/trustee fees 1,503 3,997 5,500 5,500
Other accrued expenses and liabilities 112,835 196,697 309,532 309,532
------------- ------------- ------------- ----------- -------------
Total liabilities 51,147,261 188,282,351 239,429,612 - 239,429,612
------------- ------------- ------------- ----------- -------------
NET ASSETS $ 141,348,185 $ 421,578,458 $ 562,926,643 $ - $ 562,926,643
============= ============= ============= =========== =============
NET ASSETS CONSIST OF:
Paid-in capital $ 136,256,299 $ 410,218,368 $ 546,474,667 $ 546,474,667
Undistributed net investment income
(accumulated net investment loss) (748,574) (418,859) (1,167,433) (1,167,433)
Accumulated net realized gain on investments 2,806,523 5,826,153 8,632,676 8,632,676
Net unrealized appreciation of investments 3,033,937 5,952,796 8,986,733 8,986,733
------------- ------------- ------------- ----------- -------------
NET ASSETS $ 141,348,185 $ 421,578,458 $ 562,926,643 $ - $ 562,926,643
============= ============= ============= =========== =============
+Securities on loan at value $ 23,739,309 $ 80,171,503 $ 103,910,812 $ 103,910,812
*Cost of investments in securities $ 152,179,633 $ 459,482,697 $ 611,662,330 $ 611,662,330
**Cost of short-term investments $ 1,499,961 $ - $ 1,499,961 $ 1,499,961
CLASS A:
Net Assets $ 83,022,105 $ 268,598,457 $ 351,620,562 $ 351,620,562
Shares outstanding 7,706,790 25,181,123 74,101 (B) 32,962,014 32,962,014
Net asset value and redemption price per share $ 10.77 $ 10.67 $ 10.67 $ 10.67
Maximum offering price per share (A) $ 11.31 $ 11.20 $ 11.20 $ 11.20
CLASS B:
Net Assets $ 3,530,928 $ 67,318,750 $ 70,849,678 $ 70,849,678
Shares outstanding 328,674 6,323,091 2,869 (B) 6,654,634 6,654,634
Net asset value and redemption price per share $ 10.74 $ 10.65 $ 10.65 $ 10.65
CLASS C:
Net Assets $ 2,305,596 $ 71,158,604 $ 73,464,200 $ 73,464,200
Shares outstanding 214,913 6,679,243 1,575 (B) 6,895,731 6,895,731
Net asset value and redemption price per share $ 10.73 $ 10.65 $ 10.65 $ 10.65
CLASS I:
Net Assets $ 30,103,386 $ 14,502,146 $ 44,605,532 $ 44,605,532
Shares outstanding $ 2,793,583 1,359,499 27,728 (B) 4,180,810 4,180,810
Net asset value and redemption price per share $ 10.78 $ 10.67 $ 10.67 $ 10.67
CLASS O:
Net Assets $ 22,386,170 n/a $ 22,386,170 $ 22,386,170
Shares outstanding 2,078,659 n/a 2,078,659 2,078,659
Net asset value and redemption price per share $ 10.77 n/a $ 10.77 $ 10.77
CLASS R:
Net Assets n/a $ 501 $ 501 $ 501
Shares outstanding n/a 47 47 47
Net asset value and redemption price per share n/a $ 10.67 $ 10.67 $ 10.67
(A) Maximum offering price is computed at 100/95.25 of net asset value. On
purchases of $50,000 or more, the offering price is reduced.
(B) Reflects new shares issued, net of retired shares of ING Bond Fund.
Calculation: Net Assets / NAV per share)
See Accompanying Notes to Financial Statements
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2004 (UNAUDITED)
ING INTERMEDIATE
BOND BOND PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
----------- ------------ ----------- ------------
INVESTMENT INCOME:
Dividends, net of foreign taxes* $ 52,424 $ 118,746 $ 171,170
Interest 5,721,402 13,499,162 19,220,564
Securities loaned income 24,707 70,215 94,922
----------- ------------ ----------- ------------
Total investment income 5,798,533 13,688,123 - 19,486,656
----------- ------------ ----------- ------------
EXPENSES:
Investment management fees 712,920 1,705,983 2,418,903
Distribution fees:
Class A 214,887 686,455 84,766(A) 986,108
Class B 38,923 661,232 700,155
Class C 25,688 648,879 674,567
Class O 36,524 - 36,524
Transfer agent fees 191,852 482,352 674,204
Administrative service fees 114,095 341,192 28,535(A) 483,822
Shareholder reporting expense 60,841 67,301 (30,421)(B) 97,722
Registration fees 61,178 63,452 (30,589)(B) 94,041
Professional fees 31,609 37,039 68,648
Custody and accounting expense 62,661 86,836 149,497
Directors'/Trustee fees 4,776 12,120 16,896
Miscellaneous expense 9,960 11,182 21,142
----------- ------------ ----------- ------------
Total expenses 1,565,914 4,804,023 52,292 6,922,229
----------- ------------ ----------- ------------
Less:
Net waived and reimbursed fees 186,297 117,404 315,519(A) 619,220
----------- ------------ ----------- ------------
Net expenses 1,379,617 4,686,619 (263,227) 5,803,009
----------- ------------ ----------- ------------
Net investment income 4,418,916 9,001,504 263,227 13,683,647
----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS, FOREIGN CURRENCIES AND FUTURES:
Net realized gain (loss) on:
Investments 3,652,587 8,796,613 12,449,200
Foreign currencies 6,359 11,870 18,229
Futures (254,502) (1,245,951) (1,500,453)
----------- ------------ ----------- ------------
Net realized gain 3,404,444 7,562,532 - 10,966,976
----------- ------------ ----------- ------------
Net change in unrealized appreciation or depreciation on:
Investments 955,220 2,773,659 3,728,879
Foreign currencies 176 (3,759) (3,583)
Futures (346,449) (168,064) (514,513)
----------- ------------ ----------- ------------
Net change in unrealized appreciation or depreciation 608,947 2,601,836 - 3,210,783
----------- ------------ ----------- ------------
Net realized and unrealized gain on investments, foreign currencies
and futures 4,013,391 10,164,368 - 14,177,759
----------- ------------ ----------- ------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 8,432,307 $ 19,165,872 $ 263,227 $ 27,861,406
=========== ============ =========== ============
*Foreign taxes $ - $ 4,467 $ - $ 4,467
(A) Reflects adjustment in expenses due to effects of new contractual rates.
(B) Reflects adjustment in expenses due to elimination of duplicative services.
See Accompanying Notes to Financial Statements
PORTFOLIOS OF INVESTMENTS AS OF MARCH 31, 2004 (UNAUDITED)
ING ING
ING INTERMEDIATE ING INTERMEDIATE
BOND FUND BOND FUND PRO FORMA BOND FUND BOND FUND PRO FORMA
Principal Principal Principal VALUE VALUE VALUE
- ----------- ------------ ----------- ---------- ------------ -----------
CORPORATE BONDS/NOTES: 30.6%
AEROSPACE/DEFENSE: 0.6%
$ 1,495,000 $ 4,405,000 $ 5,900,000 S Raytheon Co., 3.500%, due 05/15/06 $ 810,571 $ 2,388,338 $ 3,198,909
---------- ------------ -----------
810,571 2,388,338 3,198,909
---------- ------------ -----------
AIRLINES: 1.1%
323,000 914,000 1,237,000 L American Airlines, Inc., 6.817%, due 05/23/11 298,568 844,865 1,143,433
272,000 795,000 1,067,000 # American Airlines, Inc., 7.250%, due 02/05/09 267,920 783,075 1,050,995
514,000 1,332,000 1,846,000 American Airlines, Inc., 7.324%, due 10/15/09 440,620 1,141,841 1,582,461
202,606 459,241 661,847 L Continental Airlines, Inc., 6.545%, due 08/02/20 199,697 452,647 652,344
72,000 211,000 283,000 L, S Delta Air Lines, Inc., 7.779%, due 11/18/05 62,708 183,768 246,476
349,441 1,019,858 1,369,300 S United Airlines, Inc., 7.186%, due 04/01/11 318,657 930,014 1,248,671
---------- ------------ -----------
1,588,170 4,336,210 5,924,380
---------- ------------ -----------
AUTO MANUFACTURERS: 0.7%
473,000 1,386,000 1,859,000 Ford Motor Co., 6.375%, due 02/01/29 422,372 1,237,648 1,660,020
102,000 300,000 402,000 Ford Motor Co., 6.625%, due 10/01/28 94,034 276,570 370,604
424,000 1,263,000 1,687,000 L General Motors Corp., 8.375%, due 07/15/33 482,391 1,436,934 1,919,325
---------- ------------ -----------
998,797 2,951,152 3,949,949
---------- ------------ -----------
AUTO PARTS AND EQUIPMENT: 0.0%
- 45,000 45,000 Rexnord Corp., 10.125%, due 12/15/12 - 49,500 49,500
---------- ------------ -----------
- 49,500 49,500
---------- ------------ -----------
BANKS: 6.1%
194,000 566,000 760,000 #, @@ Banco Bradesco SA, 8.750%, due 10/24/13 200,790 585,810 786,600
558,000 1,629,000 2,187,000 @@ Banco Santander Chile SA, 7.375%, due 07/18/12 654,684 1,911,254 2,565,938
247,000 710,000 957,000 Bank of America Corp., 6.375%, due 02/15/08 277,585 797,916 1,075,501
150,000 450,000 600,000 @@ Bank of Ireland, 1.360%, due 12/29/49 124,049 372,146 496,195
- 344,000 344,000 # Bank of New York Institutional Capital Trust A,
7.780%, due 12/01/26 - 395,927 395,927
- 500,000 500,000 # BankAmerica Institutional Capital A, 8.070%, due
12/31/26 - 579,500 579,500
67,000 148,000 215,000 # BankAmerica Institutional Capital B, 7.700%, due
12/31/26 76,062 168,017 244,079
34,000 81,000 115,000 BankBoston Corp., 1.720%, due 06/08/28 32,751 78,024 110,775
33,000 74,000 107,000 Barnett Capital I, 8.060%, due 12/01/26 38,632 86,629 125,261
81,000 180,000 261,000 Barnett Capital II, 7.950%, due 12/01/26 94,848 210,774 305,622
85,000 140,000 225,000 BNY Capital I, 7.970%, due 12/31/26 98,079 161,542 259,621
218,000 646,000 864,000 @@ Central Bank of Nigeria, 0.000%, due 01/05/10 85,434 253,167 338,601
130,000 690,000 820,000 Chase Capital VI, 1.756%, due 08/01/28 125,832 667,876 793,708
852,000 2,498,000 3,350,000 # Dresdner Funding Trust I, 8.151%, due 06/30/31 1,009,986 2,961,202 3,971,188
33,000 74,000 107,000 FBS Capital I, 8.090%, due 11/15/26 39,181 87,861 127,042
178,000 397,000 575,000 First Union Institutional Capital II, 7.850%,
due 01/01/27 204,052 455,105 659,157
90,000 150,000 240,000 Fleet Capital Trust II, 7.920%, due 12/11/26 103,312 172,186 275,498
548,000 1,615,000 2,163,000 #, @@ HBOS PLC, 5.375%, due 11/29/49 568,996 1,676,877 2,245,873
85,000 205,000 290,000 @@ HSBC Bank PLC, 1.312%, due 07/29/49 70,806 170,767 241,573
500,000 1,460,000 1,960,000 @@ HSBC Bank PLC, 1.350%, due 06/29/49 401,762 1,173,146 1,574,908
250,000 740,000 990,000 @@ HSBC Bank PLC, 1.500%, due 06/29/49 211,772 626,844 838,616
360,000 1,040,000 1,400,000 @@ Lloyds TSB Bank PLC, 1.270%, due 08/29/49 301,641 871,409 1,173,050
373,000 1,097,000 1,470,000 M&T Bank Corp., 3.850%, due 04/01/13 377,113 1,109,096 1,486,209
540,000 1,110,000 1,650,000 Mellon Capital I, 7.720%, due 12/01/26 624,792 1,284,296 1,909,088
320,000 940,000 1,260,000 @@, C National Westminster Bank PLC, 1.250%, due
11/29/49 262,660 771,565 1,034,225
260,000 380,000 640,000 NB Capital Trust IV, 8.250%, due 04/15/27 307,056 448,774 755,830
- 300,000 300,000 NB Capital Trust, 7.830%, due 12/15/26 - 339,326 339,326
311,000 865,000 1,176,000 #, L Rabobank Capital Funding II, 5.260%, due
12/29/49 323,280 899,155 1,222,435
100,000 240,000 340,000 @@, C Societe Generale, 1.309%, due 11/29/49 80,969 194,325 275,294
160,000 940,000 1,100,000 @@, C Standard Chartered PLC, 1.187%, due 07/29/49 122,746 721,132 843,878
250,000 690,000 940,000 @@, C Standard Chartered PLC, 1.315%, due 01/29/49 190,994 527,143 718,137
450,000 1,140,000 1,590,000 @@, C Standard Chartered PLC, 1.400%, due 12/29/49 344,250 872,100 1,216,350
540,000 1,360,000 1,900,000 @@, C Standard Chartered PLC, 1.500%, due 11/29/49 399,713 1,006,686 1,406,399
- 177,000 177,000 # State Street Institutional Capital A, 7.940%,
due 12/30/26 - 205,927 205,927
138,000 234,000 372,000 Suntrust Capital I, 1.790%, due 05/15/27 135,675 230,058 365,733
91,000 234,000 325,000 L Wachovia Capital Trust II, 1.620%, due 01/15/27 86,456 222,316 308,772
280,000 822,000 1,102,000 Wells Fargo & Co., 3.120%, due 08/15/08 280,108 822,318 1,102,426
50,000 80,000 130,000 # Wells Fargo Capital A, 7.730%, due 12/01/26 57,911 92,657 150,568
- 174,000 174,000 Wells Fargo Capital I, 7.960%, due 12/15/26 - 205,134 205,134
180,000 540,000 720,000 @@ Westpac Banking Corp., 1.338%, due 09/29/49 147,441 442,323 589,764
294,000 872,000 1,166,000 # Westpac Capital Trust IV, 5.256%, due 12/29/49 294,000 872,000 1,166,000
---------- ------------ -----------
8,755,418 25,730,310 34,485,728
---------- ------------ -----------
BEVERAGES: 0.4%
102,000 246,000 348,000 L Constellation Brands, Inc., 8.000%, due 02/15/08 115,515 278,595 394,110
418,000 1,223,000 1,641,000 # Miller Brewing Co., 4.250%, due 08/15/08 433,046 1,267,022 1,700,068
---------- ------------ -----------
548,561 1,545,617 2,094,178
---------- ------------ -----------
CHEMICALS: 0.2%
100,000 294,000 394,000 L Dow Chemical Co., 5.750%, due 11/15/09 109,652 322,377 432,029
97,000 287,000 384,000 #, S, @@ Sociedad Quimica y Minera de Chile SA, 7.700%,
due 09/15/06 108,345 320,566 428,911
---------- ------------ -----------
217,997 642,943 860,940
---------- ------------ -----------
DIVERSIFIED FINANCIAL SERVICES: 3.6%
- 460,000 460,000 S Bear Stearns Cos., Inc., 3.000%, due 03/30/06 - 469,349 469,349
352,000 1,030,000 1,382,000 L Boeing Capital Corp., 7.375%, due 09/27/10 418,268 1,223,910 1,642,178
550,000 1,465,000 2,015,000 #, @@ Brazilian Merchant Voucher Receivables Ltd.,
5.911%, due 06/15/11 547,250 1,457,675 2,004,925
- 455,000 455,000 L, S CIT Group, Inc., 6.500%, due 02/07/06 - 492,345 492,345
151,000 417,000 568,000 CitiCorp Capital I, 7.933%, due 02/15/27 175,022 483,338 658,360
56,000 441,000 497,000 Citigroup Capital II, 7.750%, due 12/01/36 64,773 510,087 574,860
65,000 85,000 150,000 # Corestates Capital Trust I, 8.000%, due 12/15/26 76,503 100,043 176,546
277,000 816,000 1,093,000 Countrywide Home Loans, Inc., 4.000%, due
03/22/11 274,542 808,760 1,083,302
10,000 15,000 25,000 @@ Eircom Funding, 8.250%, due 08/15/13 11,200 16,800 28,000
85,000 229,000 314,000 #, L Farmers Exchange Capital, 7.050%, due 07/15/28 86,437 232,873 319,310
315,000 1,175,000 1,490,000 # Farmers Exchange Capital, 7.200%, due 07/15/48 313,519 1,169,475 1,482,994
154,000 454,000 608,000 General Motors Acceptance Corp., 8.000%, due
11/01/31 170,958 503,994 674,952
- 745,000 745,000 S Goldman Sachs Group, Inc., 1.290%, due 08/18/06 - 747,085 747,085
2,231 4,718 6,949 # Hollinger Participation Trust, 12.125%, due
11/15/10 2,585 5,467 8,052
62,000 600,000 662,000 JPM Capital Trust I, 7.540%, due 01/15/27 69,385 671,469 740,854
601,000 1,767,000 2,368,000 # Mangrove Bay Pass-Through Trust, 6.102%, due
07/15/33 627,793 1,845,773 2,473,566
- 743,000 743,000 S Merrill Lynch & Co., Inc., 1.370%, due 06/06/06 - 745,322 745,322
- 408,000 408,000 L, S Merrill Lynch & Co., Inc., 6.150%, due 01/26/06 - 441,184 441,184
- 743,000 743,000 S Morgan Stanley Group, Inc., 1.390%, due 03/27/06 - 745,773 745,773
305,000 898,000 1,203,000 Morgan Stanley, 4.750%, due 04/01/14 300,588 885,010 1,185,598
141,000 361,000 502,000 Nexstar Finance LLC/Nexstar Finance, Inc.,
12.000%, due 04/01/08 159,330 407,930 567,260
310,000 680,000 990,000 #, @@ PF Export Receivables Master Trust, 3.748%, due
06/01/13 309,462 678,820 988,282
393,469 1,154,545 1,548,015 #, @@ PF Export Receivables Master Trust, 6.436%, due
06/01/15 405,074 1,188,599 1,593,673
5,000 10,000 15,000 Universal City Development Partners, 11.750%,
due 04/01/10 5,844 11,688 17,532
150,000 315,000 465,000 # Wachovia Capital Trust V, 7.965%, due 06/01/27 179,221 376,363 555,584
--------- ------------ -----------
4,197,754 16,219,132 20,416,886
--------- ------------ -----------
ELECTRIC: 4.8%
269,000 788,000 1,057,000 #, L, @@ AES Gener SA, 7.500%, due 03/25/14 275,187 806,124 1,081,311
737,418 2,155,910 2,893,328 # Allegheny Energy Supply Statutory Trust 2001,
10.250%, due 11/15/07 807,473 2,360,721 3,168,194
77,830 227,543 305,373 # Allegheny Energy Supply Statutory Trust 2001,
13.000%, due 11/15/07 80,165 234,369 314,534
180,000 360,000 540,000 Consumers Energy Co., 4.250%, due 04/15/08 185,568 371,137 556,705
258,000 667,000 925,000 Consumers Energy Co., 4.800%, due 02/17/09 269,926 697,832 967,758
216,000 633,000 849,000 L, @@ Empresa Nacional de Electricidad SA/Chile,
7.750%, due 07/15/08 238,904 700,123 939,027
859,000 2,517,000 3,376,000 @@ Empresa Nacional de Electricidad SA/Chile,
8.350%, due 08/01/13 971,121 2,845,531 3,816,652
126,000 366,000 492,000 Enserch Capital I, 2.505%, due 07/01/28 112,094 325,605 437,699
384,000 1,085,000 1,469,000 Enterprise Capital Trust II, 2.330%, due 06/30/28 354,891 1,002,752 1,357,643
492,000 1,293,000 1,785,000 FirstEnergy Corp., 7.375%, due 11/15/31 550,488 1,446,709 1,997,197
770,000 2,174,000 2,944,000 # Indianapolis Power & Light, 6.600%, due 01/01/34 821,109 2,318,299 3,139,408
540,000 1,585,000 2,125,000 Ohio Power Co., 6.375%, due 07/15/33 568,642 1,669,070 2,237,712
911,000 2,676,000 3,587,000 # PG&E Corp., 6.875%, due 07/15/08 998,684 2,933,565 3,932,249
75,956 172,866 248,822 #, L, S Power Contract Financing LLC, 5.200%, due 02/01/06 77,598 176,601 254,199
539,000 1,630,000 2,169,000 # Power Contract Financing LLC, 6.256%, due 02/01/10 575,427 1,740,160 2,315,587
83,850 236,701 320,551 PPL Montana LLC, 8.903%, due 07/02/20 92,287 260,519 352,806
---------------------------------
6,979,564 19,889,117 26,868,681
---------------------------------
ENTERTAINMENT: 0.0%
56,000 163,000 219,000 L Cinemark USA, Inc., 9.000%, due 02/01/13 61,180 178,077 239,257
---------------------------------
61,180 178,077 239,257
---------------------------------
ENVIRONMENTAL CONTROL: 0.2%
314,000 799,000 1,113,000 S Allied Waste North America, 7.625%, due 01/01/06 335,980 854,930 1,190,910
---------------------------------
335,980 854,930 1,190,910
---------------------------------
FOOD: 1.2%
191,000 562,000 753,000 Kroger Co., 7.250%, due 06/01/09 221,602 652,044 873,646
338,000 992,000 1,330,000 Safeway, Inc., 4.800%, due 07/16/07 358,108 1,051,015 1,409,123
233,000 679,000 912,000 L Supervalu, Inc., 7.875%, due 08/01/09 277,078 807,451 1,084,529
447,000 1,314,000 1,761,000 S Tyson Foods, Inc., 7.250%, due 10/01/06 488,673 1,436,503 1,925,176
329,000 964,000 1,293,000 L, S Tyson Foods, Inc., 8.250%, due 10/01/11 392,796 1,150,927 1,543,723
---------------------------------
1,738,257 5,097,940 6,836,197
---------------------------------
FOREST PRODUCTS AND PAPER: 0.5%
260,000 665,000 925,000 S, @@ Abitibi-Consolidated, Inc., 6.950%, due 12/15/06 271,794 695,166 966,960
145,000 374,000 519,000 @@ Abitibi-Consolidated, Inc., 6.950%, due 10/15/07 149,640 385,968 535,608
229,000 581,000 810,000 Georgia-Pacific Corp., 8.875%, due 02/01/10 268,502 681,223 949,725
60,000 60,000 L Georgia-Pacific Corp., 9.375%, due 02/01/13 - 70,950 70,950
---------------------------------
689,936 1,833,307 2,523,243
---------------------------------
HOME BUILDERS: 0.1%
77,000 229,000 306,000 Technical Olympic USA, Inc., 9.000%, due 07/01/10 84,123 250,182 334,305
28,000 73,000 101,000 Technical Olympic USA, Inc., 10.375%, due 07/01/12 31,710 82,672 114,382
---------------------------------
115,833 332,854 448,687
---------------------------------
INSURANCE: 1.0%
387,000 949,000 1,336,000 #, L Farmers Insurance Exchange, 8.625%, due 05/01/24 456,706 1,119,934 1,576,640
265,000 778,000 1,043,000 # Monumental Global Funding II, 3.850%, due 03/03/08 273,364 802,556 1,075,920
638,000 1,871,000 2,509,000 #, L Zurich Capital Trust I, 8.376%, due 06/01/37 741,491 2,174,499 2,915,990
---------------------------------
1,471,561 4,096,989 5,568,550
---------------------------------
LEISURE TIME: 0.2%
190,000 558,000 748,000 L, @@ Royal Caribbean Cruises Ltd., 7.000%, due 10/15/07 206,150 605,430 811,580
---------------------------------
206,150 605,430 811,580
---------------------------------
LODGING: 0.7%
303,000 874,000 1,177,000 S Caesars Entertainment, Inc., 9.375%, due 02/15/07 342,390 987,620 1,330,010
157,000 460,000 617,000 Hilton Hotels Corp., 7.625%, due 05/15/08 177,017 518,650 695,667
204,000 597,000 801,000 Mandalay Resort Group, 10.250%, due 08/01/07 241,230 705,952 947,182
121,000 357,000 478,000 L MGM Mirage, 6.000%, due 10/01/09 127,655 376,635 504,290
173,000 509,000 682,000 # Station Casinos, Inc., 6.000%, due 04/01/12 179,920 529,360 709,280
---------------------------------
1,068,212 3,118,217 4,186,429
---------------------------------
MEDIA: 0.7%
118,000 345,000 463,000 L CSC Holdings, Inc., 7.875%, due 12/15/07 127,440 372,600 500,040
112,000 286,000 398,000 DirecTV Holdings LLC, 8.375%, due 03/15/13 128,240 327,470 455,710
122,000 359,000 481,000 # Echostar DBS Corp., 4.405%, due 10/01/08 127,490 375,155 502,645
111,000 311,000 422,000 # Echostar DBS Corp., 5.750%, due 10/01/08 115,162 322,662 437,824
197,000 576,000 773,000 Historic TW, Inc., 6.950%, due 01/15/28 214,266 626,485 840,751
114,000 291,000 405,000 Spanish Broadcasting System, 9.625%, due 11/01/09 121,268 309,551 430,819
139,000 379,000 518,000 L Time Warner, Inc., 6.875%, due 05/01/12 159,319 434,403 593,722
95,000 251,000 346,000 Young Broadcasting, Inc., 8.500%, due 12/15/08 103,075 272,335 375,410
---------------------------------
1,096,260 3,040,661 4,136,921
---------------------------------
MINING: 0.8%
150,000 441,000 591,000 #, @@ Corp Nacional del Cobre de Chile - CODELCO,
6.375%, due 11/30/12 167,886 493,586 661,472
482,000 1,412,000 1,894,000 L, @@ Vale Overseas Ltd., 8.250%, due 01/17/34 443,440 1,299,040 1,742,480
418,000 1,216,000 1,634,000 S, @@ Vale Overseas Ltd., 8.625%, due 03/08/07 468,160 1,361,920 1,830,080
---------------------------------
1,079,486 3,154,546 4,234,032
---------------------------------
MISCELLANEOUS MANUFACTURING: 0.3%
464,000 1,360,000 1,824,000 L General Electric Co., 5.000%, due 02/01/13 486,711 1,426,567 1,913,278
- 5,000 5,000 L SPX Corp., 7.500%, due 01/01/13 - 5,425 5,425
---------------------------------
486,711 1,431,992 1,918,703
---------------------------------
MULTI-NATIONAL: 0.6%
452,000 1,341,000 1,793,000 @@ Corp Andina de Fomento CAF, 5.200%, due 05/21/13 464,000 1,376,601 1,840,601
403,000 1,170,000 1,573,000 S, @@ Corp Andina de Fomento CAF, 6.875%, due 03/15/12 463,537 1,345,754 1,809,291
---------------------------------
927,537 2,722,355 3,649,892
---------------------------------
OIL AND GAS: 2.4%
261,000 783,000 1,044,000 Amerada Hess Corp., 6.650%, due 08/15/11 288,812 866,437 1,155,249
367,000 1,093,000 1,460,000 Amerada Hess Corp., 7.875%, due 10/01/29 416,654 1,240,880 1,657,534
184,000 537,000 721,000 Chesapeake Energy Corp., 9.000%, due 08/15/12 213,670 623,591 837,261
349,000 1,022,000 1,371,000 #, L, @@ Empresa Nacional de Petroleo ENAP, 4.875%,
due 03/15/14 345,442 1,011,582 1,357,024
5,000 15,000 20,000 Energy Partners Ltd., 8.750%, due 08/01/10 5,375 16,125 21,500
1,059,000 3,090,000 4,149,000 @@ Husky Oil Co., 8.900%, due 08/15/28 1,253,046 3,656,196 4,909,242
328,000 981,000 1,309,000 Pemex Project Funding Master Trust, 7.375%,
due 12/15/14 366,540 1,096,267 1,462,807
224,000 660,000 884,000 Valero Energy Corp., 6.875%, due 04/15/12 258,246 760,905 1,019,151
216,000 635,000 851,000 Valero Energy Corp., 8.750%, due 06/15/30 286,684 842,797 1,129,481
---------------------------------
3,434,469 10,114,780 13,549,249
---------------------------------
PACKAGING AND CONTAINERS:0.8%
143,000 363,000 506,000 @@ Crown European Holdings SA, 10.875%, due 03/01/13 167,310 424,710 592,020
- 50,000 50,000 Greif, Inc., 8.875%, due 08/01/12 - 54,750 54,750
345,000 1,001,000 1,346,000 L Owens-Brockway, 8.875%, due 02/15/09 374,325 1,086,085 1,460,410
137,000 497,000 634,000 # Sealed Air Corp., 5.375%, due 04/15/08 146,810 532,589 679,399
435,000 1,182,000 1,617,000 # Sealed Air Corp., 6.950%, due 05/15/09 501,675 1,363,171 1,864,846
---------------------------------
1,190,120 3,461,305 4,651,425
---------------------------------
PIPELINES: 0.3%
- 18,000 18,000 GulfTerra Energy Partners LP/GulfTerra Energy
Finance Corp., 10.625%, due 12/01/12 - 22,680 22,680
25,000 45,000 70,000 Southern Natural Gas Co., 7.350%, due 02/15/31 24,125 43,425 67,550
- 20,000 20,000 Transcontinental Gas Pipe LN, 8.875%, due 07/15/12 - 23,800 23,800
409,000 1,174,000 1,583,000 #, S Williams Gas Pipelines Central, Inc., 7.375%,
due 11/15/06 452,456 1,298,738 1,751,194
---------------------------------
476,581 1,388,643 1,865,224
---------------------------------
REAL ESTATE: 0.6%
361,000 1,063,000 1,424,000 EOP Operating LP, 7.750%, due 11/15/07 420,703 1,238,800 1,659,503
50,000 200,000 250,000 Liberty Property LP, 6.375%, due 08/15/12 55,828 223,312 279,140
- 163,000 163,000 S Liberty Property LP, 6.950%, due 12/01/06 - 182,044 182,044
329,000 811,000 1,140,000 Liberty Property LP, 7.750%, due 04/15/09 392,279 966,984 1,359,263
------------------------------------
868,810 2,611,140 3,479,950
------------------------------------
REITS: 0.6%
258,000 712,000 970,000 Simon Property Group LP, 4.875%, due 03/18/10 274,151 756,571 1,030,722
499,000 1,515,000 2,014,000 L Simon Property Group LP, 6.375%, due 11/15/07 561,356 1,704,317 2,265,673
------------------------------------
835,507 2,460,888 3,296,395
------------------------------------
RETAIL: 0.0%
14,000 25,000 39,000 L Dollar General Corp., 8.625%, due 06/15/10 16,660 29,750 46,410
------------------------------------
16,660 29,750 46,410
------------------------------------
SAVINGS AND LOANS: 0.4%
165,000 464,000 629,000 Great Western Financial, 8.206%, due 02/01/27 195,410 549,517 744,927
420,000 1,230,000 1,650,000 Washington Mutual, Inc., 4.375%, due 01/15/08 439,439 1,286,928 1,726,367
------------------------------------
634,849 1,836,445 2,471,294
------------------------------------
TELECOMMUNICATIONS: 1.7%
55,000 159,000 214,000 L American Tower Corp., 9.375%, due 02/01/09 58,300 168,540 226,840
57,000 141,000 198,000 #, L American Towers, Inc., 7.250%, due 12/01/11 58,567 144,877 203,444
460,000 1,354,000 1,814,000 AT&T Corp., 8.050%, due 11/15/11 538,693 1,585,631 2,124,324
122,000 359,000 481,000 L Nextel Communications, Inc., 7.375%, due 08/01/15 132,675 390,413 523,088
109,000 288,000 397,000 L Nextel Communications, Inc., 9.375%, due 11/15/09 119,083 314,640 433,723
48,000 168,000 216,000 #,L, S Qwest Corp., 9.125%, due 03/15/12 54,720 191,520 246,240
122,000 357,000 479,000 #, L Qwest Services Corp., 13.500%, due 12/15/10 142,435 416,797 559,232
373,000 1,091,000 1,464,000 S Sprint Capital Corp., 6.000%, due 01/15/07 405,564 1,186,248 1,591,812
301,000 884,000 1,185,000 Sprint Capital Corp., 6.875%, due 11/15/28 313,716 921,346 1,235,062
303,000 962,000 1,265,000 L Verizon Florida, Inc., 6.125%, due 01/15/13 331,026 1,050,980 1,382,006
280,000 740,000 1,020,000 Verizon Virginia, Inc., 4.625%, due 03/15/13 278,292 735,485 1,013,777
------------------------------------
2,433,071 7,106,477 9,539,548
------------------------------------
Total Corporate Bonds/Notes (Cost $41,732,444,
$125,965,712, $167,698,156) 43,264,002 129,229,045 172,493,047
------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 26.7%
AGENCY: 0.3%
- 1,364,144 1,364,144 Vendee Mortgage Trust, 5.845%, due 09/15/23 - 1,402,754 1,402,754
------------------------------------
- 1,402,754 1,402,754
------------------------------------
AUTOMOBILE: 1.0%
1,000,000 1,500,000 2,500,000 Capital Auto Receivables Asset Trust, 2.750%,
due 04/16/07 1,017,636 1,526,454 2,544,090
- 200,000 200,000 Capital One Auto Finance Trust, 3.180%, due 09/15/10 - 204,090 204,090
- 1,300,000 1,300,000 Household Automotive Trust, 2.310%, due 04/17/08 - 1,312,501 1,312,501
460,000 910,000 1,370,000 Nissan Auto Receivables Owner Trust, 2.610%,
due 07/15/08 466,178 922,221 1,388,399
- 200,000 200,000 USAA Auto Owner Trust, 2.040%, due 02/16/10 - 200,287 200,287
------------------------------------
1,483,814 4,165,553 5,649,367
------------------------------------
COMMERCIAL: 5.1%
780,000 1,170,000 1,950,000 Chase Manhattan Bank-First Union National Bank,
7.439%, due 08/15/31 923,155 1,384,733 2,307,888
460,000 950,000 1,410,000 CS First Boston Mortgage Securities Corp., 3.382%,
due 05/15/38 453,188 935,932 1,389,120
385,338 688,792 1,074,131 CS First Boston Mortgage Securities Corp., 3.727%,
due 03/15/35 390,933 698,792 1,089,725
- 688,000 688,000 DLJ Commercial Mortgage Corp., 7.300%, due 06/10/32 - 810,469 810,469
500,000 - 500,000 First Union National Bank-Bank of America
Commercial Mortgage Trust, 6.136%, due 03/15/33 562,333 - 562,333
- 1,050,000 1,050,000 GE Capital Commercial Mortgage Corp., 5.994%,
due 12/10/35 - 1,170,457 1,170,457
700,000 - 700,000 GE Capital Commercial Mortgage Corp., 6.531%,
due 05/15/33 806,423 - 806,423
310,000 645,000 955,000 JP Morgan Chase Commercial Mortgage Securities
Corp., 5.161%, due 10/12/37 329,319 685,195 1,014,514
650,000 1,350,000 2,000,000 JP Morgan Chase Commercial Mortgage Securities
Corp., 6.162%, due 05/12/34 736,257 1,529,148 2,265,405
1,180,000 1,780,000 2,960,000 JP Morgan Chase Commercial Mortgage Securities
Corp., 6.244%, due 04/15/35 1,318,452 1,988,852 3,307,304
890,000 1,330,000 2,220,000 LB-UBS Commercial Mortgage Trust, 4.659%,
due 12/15/26 930,935 1,391,172 2,322,107
550,000 1,040,000 1,590,000 LB-UBS Commercial Mortgage Trust, 6.226%,
due 03/15/26 619,584 1,171,576 1,791,160
400,000 - 400,000 LB-UBS Commercial Mortgage Trust, 7.370%,
due 08/15/26 476,883 - 476,883
- 400,000 400,000 Morgan Stanley Capital I, 7.020%, due 03/15/32 - 465,725 465,725
1,180,000 1,780,000 2,960,000 Mortgage Capital Funding, Inc., 6.663%,
due 03/18/30 1,328,179 2,003,525 3,331,704
229,901 3,956,205 4,186,105 Prudential Commercial Mortgage Trust, 3.669%,
due 02/11/36 232,744 4,005,133 4,237,877
- 400,000 400,000 Salomon Brothers Mortgage Securities VII, 7.520%,
due 12/18/09 - 474,469 474,469
- 750,000 750,000 Wachovia Bank Commercial Mortgage Trust, 3.989%,
due 06/15/35 - 733,773 733,773
---------------------------------
9,108,385 19,448,951 28,557,336
---------------------------------
CREDIT CARD: 0.8%
- 560,000 560,000 Bank One Issuance Trust, 4.540%, due 09/15/10 - 585,097 585,097
- 530,000 530,000 Capital One Master Trust, 4.900%, due 03/15/10 - 569,420 569,420
950,000 1,335,000 2,285,000 Citibank Credit Card Issuance Trust, 5.650%,
due 06/16/08 1,025,040 1,440,451 2,465,491
370,000 650,000 1,020,000 L Fleet Credit Card Master Trust II, 2.400%,
due 07/15/08 374,385 657,704 1,032,089
---------------------------------
1,399,425 3,252,672 4,652,097
---------------------------------
HOME EQUITY: 3.9%
- 968,160 968,160 L Ameriquest Mortgage Securities, Inc., 1.390%,
due 02/25/34 - 970,373 970,373
- 1,500,000 1,500,000 Argent Securities, Inc., 1.410%, due 03/25/34 - 1,502,520 1,502,520
275,000 800,000 1,075,000 XX Asset Backed Funding Certificates, 1.380%,
due 11/25/33 275,000 800,000 1,075,000
974,815 - 974,815 XX Bayview Financial Acquisition Trust, 1.600%,
due 12/28/34 976,605 - 976,605
1,094,390 523,530 1,617,919 Centex Home Equity, 1.370%, due 01/25/34 1,096,568 524,572 1,621,140
- 2,532,669 2,532,669 EQCC Trust, 1.390%, due 11/25/31 - 2,540,960 2,540,960
70,000 975,000 1,045,000 Equity One ABS, Inc., 2.976%, due 09/25/33 70,931 987,967 1,058,898
715,613 - 715,613 Merrill Lynch Mortgage Investors, Inc., 1.450%,
due 07/25/34 718,342 - 718,342
- 822,398 822,398 New Century Home Equity Loan Trust, 1.370%,
due 07/25/30 - 823,975 823,975
- 1,395,018 1,395,018 New Century Home Equity Loan Trust, 1.380%,
due 06/20/31 - 1,397,980 1,397,980
- 622,499 622,499 Residential Asset Securities Corp., 1.320%,
due 09/25/31 - 623,710 623,710
1,280,000 1,939,000 3,219,000 Residential Asset Securities Corp., 1.370%,
due 02/25/34 1,280,799 1,940,211 3,221,010
- 1,000,976 1,000,976 Residential Asset Securities Corp., 1.390%,
due 06/25/32 - 1,004,697 1,004,697
953,470 - 953,470 Residential Asset Securities Corp., 1.400%,
due 12/25/33 956,644 - 956,644
274,000 488,000 762,000 Residential Funding Mortgage Securities II,
3.450%, due 01/25/16 279,948 498,593 778,541
800,000 1,500,000 2,300,000 Saxon Asset Securities Trust, 3.960%, due 06/25/33 814,112 1,526,460 2,340,572
---------------------------------
6,468,949 15,142,018 21,610,967
---------------------------------
OTHER ASSET BACKED SECURITIES: 0.2%
346,103 - 346,103 XX Amortizing Residential Collateral Trust, 1.340%,
due 05/25/32 345,887 - 345,887
250,000 - 250,000 Chase Funding Mortgage Loan Asset-Backed
Certificates, 1.390%, due 07/25/33 250,995 - 250,995
25,000 - 25,000 Chase Funding Mortgage Loan Asset-Backed
Certificates, 2.734%, due 09/25/24 25,165 - 25,165
15,000 - 15,000 Chase Funding Mortgage Loan Asset-Backed
Certificates, 4.045%, due 05/25/33 15,291 - 15,291
- 72,194 72,194 #, S, @@ Garanti Trade Payment Rights Master Trust,
10.810%, due 06/15/04 - 72,662 72,662
252,201 - 252,201 Residential Asset Mortgage Products, Inc.,
1.400%, due 06/25/33 252,292 - 252,292
355,000 - 355,000 Residential Asset Mortgage Products, Inc.,
2.140%, due 02/25/30 346,792 - 346,792
---------------------------------
1,236,422 72,662 1,309,084
---------------------------------
WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATIONS:
13.3%
- 827,146 827,146 ABN Amro Mortgage Corp., 1.590%, due 03/25/18 - 829,096 829,096
- 419,182 419,182 ABN Amro Mortgage Corp., 6.500%, due 02/25/32 - 426,129 426,129
913,070 1,393,633 2,306,703 Bank of America Alternative Loan Trust, 1.540%,
due 12/25/33 912,598 1,392,912 2,305,510
690,725 1,381,449 2,072,174 Bank of America Alternative Loan Trust, 5.500%,
due 02/25/33 710,735 1,421,470 2,132,205
1,060,438 - 1,060,438 Bank of America Mortgage Securities, 1.540%,
due 12/25/33 1,061,734 - 1,061,734
396,772 495,965 892,737 Bank of America Mortgage Securities, 4.413%,
due 03/25/33 405,284 506,605 911,889
- 134,512 134,512 Bank of America Mortgage Securities, 5.242%,
due 02/25/32 - 136,145 136,145
373,041 891,422 1,264,463 Bank of America Mortgage Securities, 5.500%,
due 11/25/33 386,318 923,149 1,309,467
- 487,664 487,664 Bank of America Mortgage Securities, 6.500%,
due 01/25/32 - 494,805 494,805
- 243,832 243,832 Bank of America Mortgage Securities, 6.500%,
due 01/25/32 - 247,403 247,403
1,261,745 4,546,133 5,807,878 Bear Stearns Asset Backed Securities, Inc.,
5.625%, due 11/25/32 1,279,903 4,611,558 5,891,461
- 847,561 847,561 CitiCorp Mortgage Securities, Inc., 1.540%,
due 03/25/33 - 848,144 848,144
623,869 - 623,869 CitiCorp Mortgage Securities, Inc., 1.590%,
due 10/25/33 623,049 - 623,049
- 54,186 54,186 CitiCorp Mortgage Securities, Inc., 6.250%,
due 11/25/16 - 56,311 56,311
388,213 - 388,213 Countrywide Alternative Loan Trust, 1.490%,
due 07/25/18 388,561 - 388,561
- 3,132,485 3,132,485 Countrywide Alternative Loan Trust, 1.640%,
due 04/25/33 - 3,138,915 3,138,915
- 5,146,817 5,146,817 Countrywide Home Loans, Inc., 1.490%,
due 08/25/18 - 5,142,241 5,142,241
- 1,158,408 1,158,408 Countrywide Home Loans, Inc., 1.590%,
due 04/25/18 - 1,161,941 1,161,941
1,540,000 3,610,000 5,150,000 CS First Boston Mortgage Securities Corp.,
4.187%, due 10/25/33 1,576,844 3,696,368 5,273,212
982,000 3,000,000 3,982,000 GMAC Mortgage Corp. Loan Trust, 5.500%,
due 01/25/34 1,029,955 3,146,503 4,176,458
- 158,667 158,667 GSR Mortgage Loan Trust, 1.790%, due 07/25/32 - 158,889 158,889
839,853 1,679,706 2,519,559 MASTR Alternative Loans Trust, 6.500%,
due 05/25/33 875,701 1,751,401 2,627,102
514,312 - 514,312 MASTR Asset Securitization Trust, 1.540%,
due 11/25/33 512,647 - 512,647
322,078 721,375 1,043,452 MASTR Asset Securitization Trust, 8.000%,
due 06/25/33 338,497 758,150 1,096,647
1,454,832 - 1,454,832 MLCC Mortgage Investors, Inc., 1.410%,
due 01/25/29 1,456,784 - 1,456,784
- 4,000,821 4,000,821 MLCC Mortgage Investors, Inc., 1.410%,
due 10/25/33 - 4,003,164 4,003,164
804,086 - 804,086 Residential Accredit Loans, Inc., 1.540%,
due 03/25/18 802,675 - 802,675
- 307,097 307,097 Residential Accredit Loans, Inc., 7.750%,
due 05/25/27 - 306,900 306,900
- 8,201,322 8,201,322 Residential Funding Mortgage Sec I, 1.540%,
due 11/25/18 - 8,216,952 8,216,952
- 950,556 950,556 Sequoia Mortgage Trust, 1.401%, due 11/20/33 - 949,413 949,413
1,200,000 2,100,000 3,300,000 Structured Asset Securities Corp., 6.000%,
due 03/25/34 1,255,281 2,196,741 3,452,022
1,742,996 276,128 2,019,124 XX Thornburg Mortgage Securities Trust, 1.440%,
due 12/25/33 1,742,996 276,128 2,019,124
- 1,860,752 1,860,752 Washington Mutual MSC Mortgage Pass-Through
CTFS, 1.590%, due 01/25/18 - 1,863,445 1,863,445
- 2,059,826 2,059,826 Washington Mutual MSC Mortgage Pass-Through
CTFS, 1.690%, due 03/25/33 - 2,063,946 2,063,946
1,430,917 4,292,752 5,723,669 Washington Mutual, 5.000%, due 06/25/18 1,486,594 4,459,781 5,946,375
- 951,536 951,536 Wells Fargo Mortgage Backed Securities Trust,
1.590%, due 02/25/34 - 949,964 949,964
700,000 1,460,000 2,160,000 Wells Fargo Mortgage Backed Securities Trust,
4.500%, due 08/25/18 682,725 1,423,970 2,106,695
-------------------------------------
17,528,881 57,558,539 75,087,420
-------------------------------------
WHOLE LOAN COLLATERALIZED PLANNED AMORTIZATION
CLASS: 2.1%
- 281,356 281,356 Countrywide Alternative Loan Trust, 1.490%,
due 02/25/33 - 281,575 281,575
1,108,287 - 1,108,287 GSR Mortgage Loan Trust, 1.490%, due 10/25/32 1,107,356 - 1,107,356
302,107 929,560 1,231,667 MASTR Alternative Loans Trust, 1.490%,
due 11/25/33 302,378 930,395 1,232,773
880,033 1,969,638 2,849,672 MASTR Alternative Loans Trust, 8.500%,
due 05/25/33 909,171 2,034,852 2,944,023
- 1,381,898 1,381,898 Residential Funding Mortgage Sec I, 1.490%,
due 11/25/17 - 1,382,553 1,382,553
883,000 2,067,000 2,950,000 Residential Funding Securities Corp., 4.750%,
due 02/25/33 900,805 2,108,679 3,009,484
264,561 594,540 859,101 Residential Funding Securities Corp., 8.500%,
due 05/25/33 300,991 676,410 977,401
- 997,297 997,297 XX Washington Mutual, 1.490%, due 03/25/34 - 996,674 996,674
-------------------------------------
3,520,701 8,411,138 11,931,839
-------------------------------------
Total Collateralized Mortgage Obligations and
Asset-Backed Securities (Cost $40,191,025,
$108,637,756, $148,828,781) 40,746,577 109,454,287 150,200,864
-------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS: 35.9%
FEDERAL HOME LOAN MORTGAGE CORPORATION: 11.8%
- 1,819,478 1,819,478 1.220%, due 05/25/31 - 1,820,105 1,820,105
- 1,255,370 1,255,370 1.230%, due 04/25/30 - 1,255,934 1,255,934
- 660,249 660,249 1.240%, due 01/25/32 - 661,041 661,041
- 1,486,422 1,486,422 1.440%, due 02/15/32 - 1,490,046 1,490,046
2,404,995 - 2,404,995 1.740%, due 04/15/32 2,419,810 - 2,419,810
2,740,000 8,130,000 10,870,000 2.700%, due 03/16/07 2,770,047 8,219,154 10,989,201
1,350,000 3,810,000 5,160,000 2.750%, due 02/09/07 1,356,742 3,829,027 5,185,769
- 1,885,000 1,885,000 2.875%, due 09/15/05 - 1,923,756 1,923,756
655,000 - 655,000 4.250%, due 06/15/05 678,339 - 678,339
681,009 1,728,122 2,409,131 4.397%, due 11/01/33 707,994 1,796,598 2,504,592
311,000 3,482,000 3,793,000 4.500%, due 04/01/14 315,375 3,530,982 3,846,357
- 2,000,000 2,000,000 W 5.500%, due 04/15/19 - 2,084,376 2,084,376
- 8,140,000 8,140,000 W 5.500%, due 04/01/33 - 8,343,500 8,343,500
615,000 1,750,000 2,365,000 L 5.875%, due 03/21/11 686,263 1,952,779 2,639,042
919,000 2,297,000 3,216,000 6.000%, due 01/15/28 963,002 2,406,982 3,369,984
910,065 2,651,177 3,561,241 6.000%, due 01/15/29 960,938 2,799,381 3,760,319
577,000 1,600,000 2,177,000 6.000%, due 01/15/29 613,102 1,700,108 2,313,210
803,800 2,254,726 3,058,526 6.000%, due 01/15/29 846,154 2,373,533 3,219,687
190,000 - 190,000 W 6.000%, due 05/01/33 197,184 - 197,184
- - - W 6.500%, due 04/01/31 - - -
310,000 7,155,000 7,465,000 W 6.500%, due 05/15/34 325,500 7,512,750 7,838,250
24,242 - 24,242 7.500%, due 11/01/28 26,135 - 26,135
-----------------------------------
12,866,585 53,700,052 66,566,637
-----------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION: 23.3%
- 339,949 339,949 1.290%, due 11/26/32 - 338,824 338,824
- 1,034,332 1,034,332 1.494%, due 04/18/28 - 1,038,296 1,038,296
- 451,630 451,630 1.540%, due 12/25/29 - 453,003 453,003
- 903,962 903,962 1.640%, due 01/25/32 - 906,664 906,664
1,415,000 4,152,000 5,567,000 L 2.375%, due 04/13/06 1,415,416 4,153,221 5,568,637
70,000 975,000 1,045,000 2.859%, due 12/26/29 70,880 987,258 1,058,138
1,445,000 3,905,000 5,350,000 L 2.875%, due 05/19/08 1,433,842 3,874,846 5,308,688
2,059,000 6,052,000 8,111,000 L 3.250%, due 08/15/08 2,092,265 6,149,776 8,242,041
700,000 2,080,000 2,780,000 L 4.125%, due 04/15/14 689,771 2,049,605 2,739,376
- 3,000,000 3,000,000 W 4.500%, due 05/01/18 - 3,029,064 3,029,064
678,000 1,509,000 2,187,000 4.750%, due 12/25/42 690,600 1,537,044 2,227,644
3,555,000 11,010,000 14,565,000 W 5.000%, due 04/01/18 3,654,984 11,319,656 14,974,640
4,610,000 16,551,000 21,161,000 W 5.000%, due 04/01/33 4,631,612 16,628,591 21,260,203
1,902,000 5,595,000 7,497,000 L 5.250%, due 04/15/07 2,067,923 6,083,085 8,151,008
645,000 1,900,000 2,545,000 5.250%, due 08/01/12 685,998 2,020,770 2,706,768
39,545 74,695 114,240 5.500%, due 02/01/17 41,245 77,908 119,153
- 1,000,000 1,000,000 W 5.500%, due 04/15/19 - 1,041,875 1,041,875
2,890,000 5,283,000 8,173,000 W 5.500%, due 04/01/33 2,961,348 5,413,427 8,374,775
48,974 98,701 147,674 6.000%, due 08/01/16 51,627 104,049 155,676
12,737 - 12,737 6.000%, due 12/01/16 13,427 - 13,427
449,158 - 449,158 6.000%, due 03/01/17 473,498 - 473,498
748,796 3,369,582 4,118,377 6.000%, due 09/01/17 789,463 3,552,584 4,342,047
269,900 - 269,900 W 6.000%, due 04/01/18 284,154 - 284,154
918,216 2,030,670 2,948,886 6.000%, due 07/25/24 957,060 2,116,574 3,073,634
5,801 - 5,801 6.000%, due 07/01/29 6,055 - 6,055
1,000,600 2,592,524 3,593,124 6.000%, due 07/25/29 1,054,429 2,731,993 3,786,422
425,222 1,101,590 1,526,812 6.000%, due 07/25/29 448,097 1,160,852 1,608,949
600,734 1,622,699 2,223,432 6.000%, due 04/25/31 631,039 1,704,559 2,335,598
4,219,000 6,970,000 11,189,000 W 6.000%, due 05/01/33 4,383,803 7,242,262 11,626,065
- 2,084,475 2,084,475 6.000%, due 08/01/33 - 2,176,454 2,176,454
- 87,608 87,608 6.500%, due 07/01/29 - 92,123 92,123
475,443 - 475,443 6.500%, due 08/01/29 499,948 - 499,948
1,191,306 - 1,191,306 6.500%, due 04/01/30 1,252,707 - 1,252,707
- 6,731 6,731 6.500%, due 06/01/31 - 7,074 7,074
- 1,830,791 1,830,791 6.500%, due 07/01/31 - 1,928,187 1,928,187
- 5,631 5,631 6.500%, due 09/01/31 - 5,919 5,919
- 29,210 29,210 6.500%, due 09/01/31 - 30,699 30,699
- 685,967 685,967 6.500%, due 11/01/31 - 720,928 720,928
- 389,963 389,963 6.500%, due 04/01/32 - 409,826 409,826
- 133,057 133,057 6.500%, due 07/01/32 - 139,835 139,835
- 29,077 29,077 6.500%, due 08/01/32 - 30,558 30,558
- 200,735 200,735 6.500%, due 08/01/32 - 210,959 210,959
- 136,038 136,038 6.500%, due 08/01/32 - 142,967 142,967
- 430,729 430,729 6.500%, due 10/01/32 - 452,668 452,668
- 326,511 326,511 6.500%, due 11/01/32 - 343,141 343,141
- 360,547 360,547 6.500%, due 01/01/33 - 378,911 378,911
- 332,577 332,577 6.500%, due 02/01/33 - 349,519 349,519
411,608 1,280,559 1,692,167 6.500%, due 12/01/33 432,577 1,345,795 1,778,372
- 8,124,661 8,124,661 + 6.595%, due 02/17/29 - 891,557 891,557
- 17,947 17,947 7.000%, due 09/01/28 - 19,072 19,072
46,624 - 46,624 7.000%, due 01/01/30 49,523 - 49,523
242,320 - 242,320 7.000%, due 01/01/30 257,238 - 257,238
- 16,972 16,972 7.000%, due 03/01/30 - 18,027 18,027
532,210 - 532,210 7.000%, due 06/01/31 565,582 - 565,582
9,040 - 9,040 7.500%, due 09/01/30 9,693 - 9,693
34,173 - 34,173 7.500%, due 10/01/30 36,641 - 36,641
31,580 - 31,580 7.500%, due 10/01/30 33,860 - 33,860
9,602 - 9,602 7.500%, due 11/01/30 10,296 - 10,296
10,052 - 10,052 7.500%, due 05/01/31 10,775 - 10,775
266,644 - 266,644 7.500%, due 02/01/32 285,995 - 285,995
558,312 - 558,312 7.500%, due 06/25/32 614,667 - 614,667
- 1,079,426 1,079,426 7.500%, due 12/25/41 - 1,201,409 1,201,409
714,272 - 714,272 7.500%, due 01/25/48 783,324 - 783,324
-------------------------------------
34,371,362 96,611,414 130,982,776
-------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 0.8%
27,605 - 27,605 4.375%, due 04/20/28 28,139 - 28,139
450,000 1,150,000 1,600,000 W 6.000%, due 04/15/34 469,969 1,201,031 1,671,000
9,114 - 9,114 6.500%, due 03/15/31 9,627 - 9,627
78,208 - 78,208 6.500%, due 08/15/31 82,607 - 82,607
141,526 - 141,526 6.500%, due 10/15/31 149,487 - 149,487
81,176 - 81,176 6.500%, due 11/15/31 85,742 - 85,742
86,282 - 86,282 6.500%, due 07/15/32 91,128 - 91,128
610,225 - 610,225 6.500%, due 09/15/32 644,502 - 644,502
145,625 - 145,625 7.000%, due 04/15/26 155,706 - 155,706
106,748 - 106,748 7.000%, due 05/15/32 113,727 - 113,727
- 2,126,790 2,126,790 + 7.160%, due 06/16/31 - 265,350 265,350
184,729 - 184,729 7.500%, due 12/15/22 200,074 - 200,074
20490.53 - 20,491 7.500%, due 10/15/26 22,101 - 22,101
100,591 - 100,591 7.500%, due 07/15/29 108,265 - 108,265
1317.58 - 1,318 7.500%, due 11/15/30 1,417 - 1,417
58347.88 - 58,348 7.500%, due 11/20/30 62,539 - 62,539
106,457 - 106,457 7.500%, due 12/15/30 114,530 - 114,530
135,900 - 135,900 7.500%, due 12/15/31 146,203 - 146,203
85,693 - 85,693 7.500%, due 05/15/32 92,177 - 92,177
165,143 - 165,143 7.500%, due 05/15/32 177,637 - 177,637
262,824 - 262,824 8.000%, due 12/15/17 288,828 - 288,828
- 145,619 145,619 8.000%, due 01/20/31 - 158,152 158,152
-------------------------------------
3,044,405 1,624,533 4,668,938
-------------------------------------
Total U.S. Government Agency Obligations (Cost
$49,953,679, $151,433,521, $201,387,200) 50,282,352 151,935,999 202,218,351
-------------------------------------
U.S. TREASURY OBLIGATIONS: 12.4%
U.S. TREASURY BONDS: 3.3%
1,575,000 3,620,000 5,195,000 L, S 0.000%, due 05/15/16 911,823 2,095,745 3,007,568
2,303,000 6,183,000 8,486,000 L, S 5.375%, due 02/15/31 2,510,991 6,741,405 9,252,396
1,190,000 4,000,000 5,190,000 L, S 6.250%, due 08/15/23 1,415,310 4,757,344 6,172,654
----------------------------------
4,838,124 13,594,494 18,432,618
----------------------------------
U.S. TREASURY NOTES: 9.1%
1,519,000 8,435,000 9,954,000 L, S 1.625%, due 02/28/06 1,521,850 8,450,824 9,972,674
3,000,000 22,250,000 25,250,000 L, S 2.250%, due 07/31/04 3,013,245 22,348,234 25,361,479
1,504,000 3,589,000 5,093,000 L, S 2.250%, due 02/15/07 1,517,279 3,620,687 5,137,966
1,993,000 4,295,000 6,288,000 L, S 2.625%, due 03/15/09 1,979,300 4,265,476 6,244,776
1,354,000 3,089,000 4,443,000 L, S 4.000%, due 02/15/14 1,372,195 3,130,510 4,502,705
----------------------------------
9,403,869 41,815,731 51,219,600
----------------------------------
Total U.S. Treasury Obligations (Cost
$14,118,399, $55,265,989, $69,384,388) 14,241,993 55,410,225 69,652,218
----------------------------------
OTHER BONDS: 4.2%
SOVEREIGN: 4.2%
253,000 571,000 824,000 **, @@ Argentina Bonos, 0.000%, due 08/03/12 170,927 385,768 556,695
- 819,000 819,000 @@ Brazilian Government International Bond, 2.063%,
due 04/15/12 - 721,835 721,835
321,000 - 321,000 @@ Brazilian Government International Bond, 2.188%,
due 04/15/12 282,917 - 282,917
223,000 740,000 963,000 @@ Brazilian Government International Bond, 10.000%,
due 08/07/11 237,718 788,840 1,026,558
231,000 692,000 923,000 @@ Brazilian Government International Bond, 11.000%,
due 08/17/40 247,863 742,516 990,379
125,000 373,000 498,000 @@ Bulgaria Government International Bond, 8.250%,
due 01/15/15 153,701 458,643 612,344
320,000 820,000 1,140,000 S, @@ Colombia Government International Bond, 10.000%,
due 01/23/12 372,960 955,710 1,328,670
98,000 238,000 336,000 L, @@ Colombia Government International Bond, 11.750%,
due 02/25/20 125,930 305,830 431,760
259,000 745,000 1,004,000 @@ Dominican Republic International Bond, 9.040%,
due 01/23/13 188,483 541,988 730,471
226,000 664,000 890,000 @@ Ecuador Government International Bond, 7.000%,
due 08/15/30 201,987 593,450 795,437
125,000 344,000 469,000 @@ El Salvador Government International Bond,
7.750%, due 01/24/23 140,912 387,791 528,703
343,000 1,008,000 1,351,000 L, @@ Mexico Government International Bond, 1.840%,
due 01/13/09 346,773 1,019,088 1,365,861
364,000 1,077,000 1,441,000 @@ Mexico Government International Bond, 6.625%,
due 03/03/15 397,306 1,175,545 1,572,851
- 520,025 520,025 @@ Panama Government International Bond, 1.937%,
due 07/17/16 - 465,168 465,168
207,323 - 207,323 @@ Panama Government International Bond, 2.000%,
due 07/17/16 185,452 - 185,452
30,000 68,000 98,000 @@ Panama Government International Bond, 9.375%,
due 07/23/12 35,625 80,750 116,375
81,000 239,000 320,000 @@ Panama Government International Bond, 9.375%,
due 01/16/23 91,733 270,667 362,400
255,000 817,000 1,072,000 @@ Peru Government International Bond, 4.500%,
due 03/07/17 226,473 725,602 952,075
318,000 948,000 1,266,000 @@ Philippine Government International Bond, 9.875%,
due 01/15/19 330,720 985,920 1,316,640
575,000 1,719,000 2,294,000 @@ Russia Government International Bond, 5.000%,
due 03/31/30 577,300 1,725,876 2,303,176
176,000 550,000 726,000 @@ Russia Government International Bond, 8.250%,
due 03/31/10 200,239 625,748 825,987
59,000 135,000 194,000 @@ Turkey Government International Bond, 9.500%,
due 01/15/14 69,915 159,975 229,890
394,000 937,000 1,331,000 @@ Turkey Government International Bond, 12.375%,
due 06/15/09 508,999 1,210,487 1,719,486
100,000 362,000 462,000 #, @@ Ukraine Government International Bond, 7.650%,
due 06/11/13 104,750 379,195 483,945
143,000 327,000 470,000 L, @@ Uruguay Government International Bond, 7.500%,
due 03/15/15 124,053 283,673 407,726
213,559 627,119 840,678 XX, S, @@ Uruguay Government International Bond, 10.500%,
due 10/20/06 232,920 683,974 916,894
- 571,410 571,410 @@ Venezuela Government International Bond, 2.125%,
due 12/18/07 - 540,789 540,789
87,000 249,000 336,000 @@ Venezuela Government International Bond, 10.750%,
due 09/19/13 91,350 261,450 352,800
319,000 964,000 1,283,000 #, L, @@ Venezuela Government International Bond, 10.750%,
due 09/19/13 334,950 1,012,200 1,347,150
----------------------------------
5,981,956 17,488,478 23,470,434
----------------------------------
Total Other Bonds (Cost $5,412,031, $16,188,660,
$21,600,691) 5,981,956 17,488,478 23,470,434
----------------------------------
PREFERRED STOCK: 0.5%
SHARES
- --------------------
BANKS
71 183 254 #, XX DG Funding Trust - 03/26/2004 770,350 1,985,550 2,755,900
---------------------------------------
770,350 1,985,550 2,755,900
---------------------------------------
Total Preferred Stock (Cost $772,055, $1,989,557,
$2,761,612) 770,350 1,985,550 2,755,900
---------------------------------------
WARRANTS: 0.0%
TELECOMMUNICATIONS
- 20 20 American Tower Corp., 0.000%, due 08/01/08 - 2,850 2,850
---------------------------------------
- 2,850 2,850
---------------------------------------
Total Warrants (Cost $0, $1,502, $1,502) - 2,850 2,850
---------------------------------------
Total Long-Term Investments (Cost $152,179,633,
$459,482,697, $611,662,330) 155,287,230 465,506,434 620,793,664
---------------------------------------
SHORT-TERM INVESTMENTS: 0.3%
PRINCIPAL
- ---------------------------------------
$ 700,000 $ - $ 700,000 S
300,000 - 300,000 S
500,000 - 500,000 S
1,918,000 - 1,918,000
- 25,248,000 25,248,000
COMMERCIAL PAPER: 0.3%
Royal Bank of Scotland, 1.410%, due 10/21/04 701,183 - 701,183
Concord Minutmen Capital, 1.100%, due 04/06/05 299,999 - 299,999
Concord Minutmen Capital, 1.100%, due 04/12/05 499,994 - 499,994
------------------------------------------
1,501,176 - 1,501,176
------------------------------------------
Total Short-Term Investments (Cost $1,499,961,
$0, $1,499,961) 1,501,176 - 1,501,176
------------------------------------------
REPURCHASE AGREEMENTS: 4.8%
State Street Repurchase Agreement dated 03/31/04,
1.060% due 04/01/03, $1,918,056 to be received
upon repurchase (Collateralized by $1,955,000
Federal Home Loan Mortgage Corporation, 1-875%,
Market Value $1,918,000 due 02/15/06) 1,918,000 - 1,918,000
Goldman Sachs Repurchase Agreement dated
03/31/04, 1.070% due 04/01/03, $25,248,750 to be
received upon repurchase (Collateralized by $25,248,000
U.S. Treasury STRIPS, 0.000%, Market value
$26,005,440 due 08/15/12 to
05/15/23) - 25,248,000 25,248,000
------------------------------------------
1,918,000 25,248,000 27,166,000
------------------------------------------
Total Repurchase Agreements (Cost $1,918,000,
$25,248,000, $27,166,000) 1,918,000 25,248,000 27,166,000
------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST
$155,597,594, $484,730,697, $640,328,291)* 115.4% $158,706,406 $490,754,434 $649,460,840
OTHER ASSETS AND LIABILITIES-NET -15.4% (17,358,221) (69,175,976) (86,534,197)
--------------------------------------------------
NET ASSETS 100.0% $141,348,185 $421,578,458 $562,926,643
==================================================
@@ Foreign issuer
+ Interest Only (IO) Security
XX Value of securities obtained from one or more dealers making markets in
the securities which have been adjusted based on the Fund's valuation
procedures.
W When-issued or delayed delivery security.
# Securities with purchases pursuant to Rule 144A, under the securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers. These securities have been determined to be liquid
under the guidelines established by the Portfolio's Board of Directors.
** Defaulted security
L Loaned security, a portion or all of the security is on loan at March 31,
2004.
S Segregated securities for futures, when-issued or delayed delivery
securities held at March 31, 2004.
C Bond may be called prior to maturity date.
Information concerning open futures contracts at March 31, 2004 is shown below:
ING BOND FUND
NO. OF NOTIONAL EXPIRATION UNREALIZED
CONTRACTS MARKET VALUE DATE GAIN/(LOSS)
--------- ------------ ---------- -----------
LONG CONTRACTS
U.S. 2 Year Treasury Note 30 $ 6,455,156 Jun-04 $ 22,031
U.S. 20 Year Treasury Bond 10 1,140,625 Jun-04 21,797
------------ -----------
$ 7,595,781 $ 43,828
============ ===========
SHORT CONTRACTS
U.S. 10 Year Treasury Note 71 $ (8,193,844) Jun-04 $ (118,703)
============ ===========
ING INTERMEDIATE BOND FUND
NO. OF NOTIONAL EXPIRATION UNREALIZED
CONTRACTS MARKET VALUE DATE GAIN/(LOSS)
--------- ------------ ---------- -----------
LONG CONTRACTS
U.S. 2 Year Treasury Note 46 9,897,906 Jun-04 33,551
U.S. 20 Year Treasury Bond 100 11,406,250 Jun-04 217,469
------------ -----------
$ 21,304,156 $ 251,020
============ ===========
SHORT CONTRACTS
U.S. 10 Year Treasury Note 192 $(22,158,000) Jun-04 $ (321,960)
============ ===========
PRO FORMA
NO. OF NOTIONAL EXPIRATION UNREALIZED
CONTRACTS MARKET VALUE DATE GAIN/(LOSS)
--------- ------------ ---------- -----------
LONG CONTRACTS
U.S. 2 Year Treasury Note 76 16,353,062 Jun-04 55,582
U.S. 20 Year Treasury Bond 110 12,546,875 Jun-04 239,266
------------ -----------
$ 28,899,937 $ 294,848
============ ===========
SHORT CONTRACTS
U.S. 10 Year Treasury Note 263 $(30,351,844) Jun-04 $ (440,663)
============ ===========
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF COMBINATION:
On March 24, 2004, the Board of Directors of the ING Bond Fund ("Bond
Fund"), and on February 25, 2004, the Board of Trustees of the ING Intermediate
Bond Fund ("Intermediate Bond Fund"), approved an Agreement and Plan of
Reorganization (the "Plan") whereby, subject to approval by the shareholders of
Bond Fund, Intermediate Bond Fund will acquire all of the assets of the Bond
Fund, subject to the liabilities of such Funds, in exchange for a number of
shares of Intermediate Bond Fund equal in value to the net assets of the Bond
Fund (the "Merger").
The Merger will be accounted for as a tax-free merger of investment
companies. The unaudited pro forma combined financial statements are presented
for the information of the reader and may not necessarily be representative of
what the actual combined financial statements would have been had the
reorganization occurred at March 31, 2004. The unaudited pro forma portfolio of
investments, and statement of assets and liabilities reflect the financial
position of Bond Fund and Intermediate Bond Fund at March 31, 2004. The
unaudited pro forma statement of operations reflects the results of operations
of Bond Fund and Intermediate Bond Fund for the year ended March 31, 2004. These
statements have been derived from the Funds' respective books and records
utilized in calculating daily net asset value at the date indicated above for
Bond Fund and Intermediate Bond Fund under accounting principles generally
accepted in the United States of America. The historical cost of investment
securities will be carried forward to the surviving entity and the results of
operations of Intermediate Bond Fund for pre-combination periods will not be
restated.
The unaudited pro forma portfolio of investments, and unaudited statement
of assets and liabilities and statement of operations should be read in
conjunction with the historical financial statements of each Fund which are
incorporated by reference in the Statements of Additional Information.
NOTE 2 - SECURITY VALUATION:
Investments in equity securities traded on a national securities exchange are
valued at the last reported sale price. Portfolio securities reported by NASDAQ
will be valued at NASDAQ official closing price. Portfolio securities traded on
an exchange or NASDAQ for which there has been no sale and equity securities
traded in the over-the-counter-market are valued at the mean between the last
reported bid and ask prices. All investments quoted in foreign currencies will
be valued daily in U.S. dollars on the basis of the foreign currency exchange
rates prevailing at that time. Debt securities are valued at 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 and assets for which market quotations are not readily available
(which may include certain restricted securities which are subject to
limitations as to their sale) are valued at their fair values as determined in
good faith by or under the supervision of the Fund's Board of Trustees
("Board"), in accordance with methods that are specifically authorized by the
Board. Securities traded on exchanges, including foreign exchanges, which close
earlier than the time that a Fund calculates its net asset value may also be
valued at their fair values as determined in good faith by or under the
supervision of a Fund's Board, in accordance with methods that are specifically
authorized by the Board. If a significant event which is likely to impact the
value of one or more foreign securities held by a Fund occurs after the time at
which the foreign market for such security(ies) closes but before the time that
the Fund's net asset value is calculated on any business day, such event may be
taken into account in determining the fair value of such security(ies) at the
time the Fund calculates its net asset value. For these purposes, significant
events after the close of trading on a foreign market may include, among others,
securities trading in the U.S. and other markets, corporate announcements,
natural and other disasters, and political and other events. Among other
elements of analysis, the Board has authorized the use of one or more research
services to assist with the determination of the fair value of foreign
securities in light of significant events. Research services use
statistical analyses and quantitative models to help determine fair value as of
the time a Fund calculates its net asset value. Unlike the closing price of a
security on an exchange, fair value determinations employ elements of judgment,
and the fair value assigned to a security may not represent the actual value
that a Fund could obtain if it were to sell the security at the time of the
close of the NYSE.
Investments in securities maturing in 60 days or less are valued at amortized
cost, which, when combined with accrued interest, approximates market value.
NOTE 3 - CAPITAL SHARES:
The unaudited pro forma net asset value per share assumes additional shares
of common stock issued in connection with the proposed acquisition of Bond Fund
by Intermediate Bond Fund as of March 31, 2004. The number of additional shares
issued was calculated by dividing the net asset value of each Class of Bond Fund
by the respective Class net asset value per share of Intermediate Bond Fund.
NOTE 4 - UNAUDITED PRO FORMA ADJUSTMENTS:
The accompanying unaudited pro forma financial statements reflect changes
in fund shares as if the merger had taken place on March 31, 2004. Bond Fund
expenses were adjusted assuming Intermediate Bond Fund's fee structure was in
effect for the year ended March 31, 2004.
NOTE 5 - MERGER COSTS:
ING Investments LLC, Investment Adviser to the Funds, will bear all of the cost
of the Reorganization.
NOTE 6 - USE OF ESTIMATES
Management of the Funds 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.
NOTE 7 - FEDERAL INCOME TAXES:
It is the policy of the Funds to comply with subchapter M of the Internal
Revenue Code and related excise tax provisions applicable to regulated
investment companies and to distribute substantially all of their net investment
income and any net realized capital gains to their shareholders. Therefore, no
federal income tax provision is required. No capital gain distributions shall be
made until any capital loss carryforwards have been fully utilized or expired. A
portion of the amount of these capital loss carryforwards may be limited in the
future.
ING BOND FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON AUGUST 3, 2004. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) MICHAEL J. ROLAND AND HUEY P.
FALGOUT, JR. or any one or both of them, proxies, with full power of
substitution, to vote all shares of ING Bond Fund (the "Fund"), a series of ING
Series Fund, Inc., which the undersigned is entitled to vote at the Special
Meeting of Shareholders of the Fund to be held at the offices of the Fund at
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034 on August 3,
2004 at 10:00 a.m., Local time, and at any adjournment thereof.
This proxy will be voted as instructed. If no specification is made,
the proxy will be voted "FOR" the proposals.
Please vote, date and sign this proxy and return it promptly in the
enclosed envelope.
Please indicate your vote by an "x" in the appropriate box below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS:
1. To approve an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets of ING Bond Fund by ING Intermediate Bond Fund
in exchange for Class A, Class B, Class C, Class I, and Class O shares of
beneficial interest of ING Intermediate Bond Fund and the assumption by ING
Intermediate Bond Fund of the known liabilities of ING Bond Fund, a series of
ING Series Fund, Inc.; and
For [ ] Against [ ] Abstain [ ]
2. To transact such other business, not currently contemplated, that may
properly come before the Special Meeting or any adjournment(s) thereof in the
discretion of the proxies or their substitutes.
For [ ] Against [ ] Abstain [ ]
This proxy card must be signed exactly as your name(s) appears hereon.
If as an attorney, executor, guardian or in some representative capacity or as
an officer of a corporation, please add title(s) as such. Joint owners must each
sign.
- ------------------------ -----------------
Signature Date
- ------------------------ -----------------
Signature (if held jointly) Date
ING Series Fund, Inc.
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
PART C:
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Article X of the Registrant's Trust Instrument provides the following:
Section 10.1 Limitation of Liability. A Trustee, when acting in such
capacity, shall not be personally liable to any person other than the Trust or a
beneficial owner for any act, omission or obligation of the Trust or any
Trustee. A Trustee shall not be liable for any act or omission or any conduct
whatsoever in his capacity as Trustee, provided that nothing contained herein or
under Delaware law shall protect any Trustee against any liability to the Trust
or to Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee hereunder. Section 10.2
Indemnification.
(a) Subject to the exceptions and limitations contained in Section (b)
below:
(i) every Person who is, or has been a Trustee or officer of the Trust
(hereinafter referred to as a "Covered Person") shall be indemnified by the
Trust to the fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office,
(A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who are neither
Interested Persons, as defined in the Trust
Instrument, of the Trust nor are parties to the
matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon
a review of readily available facts (as opposed to a
full trial-type inquiry); provided, however, that any
Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees or
by independent counsel.
(c) The rights of indemnification therein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person, as defined
in the Trust Instrument, may now or hereafter be entitled, shall continue as to
a person who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a person. Nothing contained
herein shall affect any rights to indemnification to which Trust personnel,
other than Covered Persons, and other persons may be entitled by contract or
otherwise under law.
(d) Expenses in connection with the preparation and presentation of
adefense to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 10.2 may be paid by the Trust or a Series thereof
from time to time, prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be paid
over by him to the Trust or Series if it is ultimately determined that he is not
entitled to indemnification under this Section 10.2; provided, however, that
either (a) such Covered Person shall have provided appropriate security for such
undertaking, (b) the Trust is insured against losses arising out of any such
advance payments or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.2.
Article IX of the Registrant's By-Laws provides the following:
The Trust may purchase and maintain insurance on behalf of any Covered
Person or employee of the Trust, including any Covered Person or employee of the
Trust who is or was serving at the request of the Trust as a Trustee, officer or
employee of a corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Trustees would
have the power to indemnify him against such liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholder to which he would otherwise be subject
by reason or willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Reference is made to Article IX of Registrants By-Laws and paragraph 1.11 of the
Distribution Agreement.
The Registrant is covered under an insurance policy insuring its officers and
trustees against liabilities, and certain costs of defending claims against such
officers and trustees, to the extent such officers and trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers under certain circumstances.
Section 12 of the Management Agreement between Registrant and Manager, Section 8
of the Sub-Advisory Agreements and Section 20 of the Distribution Agreement
between the Registrant and Distributor limit the liability of Manager, the
Sub-Advisors and the Distributor to liabilities arising from willful
misfeasance, bad faith or gross negligence in the performance of their
respective duties or from reckless disregard by them of their respective
obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its Trust Instrument, By-Laws, Management Agreement and
Distribution Agreement in a manner consistent with Release No. 11330 of the U.S.
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act") so long as the interpretations of Section
17(h) and 17(i) of such Act remain in effect and are consistently applied.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant understands that in the opinion of the SEC such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 16. EXHIBITS
(1) (a) Trust Instrument - previously filed as an Exhibit to the
Pre-Effective Amendment No. 1 to Registrant's Registration Statement on Form
N-1A filed electronically on October 28, 1998 and incorporated herein by
reference.
(b) Certificate of Amendment of Certificate of Trust -- previously
filed as an Exhibit to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A filed electronically on March 1, 2001 and
incorporated herein by reference.
(c) Certificate of Amendment of Certificate of Trust - previously
filed as an Exhibit to Post-Effective Amendment No. 9 to the Registrant's
Registration Statement on Form N-1A on June 15, 2001 and incorporated herein by
reference.
(d) Amendment No. 1 to Trust Instrument - previously filed as an
Exhibit to Post-Effective Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A on February 27, 2002 and incorporated herein by
reference.
(e) Amendment No. 2 to Trust Instrument - previously filed as an
Exhibit to Post-Effective Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A on February 27, 2002 and incorporated herein by
reference.
(f) Amendment No. 3 to Trust Instrument - previously filed as an
Exhibit to Post-Effective Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A on February 27, 2002 and incorporated herein by
reference.
(g) Form of Certificate of Amendment to Certificate of Trust -
previously filed as an Exhibit to Post-Effective Amendment No. 17 to the
Registrant's Registration Statement on Form N-1A on February 27, 2002 and
incorporated herein by reference.
(2) Bylaws - previously filed as an Exhibit to the Pre-Effective Amendment
No.1 to Registrant's Registration Statement on Form N-1A filed electronically on
October 28, 1998 and incorporated herein by reference.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization between ING Funds Trust,
on behalf of its ING Intermediate Bond Fund series and ING Series Fund, Inc., on
behalf of its ING Bond Fund series -- filed herewith.
(5) The rights of holders of the securities being registered are set out in
Articles II, VII, IX, and X of the Declaration of Trust referenced in Exhibit
(1) above and in Articles IV, VI, and XIII of the Bylaws referenced in Exhibit
(2) above.
(6) (a) Form of Restated Investment Management Agreement between
Registrant and ING Pilgrim Investments, LLC -- previously filed as an Exhibit to
Post-Effective Amendment No. 12 to the Registrant's Registration Statement on
Form N-1A filed electronically on October 1, 2001 and incorporated herein by
reference.
(b) Form of Investment Management Agreement between Registrant and
ING Pilgrim Investments, LLC with respect to Pilgrim Global Real Estate Fund --
previously filed as an Exhibit to Post-Effective Amendment No.10 to the
Registrant's Registration Statement on Form N-1A filed electronically on July
27, 2001 and incorporated herein by reference.
(c) Form of Investment Management Agreement between Registrant and
ING Mutual Funds Management Co. LLC ("IMFC") -- previously filed as an Exhibit
to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A filed electronically on
November 6, 2000 and incorporated herein by reference.
(d) Sub-Advisory Agreement between IMFC and Baring Asset
Management, Inc. -- previously filed as an Exhibit to Post-Effective Amendment
No. 6 to the Registrant's Registration Statement on Form N-1A filed
electronically on November 6, 2000 and incorporated herein by reference.
(e) Form of Sub-Advisory Agreement between IMFC and Baring
International Investment Limited -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(f) Form of Sub-Advisory Agreement between IMFC and Baring Asset
Management (Asia) Limited -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form N-1A filed
electronically on November 6, 2000 and incorporated herein by reference.
(g) First Amendment to Sub-Advisory Agreement between IMFC and ING
Investment Management Advisors B.V. -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(h) Form of Sub-Advisory Agreement between IMFC and ING Investment
Management Advisors B.V. -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form N-1A filed
electronically on November 6, 2000 and incorporated herein by reference.
(i) Form of Sub-Advisory Agreement between IMFC and ING Investment
Management LLC -- previously filed as an Exhibit to Post-Effective Amendment No.
6 to the Registrant's Registration Statement on Form N-1A filed electronically
on November 6, 2000 and incorporated herein by reference.
(j) Form of Restated Sub-Advisory Agreement between ING Pilgrim
Investments, LLC and ING Investment Management LLC -- previously filed as an
Exhibit to Post-Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A filed electronically on October 1, 2001 and incorporated
herein by reference.
(k) Form of Sub-Advisory Agreement between IMFC and Furman Selz
Capital Management LLC -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form N-1A filed
electronically on November 6, 2000 and incorporated herein by reference.
(l) Form of Restated Sub-Advisory Agreement between ING Pilgrim
Investments, LLC and Furman Selz Capital Management LLC -- previously filed as
an Exhibit to Post-Effective Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A filed electronically on October 1, 2001 and incorporated
herein by reference.
(m) Form of Sub-Advisory Agreement between IMFC and Furman Selz
Capital Management on behalf of Delta Asset Management -- previously filed as an
Exhibit to Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form N-1A filed electronically on November 6, 2000 and incorporated
herein by reference.
(n) Form of Sub-Advisory Agreement between IMFC and CRA Real
Estate Securities, L.P. -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form N-1A filed
electronically on November 6, 2000 and incorporated herein by reference.
(o) Form of Restated Sub-Advisory Agreement between ING Pilgrim
Investments, LLC and Furman Selz Capital Management on behalf of Delta Asset
Management -- previously filed as an Exhibit to Post-Effective Amendment No. 12
to the Registrant's Registration Statement on Form N-1A filed electronically on
October 1, 2001 and incorporated herein by reference.
(p) Form of Sub-Advisory Agreement between ING Pilgrim
Investments, LLC and CRA Real Estate Securities L.P. with respect to Pilgrim
Global Real Estate Fund -- previously filed as an Exhibit to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on Form N-1A filed
electronically on July 27, 2001 and incorporated herein by reference.
(q) Form of Sub-Advisory Agreement between ING Investments, LLC
and ING Aeltus Investment Management, Inc. with respect to ING Intermediate Bond
Fund - filed herewith.
(7) (a) Form of Underwriting Agreement between Registrant and ING
Pilgrim Securities, Inc. -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form N-1A filed
electronically on November 6, 2000 and incorporated herein by reference.
(b) Form of Financial Institution Selling Group Agreement --
previously filed as an Exhibit to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A filed electronically on
November 6, 2000 and incorporated herein by reference.
(c) Form of Selling Group Agreement -- previously filed as an
Exhibit to Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form N-1A filed electronically on November 6, 2000 and incorporated
herein by reference.
(8) Not Applicable
(9) (a) Form of Custodian Agreement between Registrant and State
Street Bank and Trust Company, with respect to Registrant's U.S. Funds --
previously filed as an Exhibit to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A filed electronically on
November 6, 2000 and incorporated herein by reference.
(b) Form of Custodian and Fund Accounting Agreement between
Registrant and State Street Bank and Trust Company - previously filed as an
Exhibit to Post-Effective Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A on February 27, 2002 and incorporated herein by
reference.
(d) Form of Custodian Agreement between Registrant and Brown
Brothers Harriman & Co., with respect to the Registrant's Global and
International Funds -- previously filed as an Exhibit to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form N-1A filed
electronically on November 6, 2000 and incorporated herein by reference.
(e) Form of Amendment to the Custodian Agreement between
Registrant and Brown Brothers Harriman & Co. -- previously filed as an Exhibit
to Post-Effective Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(f) Form of Appendix A to Custodian Agreement between Registrant
and Brown Brothers Harriman & Co. -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(g) Form of Appendix B to Custodian Agreement between Registrant
and Brown Brothers Harriman & Co. -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(h) Form of Appendix C to Custodian Agreement between Registrant
and Brown Brothers Harriman & Co. -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(10) (a) Rule 12b-1 Distribution Plan and Agreement with respect to
Class A shares -- previously filed as an Exhibit to Post-Effective Amendment No.
6 to Registrant's Registration Statement on Form N-1A filed electronically on
November 6, 2000 and incorporated herein by reference.
(b) Rule 12b-1 Distribution Plan and Agreement with respect to
Class B, Class C, and Class X shares -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to Registrant's Registration Statement on Form
N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(c) Form of Amended and Restated Rule 12b-1 Distribution Plan and
Agreement with respect to Class B shares - previously filed as an Exhibit to
Post-Effective Amendment No. 11 to Registrant's Registration Statement on Form
N-1A filed electronically on July 31, 2001 and incorporated by reference.
(d) Form of 18f-3 Plan -- previously filed as an Exhibit to
Post-Effective Amendment No. 10 to the Registrant's Registration Statement on
Form N-1A filed electronically on July 27, 2001 and incorporated herein by
reference.
(e) Amended and Restated 18f-3 Plan -- previously filed as an
Exhibit to Post-Effective Amendment No. 6 to Registrant's Registration Statement
on Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(f) Amended and Restated Rule 18f-3 Plan -- previously filed as an
Exhibit to Post-Effective Amendment No. 15 to the Registrant's Registration
Statement on Form N-1A filed electronically on November 9, 2001 and incorporated
herein by reference.
(11) Form of Opinion and Consent of Counsel - filed herewith.
(12) Opinion and Consent of Counsel Supporting Tax Matters and Consequences
- - To be filed by subsequent post-effective amendment.
(13) (a) Form of Service Agreement -- previously filed as an Exhibit to
Post-Effective Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A filed electronically on November 6, 2000 and incorporated herein by
reference.
(b) Fund Services Agreement between Registrant and ING Fund
Services Co. LLC -- filed as an Exhibit to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed electronically on April
15, 1999 and incorporated herein by reference.
(c) Form of Recordkeeping Agreement with State Street Bank and
Trust Company -- previously filed as an Exhibit to Post-Effective Amendment No.
6 to the Registrant's Registration Statement on Form N-1A filed electronically
on November 6, 2000 and incorporated herein by reference.
(d) Form of Shareholder Servicing Plan -- previously filed as an
Exhibit to Post-Effective Amendment No. 9 to Registrant's Registration Statement
on Form N-1A filed electronically on June 15, 2001 and incorporated herein by
reference.
(e) Amended and Restated Shareholder Servicing Plan -- previously
filed as an Exhibit to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A filed electronically on November 6, 2000 and
incorporated herein by reference.
(f) Form of Administration Agreement -- previously filed as an
Exhibit to Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form N-1A filed electronically on November 6, 2000 and incorporated
herein by reference.
(g) Form of Amended and Restated Administration Agreement between
Registrant and ING Funds Services, LLC -- previously filed as an Exhibit to
Post-Effective Amendment No. 17 to the Registrant's Registration Statement on
Form N-1A on February 27, 2002 and incorporated herein by reference.
(h) Form of Expense Limitation Agreement among ING Pilgrim
Investments, LLC, Clarion CRA Securities L.P. and Pilgrim Funds Trust with
respect to Pilgrim Global Real Estate Fund - previously filed as an Exhibit to
Post-Effective Amendment No. 10 to the Registrant's Registration Statement on
Form N-1A on July 27, 2001 and incorporated herein by reference.
(i) Form of Expense Limitation Agreement -- previously filed as an
Exhibit to Post-Effective Amendment No. 8 to the Registrant's Registration
Statement on Form N-1A filed electronically on March 1, 2001 and incorporated
herein by reference.
(j) Form of Amended and Restated Expense Limitation Agreement
between Registrant and ING Funds Services, LLC -- previously filed as an Exhibit
to Post-Effective Amendment No. 17 to the Registrant's Registration Statement on
Form N-1A on February 27, 2002 and incorporated herein by reference.
(k) Form of Fund Accounting Agreement with Brown Brothers Harriman
& Co. -- previously filed as an Exhibit to Post-Effective Amendment No. 17 to
the Registrant's Registration Statement on Form N-1A on February 27, 2002 and
incorporated herein by reference.
(14) Consent of independent auditors - to be filed by subsequent
Post-Effective Amendments.
(15) Not applicable
(16) Powers of attorney - filed herewith.
ITEM 17 UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Securities Act (17 CFR 230.145(c)),
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The undersigned registrant undertakes to file a post-effective amendment to
this registration statement upon the closing of the Reorganization described in
this Registration Statement that contains an opinion of counsel supporting the
tax matters discussed in this Registration Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the"1933
Act"), the Registrant has duly caused this Registration Statement on Form N-14
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Scottsdale and the State of Arizona on the ___ day of April, 2004.
ING FUNDS TRUST
By: /s/ Huey Falgout, Jr.
----------------------------------
Huey Falgout, Jr.
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
- ------------------------ Trustee and Chairman April ___, 2004
John G. Turner*
- ------------------------ President and Chief Executive Officer April ___, 2004
James M. Hennessy*
April ___, 2004
- ------------------------ Executive Vice President and Principal Financial
Michael J. Roland* Officer
- ------------------------ Trustee April ___, 2004
Paul S. Doherty*
- ------------------------ Trustee April ___, 2004
J. Michael Earley*
- ------------------------ Trustee April ___, 2004
R. Barbara Gitenstein*
- ------------------------ Trustee April ___, 2004
Walter H. May, Jr.*
- ------------------------ Trustee April ___, 2004
Thomas J. McInerney*
- ------------------------ Trustee April ___, 2004
Jock Patton*
- ------------------------ Trustee April ___, 2004
David W.C. Putnam*
- ------------------------ Trustee April ___, 2004
Blaine E. Rieke*
- ------------------------ Trustee April ___, 2004
Roger B. Vincent*
- ------------------------ Trustee April ___, 2004
Richard A. Wedemeyer*
*By: /s/ Huey P. Falgout
-------------------
Huey P. Falgout, Jr.
Attorney-in-Fact**
** Executed pursuant to powers of attorney filed in this Registration Statement.
EXHIBIT INDEX
(4) Form of Agreement and Plan of Reorganization between ING Funds Trust,
on behalf of its ING Intermediate Bond Fund series and ING Series Fund,
Inc., on behalf of its ING Bond Fund series
(6)(q) Form of Sub-Advisory Agreement between ING Investments, LLC and ING
Aeltus Investment Management, Inc. with respect to ING Intermediate
Bond Fund
(11) Form of Opinion and Consent of Counsel
(16) Powers of Attorney