As filed with the Securities and Exchange Commission on July 2, 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.
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It is proposed that this filing will become effective on August 2, 2004
pursuant to Rule 488 under the Securities Act of 1933, as amended
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No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended.
ING HIGH YIELD OPPORTUNITY FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
August 23, 2004
Dear Shareholder:
Your Board of Trustees has called a special meeting of shareholders
("Special Meeting") of ING High Yield Opportunity Fund ("High Yield Opportunity
Fund"), which is scheduled for 10:00 a.m., Local time, on October 7, 2004 at
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034.
The Board of Trustees of High Yield Opportunity Fund has reviewed and
recommends the proposed reorganization (the "Reorganization") of High Yield
Opportunity Fund with and into ING High Yield Bond Fund ("High Yield Bond Fund")
(each a "Fund" and collectively, the "Funds"). Both Funds are members of the
mutual fund group called the "ING Funds." Each Fund is a series of ING Funds
Trust.
If approved by shareholders, you will become a shareholder of High Yield
Bond Fund on the date that the Reorganization occurs. The Reorganization would
provide shareholders of High Yield Opportunity Fund with an opportunity to
participate in a larger combined 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 Trustees of High Yield
Opportunity 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 OCTOBER 6, 2004.
High Yield Opportunity 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
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ING HIGH YIELD OPPORTUNITY FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF ING HIGH YIELD OPPORTUNITY FUND
SCHEDULED FOR OCTOBER 7, 2004
To the Shareholders:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Special
Meeting") of ING High Yield Opportunity Fund ("High Yield Opportunity Fund") is
scheduled for October 7, 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
High Yield Opportunity Fund and ING High Yield Bond Fund ("High
Yield Bond Fund"), providing for the reorganization of High Yield
Opportunity Fund with and into High Yield 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 July 15, 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 High Yield
Opportunity Fund or by voting in person at the Special Meeting.
By Order of the Board of Trustees
/s/ Huey P. Falgout, Jr.,
Huey P. Falgout, Jr.,
Secretary
August 23, 2004
(This page intentionally left blank)
ING HIGH YIELD BOND FUND
PROXY STATEMENT/PROSPECTUS
AUGUST 23, 2004
TABLE OF CONTENTS
INTRODUCTION.................................................................................
SUMMARY......................................................................................
The Proposed Reorganization..............................................................
Comparison of Investment Objectives and Strategies.......................................
Comparison of Fund Characteristics.......................................................
Credit Rating Comparison of Holdings.....................................................
Relative Performance.....................................................................
Performance of ING High Yield Bond Fund..................................................
Comparison of Investment Techniques and Principal Risks of Investing in the Funds........
COMPARISON OF FEES AND EXPENSES..............................................................
Management Fees..........................................................................
Administration Fees......................................................................
Distribution and Service Fees............................................................
Expense Limitation Arrangements..........................................................
Expense Tables...........................................................................
General Information......................................................................
Material Differences in Rights of High Yield Opportunity Fund Shareholders and High
Yield Bond Fund Shareholders...........................................................
INFORMATION ABOUT THE REORGANIZATION.........................................................
The Reorganization Agreement.............................................................
Reasons for the Reorganization...........................................................
Boards Considerations....................................................................
Tax Considerations.......................................................................
Expenses of the Reorganization...........................................................
ADDITIONAL INFORMATION ABOUT THE FUNDS.......................................................
Form of Organization.....................................................................
Distributor..............................................................................
Dividends and Other Distributions........................................................
Capitalization...........................................................................
GENERAL INFORMATION ABOUT THE PROXY STATEMENT................................................
Solicitation of Proxies..................................................................
Voting Rights............................................................................
Other Matters to Come Before the Special Meeting.........................................
Shareholder Proposals....................................................................
Reports to Shareholders..................................................................
APPENDICES................................................................................... A-E
Portfolio Managers' Report For ING High Yield Bond Fund.................................. A-1
Form of Agreement and Plan of Reorganization............................................. B-1
Additional Information Regarding ING High Yield Bond Fund................................ C-1
Additional ING Funds Offered............................................................. D-1
Security Ownership of Certain Beneficial and Record Owners............................... E-1
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PROXY STATEMENT/PROSPECTUS
AUGUST 23, 2004
ING HIGH YIELD 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 High Yield Opportunity
Fund ("High Yield Opportunity Fund") to be held on October 7, 2004 ("Special
Meeting"). As more fully described in this Proxy Statement/Prospectus, the
purpose of the Special Meeting is to vote on a proposed reorganization
("Reorganization") of High Yield Opportunity Fund with and into ING High Yield
Bond Fund ("High Yield Bond Fund") (each a "Fund" and collectively, the
"Funds").
Under an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), High Yield Opportunity Fund would transfer all of its assets to
High Yield Bond Fund in exchange for shares of beneficial interest of High Yield
Bond Fund and the assumption by High Yield Bond Fund of High Yield Opportunity
Fund's liabilities as of the effective date of the Reorganization ("Closing
Date").
Because you, as a shareholder of High Yield Opportunity Fund, are being
asked to approve the Reorganization Agreement that will result in a transaction
in which you will ultimately hold shares of High Yield Bond Fund, this Proxy
Statement also serves as a Prospectus for High Yield Bond Fund. High Yield Bond
Fund is a diversified mutual fund. High Yield Bond Fund's investment objective
is to seek a high level of current income and total return. Under normal market
conditions, High Yield Bond Fund seeks to achieve its investment objective by
investing at least 80% of its assets in a portfolio of high yield (high risk)
bonds.
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 August 23,
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 (the Class A, B, C and M Fixed Income
Funds Prospectus for each Fund, dated August 1, 2004), each of which has more
information about the pertinent Fund. For additional information about the
Funds, see the Fixed Income Funds SAI that relates to the Prospectus for each
Fund, dated August 1, 2004. For a copy of the current prospectus, SAI, annual
report and semi-annual report for 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 for more information about the Funds.
THE PROPOSED REORGANIZATION
The proposed Reorganization was approved by the Board of Trustees of each
Fund at a meeting held on June 3, 2004. Subject to shareholder approval, the
Reorganization Agreement provides for:
- the transfer of all of the assets of High Yield Opportunity Fund to
High Yield Bond Fund in exchange for shares of beneficial interest
of High Yield Bond Fund;
- the assumption by High Yield Bond Fund of the liabilities of High
Yield Opportunity Fund known as of the Closing Date;
- the distribution of High Yield Bond Fund shares to the shareholders
of High Yield Opportunity Fund; and
- the complete liquidation of High Yield Opportunity Fund.
High Yield Bond Fund shares would then be distributed to shareholders of
High Yield Opportunity Fund so that each shareholder would receive a number of
full and fractional shares of High Yield Bond Fund equal to the aggregate value
of shares of High Yield Opportunity Fund held by such shareholder.
As a result of the Reorganization, each owner of Class A, Class B and
Class C shares of High Yield Opportunity Fund would become a shareholder of the
corresponding class of shares of High Yield Bond Fund. As described more fully
below, each owner of Class M shares of High Yield Opportunity Fund would become
a shareholder of Class A shares of High Yield Bond Fund. The Reorganization is
expected to be effective on October 23, 2004, or such other date as the parties
may agree (the "Closing Date").
Each Class A, Class B and Class C shareholder will hold, immediately after
the Closing Date, shares of the corresponding class of High Yield Bond Fund
having an aggregate value equal to the aggregate value of the shares of the
corresponding class of High Yield Opportunity Fund held by that shareholder as
of the Closing Date. Each Class M shareholder will hold, immediately after the
Closing Date, shares of Class A of High Yield Bond Fund having an aggregate
value equal to the aggregate value of the shares of Class M of High Yield
Opportunity Fund, respectively, held by that shareholder as of the Closing Date.
Class Q has no outstanding shares as of the Record Date and is closed to new
investments. The Class Q will cease to exist immediately after 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 High Yield Opportunity Fund and High
Yield Bond Fund invests in a diversified portfolio of high yield
(high risk) securities;
- Both Funds have the same adviser, ING Investments, LLC, the same
sub-adviser, ING Investment Management Co. and the same portfolio
management team; however, the High Yield Opportunity Fund has only
been managed by this team since April 2003. Thus, the performance of
the High Yield Bond Fund presents a longer-term record of the
performance of the portfolio management team;
- While High Yield Opportunity Fund is the larger fund ($270.7 million
versus $73.5 million as of March 31, 2004), 3-year and 5-year
performance of High Yield Bond Fund is superior;
- Class M Shareholders will experience different fees and expenses
upon becoming Class A shareholders of High Yield Bond Fund; however,
the gross (1.74% vs. 1.31%) and net (1.72% vs. 1.20%) expenses will
be lower for Class M shareholders after the Reorganization and the
transition to Class A shares;
2
- Class M shareholders* will not be subject to a sales load in
connection with future purchases of Class A shares of High Yield
Bond Fund after the Reorganization and the transition to Class A
shares; and
- The proposed Reorganization is expected to result in lower gross
expenses as well as lower net operating expenses (excluding
short-term, nonrecurring reorganization expenses) per share for all
classes of shares of the disappearing High Yield Opportunity Fund.
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 and M shares of
each Fund (as applicable) as of March 31, 2004 are as follows:
GROSS EXPENSES BEFORE THE REORGANIZATION
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
Expenses of High Yield Opportunity Fund 1.34% 1.99% 1.99% 1.74%
Expenses of High Yield Bond Fund 1.33% 1.98% 1.98% N/A
NET EXPENSES BEFORE THE REORGANIZATION (AFTER FEE WAIVER)
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
Expenses of High Yield Opportunity Fund 1.32% 1.97% 1.97% 1.72%
Expenses of High Yield Bond Fund(1) 1.29%(1) 2.04% 2.04% N/A
AFTER THE REORGANIZATION: PRO FORMA
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
Gross Expenses of High Yield Bond Fund 1.31% 1.96% 1.96% N/A
Net Expenses of High Yield Bond Fund (After Fee Waiver)(2) 1.20%(1) 1.95% 1.95% N/A
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(1) Ratios reflect new expense limits effective October 25, 2004.
(2) 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 High Yield Opportunity Fund are present, in
person or by proxy, at the Special Meeting; or (ii) more than 50% of the
outstanding voting securities of High Yield Opportunity Fund.
AFTER CAREFUL CONSIDERATION, THE BOARD OF TRUSTEES OF HIGH YIELD
OPPORTUNITY FUND UNANIMOUSLY APPROVED THE PROPOSED REORGANIZATION. THE BOARD
RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED REORGANIZATION.
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* Class M shares currently have a lower front-end sales charge than Class A
(e.g., 3.25% vs. 4.75%). Class M shareholders of High Yield Opportunity
Fund that are transitioned to Class A shares of High Yield Bond Fund in
the Reorganization are not subject to sales charges on future purchases of
Class A shares of High Yield Bond Fund for the life of their account.
3
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
The following summarizes the investment objective, strategies and
management differences between High Yield Opportunity Fund and High Yield Bond
Fund:
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HIGH YIELD OPPORTUNITY FUND HIGH YIELD BOND FUND
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INVESTMENT OBJECTIVE The Fund seeks a high level of current The Fund seeks to provide investors with a
income and capital growth. high level of current income and total
return.
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INVESTMENT STRATEGIES - Normally invests at least 80% of its - Normally invests at least 80% of its
assets in high yield (high risk), lower assets in a portfolio of high yield (high
rated debt securities, which are commonly risk) bonds. The Fund will provide
referred to as junk bonds, and convertible shareholders with at least 60 days' prior
securities rated below investment grade notice of any change in this investment
(i.e., lower than the four highest rating policy.
categories) by a nationally recognized
statistical rating agency, or of comparable - The Fund may invest any remaining assets
quality if unrated. The Fund will provide in investment grade debt securities; common
shareholders with at least 60 days' prior and preferred stocks; U.S. Government
notice of any change in this investment securities and money market instruments that
policy. the Sub-Adviser believes are appropriate in
light of the Fund's investment objectives;
- There is no limit on either the portfolio and debt securities of foreign issuers
maturity or the acceptable rating of including securities of companies in
securities bought by the Fund. Securities emerging markets. The Fund will not purchase
may bear rates that are fixed, variable or common stocks if, after such purchase, more
floating. The Fund may invest up to 20% of than 20% of the value of its assets would be
its total assets in equity securities of in common stocks.
U.S. and foreign companies, including
securities of companies in emerging markets. - The Fund is not restricted to investments
In selecting equity securities, ING in companies of any particular size, but
Investment Management Co. (the "Sub-Adviser") currently intends to invest principally in
Sub-Adviser uses a bottom-up analysis that companies with market capitalizations above
focuses on individual companies and assesses $100 million at the time of purchase.
the company's valuation, financial
condition, management, competitiveness, and - In selecting equity securities, the
other factors. Sub-Adviser uses a bottom-up analysis that
focuses on individual companies and assesses
the company's valuation, financial
- The Fund is not restricted to investments condition, management, competitiveness, and
in companies of any particular size, but other factors.
currently intends to invest principally in
companies with market capitalizations above - The Sub-Adviser combines extensive company
$100 million at the time of purchase. and industry research with relative value
analysis to identify high yield bonds
expected to provide above-average returns.
Relative value analysis is intended to
- The Sub-Adviser may sell securities for a enhance returns by moving from overvalued to
variety of reasons, such as to secure gains, undervalued sectors of the bond market.
limit losses, or redeploy assets into
opportunities believed to be more promising. - The Sub-Adviser may sell securities for a
variety of reasons, such as to secure gains,
- The Fund also may lend portfolio limit losses, or redeploy assets into
securities on a short-term or long-term opportunities believed to be more promising.
basis, up to 30% of its total assets.
- The Fund also may lend portfolio
- The Fund may engage in frequent and active securities on a short-term or long-term
trading of portfolio securities to achieve basis, up to 33 1/3% of its total assets.
its investment objective.
- The Fund may engage in frequent and active
trading of portfolio securities to achieve
its investment objective.
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PRINCIPAL The Fund invests primarily in a high yield (high The Fund invests primarily in high yield
INVESTMENTS risk) debt securities and convertible securities, (high risk) bonds that are unrated or rated
including those in the lowest ratings, as well as below investment grade.
equities and foreign securities.
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4
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HIGH YIELD OPPORTUNITY FUND HIGH YIELD BOND FUND
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SUB-ADVISER ING Investment Management Co.(1) ING Investment Management Co. (1)
PORTFOLIO MANAGERS A team of investment professionals led by A team of investment professionals led
Greg Jacobs and Kurt Kringelis. by Greg Jacobs and Kurt Kringelis.
- ----------
(1) In July 2004, ING Aeltus Investment Management, Inc. changed 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 primarily in high
yield (high risk) bonds. Key differences among the Funds are highlighted below:
- The High Yield Opportunity Fund seeks a high level of current income
and capital growth, while High Yield Bond Fund seeks a high level of
current income and total return; and
- The High Yield Opportunity Fund may invest up to 80% of its total
assets in a combination of high-yield debt securities and
convertible securities rated below investment grade, while High
Yield Bond Fund normally invests 80% of its assets in high yield
bonds.
5
COMPARISON OF FUND CHARACTERISTICS
The following table compares certain characteristics of the High Yield
Opportunity Fund and the High Yield Bond Fund as of March 31, 2004:
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HIGH YIELD OPPORTUNITY FUND HIGH YIELD BOND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets $270,725,329 $73,542,783
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Number of Holdings 267 256
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Portfolio Turnover Rate 130 105
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Average Dollar Weighted Duration 4.2 years 4.1 years
- ---------------------------------------------------------------------------------------------------------------------------------
Average Dollar Weighted Rating B B
- ---------------------------------------------------------------------------------------------------------------------------------
As a Percentage of Net Assets:
Corporate Bonds 5.2% 6.5%
High Yield Bonds 89.6% 87.2%
U.S. Treasury Obligations - -
U.S. Government Agency Obligations - -
- ---------------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations and
Asset-Backed Securities - -
Other Bonds/Sovereign Bonds - -
Investment Companies - -
Preferred Securities 1.1% 1.0%
Emerging Markets Debt Securities - -
Swaps - -
Options and Futures - -
Short-term Money Market Instruments 0.5% 3.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Top 5 Industries (as a % of Net Assets) Media 12.9% Media 12.2%
Telecommunications 8.8% Telecommunications 8.7%
Electric 6.9% Lodging 8.1%
Lodging 6.8% Electric 6.6%
Retail 6.3% Retail 6.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Top 10 Holdings (as a % of Net Assets) MGM Mirage 1.6% MGM Mirage 1.8%
Transcontinental Gas Pipe Ln 1.4% Allied Waste North America 1.4%
Hollinger Participation Trust 1.3% AES Corp. 1.4%
Grant Prideco Escrow Corp. 1.2% Transcontinental Gas Pipe Ln 1.3%
Tyco Intl. Group SA 1.1% Tyco Intl. Group SA 1.2%
Nextel Communications, Inc. 1.0% Owens-Brockway 1.1%
Western Oil Sands, Inc. 1.0% Caesars Entertainment, Inc. 1.1%
HCA, Inc. 1.0% IMC Global, Inc. 1.1%
JC Penny Co., Inc. 0.9% Crown European Holdings SA 1.0%
American Tower Corp. 0.9% HCA, Inc. 1.0%
- ---------------------------------------------------------------------------------------------------------------------------------
6
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 High Yield Opportunity Fund High Yield Bond Fund
- ---------- --------------------------- --------------------
AAA N/A N/A
AA N/A N/A
A N/A N/A
BBB 2.83% 4.76%
BB 34.94% 35.14%
B 48.59% 47.45%
CCC 9.87% 9.36%
CC N/A N/A
Unrated 3.77% 3.29%
RELATIVE PERFORMANCE
The following table shows, for the periods shown, the (unaudited) average
annual total return for: (i) Class A shares of High Yield Opportunity Fund; (ii)
Class A shares of High Yield Bond Fund; (iii) the Lehman Brothers High Yield
Bond Index; and (iv) the Credit Suisse First Boston High Yield Bond 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 is unmanaged and 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 HIGH YIELD CSFB LEHMAN BROTHERS
YEAR/PERIOD OPPORTUNITY HIGH YIELD BOND HIGH YIELD HIGH YIELD BOND
ENDED FUND(1)(2) FUND BOND INDEX(3) INDEX(4)
- ----------- ----------- --------------- --------------- ---------------
12/31/95 N/A N/A N/A N/A
12/31/96 N/A N/A N/A N/A
12/31/97 21.05% N/A 12.63% 12.77%
12/31/98 4.17% N/A 0.58% 1.87%
12/31/99 6.12% 9.14% 3.28% 2.39%
12/31/00 -15.09% 0.41% -5.21% -5.86%
12/31/01 1.68% 4.11% 5.78% 5.28%
12/31/02 -2.76% -0.09% 3.11% -1.41%
12/31/03 18.87% 17.66% 27.93% 28.97%
- ----------
(1) Prior to May 24, 1999, a different adviser managed the Fund. The figures
shown for 1999 and subsequent years provide performance for the Class A
shares of the Fund.
(2) The figures shown for 1998 and prior years provide performance for
Institutional Class shares of the Fund, revised to reflect the higher
expenses of Class A shares. Institutional Class shares are no longer
offered.
(3) The Credit Suisse First Boston High Yield Bond Index is an unmanaged index
that measures the performance of fixed income securities similar, but not
identical, to those of the High Yield Opportunity Fund.
(4) The Lehman Brothers High Yield Bond Index is a widely recognized,
unmanaged index that measures the performance of fixed-income securities
that are similar, but not identical to, those in the High Yield Bond Fund.
7
PERFORMANCE OF HIGH YIELD BOND FUND
The following bar chart and tables provide an indication of the risks of
investing in High Yield Bond Fund. The bar chart shows (on a calendar year
basis) changes in High Yield Bond Fund's annual total return from year to year.
The table shows how High Yield 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 High Yield 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. High Yield 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 Lehman
Brothers High Yield Bond Index is unmanaged. Investors cannot invest directly in
an index.
CALENDAR YEAR-BY-YEAR RETURNS(1)(2)
<Table>
<Caption>
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.14 0.41 4.11 (0.09) 17.66
</Table>
- ----------
(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 7.11% for the quarter ended December 31, 2001, and the
Fund's worst quarterly performance was - 5.21% for the quarter ended
September 30, 2001. The Fund's fiscal year-to-date total return as of June
30, 2004 was [_____%].
8
The following table shows what the average annual total returns of High
Yield 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 High Yield Bond
Index, an unmanaged index. The Lehman Brothers High Yield Bond Index is
unmanaged and has no cash in its portfolio, imposes no sales charges and incurs
no operating expenses. An investor cannot invest directly in an index. High
Yield 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.
HIGH YIELD BOND FUND -- AVERAGE ANNUAL TOTAL RETURNS
for the periods ended December 31, 2003
5 YEARS OR 10 YEARS OR
1 YEAR SINCE INCEPTION SINCE INCEPTION(1)
------ ------------------ ------------------
Class A return before taxes(2) 12.07% 5.01% 5.06%
Class A return after taxes on distributions(2) 9.43% 1.73% 1.79%
Class A return after taxes on distributions and sale
of fund shares(2) 7.75% 2.18% 2.22%
Class B return before taxes(3) 11.79% 4.97% 5.16%
Class C return before taxes(4) 15.85% 5.27% 5.31%
Lehman Brothers High Yield Bond Index (reflects
no deduction for fees, expenses or taxes)(5) 28.97% 5.23% 5.17% (6)
- ----------
(1) Classes A, B, and C shares commenced operations on December 15, 1998.
(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%,
respectively for the 1 year, 5 years and since inception returns,
respectively.
(4) Reflects deduction of deferred sales charge of 1.00% for the 1-year
return.
(5) The Lehman Brothers High Yield Bond Index is a widely recognized,
unmanaged index that measures the performance of fixed-income securities
that are similar, but not identical, to those in the High Yield Bond
Fund's portfolio.
(6) The Index returns for Classes A, B, and C are for the period beginning
December 1, 1998.
9
The following table shows the performance of High Yield Bond Fund if sales
charges are not reflected.
HIGH YIELD BOND FUND -- AVERAGE ANNUAL TOTAL RETURNS
for the periods ended December 31, 2003
5 YEARS OR 10 YEARS OR
1 YEAR SINCE INCEPTION SINCE INCEPTION(1)
------ ------------------ ------------------
Class A return before taxes 17.66% 6.04% 6.08%
Class B return before taxes 16.79% 5.26% 5.30%
Class C return before taxes 16.85% 5.27% 5.31%
Lehman Brothers High Yield Bond Index(2) 28.97% 5.23% 5.17%(3)
- ----------
(1) Classes A, B, and C commenced operations on December 15, 1998.
(2) The Lehman Brothers High Yield Bond Index is a widely recognized,
unmanaged index that measures the performance of fixed-income securities
that are similar, but not identical, to those in the High Yield Bond
Fund's portfolio.
(3) The Index returns for Classes A, B, and C are for the period beginning
December 1, 1998.
For a discussion by the Adviser regarding the performance of High Yield
Bond Fund for the annual period ended March 31, 2004, see APPENDIX A to this
Proxy Statement/Prospectus. Additional information about High Yield 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 High Yield Bond Fund
are substantially the same as the risks of investing in High Yield Opportunity
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 high yield 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. Equity securities generally have higher volatility than
debt securities.
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 Fund invests in high yield debt securities, which are considered
predominantly speculative with respect to the issuer's continuing ability to
meet interest and principal payments. High Yield Bond Fund is also subject to
credit risk through its investment in floating rate loans.
Inability to Sell Securities. Each Fund invests in high-yield bonds. High yield
securities may be less liquid than higher quality investments. Each Fund could
lose money if it cannot sell a security at the time and price that would be most
beneficial to the Fund. A security in the lowest rating categories, that is
unrated, or whose credit rating has been lowered may be particularly difficult
to sell. Valuing less liquid securities involves greater exercise of judgment
and may be more subjective than valuing securities using market quotes.
10
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.
Risks of High-yield Bonds. Each Fund invests 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 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.
Small-Capitalization Companies Risk. Each Fund may invest in
small-capitalization companies. Investing in small-capitalization companies
involves greater risk than is customarily associated with larger,
more-established companies due to the greater business risks of small size,
limited markets and financial resources, narrow product lines and the frequent
lack of depth of management. The securities of smaller companies may not be
traded in volumes typical of securities of larger companies. Consequently, the
securities of smaller companies may have limited market stability and may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general.
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.
11
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 High Yield Bond
Fund, see "APPENDIX C: ADDITIONAL INFORMATION REGARDING HIGH YIELD BOND FUND."
MANAGEMENT FEES
High Yield Opportunity Fund pays a management fee of 0.6000% on the Fund's
average daily net assets.
Effective June 4, 2004, the High Yield Bond Fund will pay a management fee
of 0.6500% on the first $250 million of the High Yield Bond Fund's average daily
net assets; 0.6000% of the Fund's average daily net assets on the next $250
million; and 0.5500% on the Fund's average daily net assets in excess of $500
million.
Additionally, for the High Yield Opportunity Fund, ING Investments, LLC
("ING Investments" or "Adviser") pays ING Investment Management Co. ("ING
Investment Management" or "Sub-Adviser") a sub-advisory fee of 0.2700% of High
Yield Opportunity Fund's average daily net assets.
Effective June 4, 2004, ING Investments will pay ING Investment Management
a sub-advisory fee of 0.2925% on the first $250 million of High Yield Bond
Fund's average daily net assets; 0.2700% of the Fund's average daily net assets
on the next $250 million; and 0.2475% on the Fund's average daily net assets in
excess of $500 million.
ADMINISTRATION FEES
ING Fund Services, LLC ("ING Fund Services"), an affiliate of the Adviser,
serves as the administrator to the High Yield Opportunity Fund and High Yield
Bond Fund. For its services, ING Fund Services receives an annual administration
fee of 0.10% of the High Yield Opportunity Fund's average daily net assets and
0.10% of the High Yield Bond Fund's average daily net assets.
DISTRIBUTION AND SERVICE FEES
The annual distribution (12b-1) and service fees for Class A shares of
High Yield Opportunity 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 High Yield
Bond Fund is 0.35% of the Fund's average daily net assets. High Yield
Opportunity Fund and High Yield Bond Fund also have the same distribution
(12b-1) and service fees for Class B and Class C shares (1.00%).
EXPENSE LIMITATION ARRANGEMENTS
An expense limitation agreement is in place for High Yield Opportunity
Fund. Under the terms of the expense limitation agreement, ING Investments has
agreed to limit the expenses of High Yield Opportunity 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 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, 2005. Pursuant to this expense
limitation agreement, the expense limits for the High Yield Opportunity Fund are
1.30%, 1.95%, 1.95% and 1.70%, for Class A, B, C and M, respectively.
An expense limitation agreement is in place for High Yield Bond Fund.
Under the terms of the expense limitation agreement, ING Investments has agreed
to limit the expenses of High Yield 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 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
12
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, 2005. Pursuant to this expense
limitation agreement, the expense limits for the High Yield Bond Fund are 1.30%,
2.05% and 2.05% for Class A, B and C, respectively.
The Board of Trustees has approved a new expense limitation agreement for
High Yield Bond Fund that will take effect on October 25, 2004 and expires on
March 31, 2007. There can be no assurance that the expense limitation agreement
will be continued after that date. The new expense limitations for Class A,
Class B and Class C shares of High Yield Bond Fund are 1.20%, 1.95% and 1.95%,
respectively.
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 and Class M shares of High Yield
Opportunity Fund and High Yield Bond Fund, respectively.
TRANSACTION FEES ON NEW INVESTMENTS
(fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 4.75%(1) None None 3.25%(5)(6)
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
- ----------
(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.
(5) Reduced for purchases of $50,000 and over. See the High Yield Opportunity
Fund's Class A, B, C and M Fixed Income Prospectus dated August 1, 2004.
(6) Class M shares of High Yield Opportunity Fund currently have a lower
front-end sales charge than Class A shares of High Yield Bond Fund. Class
M shareholders of High Yield Opportunity Fund that are transitioned to
Class A shares of High Yield Bond Fund in the Reorganization are not
subject to sales charges on future purchases of Class A shares of High
Yield Bond Fund for the life of their account.
Neither High Yield Opportunity Fund nor High Yield Bond Fund has any
exchange fees or sales charges on reinvested dividends.
13
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 and Class M shares of the Funds for the period ended March 31,
2004. Pro forma fees show estimated fees of High Yield 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)
DISTRIBUTION
(12b-1) AND TOTAL WAIVERS,
SHAREHOLDER FUND REIMBURSEMENTS
MANAGEMENT SERVICING OTHER OPERATING AND NET
FEES FEES(2) EXPENSES(3)(4) EXPENSES RECOUPMENT(5)(6) EXPENSES
---------- ------------ -------------- --------- ---------------- --------
CLASS A
High Yield Opportunity Fund 0.60% 0.35% 0.39% 1.34% (0.02)% 1.32%
High Yield Bond Fund 0.65% 0.35% 0.33% 1.33% (0.04)% 1.29%
High Yield Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.63% 0.35% 0.33% 1.31% (0.11)% 1.20%
CLASS B
High Yield Opportunity Fund 0.60% 1.00% 0.39% 1.99% (0.02)% 1.97%
High Yield Bond Fund 0.65% 1.00% 0.33% 1.98% 0.06% 2.04%
High Yield Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.63% 1.00% 0.33% 1.96% (0.01)% 1.95%
CLASS C
High Yield Opportunity Fund 0.60% 1.00% 0.39% 1.99% (0.02)% 1.97%
High Yield Bond Fund 0.65% 1.00% 0.33% 1.98% 0.06% 2.04%
High Yield Bond Fund
After the Reorganization
(Estimated Pro Forma) 0.63% 1.00% 0.33% 1.96% (0.01)% 1.95%
CLASS M(7)
High Yield Opportunity Fund 0.60% 0.75% 0.39% 1.74% (0.02)% 1.72%
High Yield Bond Fund N/A N/A N/A N/A N/A N/A
High Yield Bond Fund
After the Reorganization
(Estimated Pro Forma) N/A N/A N/A N/A N/A N/A
- ----------
(1) The fiscal year end for each Fund is March 31.
(2) 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.
(3) ING Fund Services receives an annual administration fee equal to 0.10%
respectively, of the High Yield Opportunity Fund and High Yield Bond
Fund's average daily net assets.
(4) "Other Expenses" excludes short-term, nonrecurring expenses related to the
Reorganization of the High Yield Opportunity Fund with and into the High
Yield Bond Fund.
(5) ING Funds Distributor voluntarily waives 0.10% of High Yield Bond Fund's
Class A specific expenses. This waiver will continue through at least
March 31, 2005. There is no assurance that the waiver will continue after
that date.
(6) ING Investments has entered into an expense limitation agreement with High
Yield Opportunity 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 Trustees who are not
"interested
14
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 1.30%, 1.95%,
1.95% and 1.70% for Class A, B, C and M respectively. ING Investments has
entered into an expense limitation agreement with High Yield 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, 2005. Pursuant to this expense limitation agreement, the
expense limits for the High Yield Bond Fund are 1.30%, 2.05%, and 2.05%
for Class A, B, C, respectively. The Board of Trustees has approved a new
expense limitation agreement for High Yield Bond Fund that will take
effect on October 25, 2004 and expires on March 31, 2007. There can be no
assurance that the expense limitation agreement will be continued after
that date. The new expense limitations for Class A, Class B and Class C
shares of High Yield Bond Fund are 1.20%, 1.95% and 1.95%, respectively.
(7) Class M Shares of High Yield Opportunity Fund will convert to Class A
Shares of High Yield Bond Fund in the Reorganization.
14
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.
HIGH YIELD OPPORTUNITY FUND HIGH YIELD BOND FUND(1)
--------------------------- -----------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $603 $877 $1,172 $2,009 $600 $873 $1,166 $1,997
CLASS B* $700 $922 $1,271 $2,148 $707 $927 $1,273 $2,143
CLASS C $300 $622 $1,071 $2,315 $307 $627 $1,073 $2,311
CLASS M $494 $853 $1,236 $2,308 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 $601 $870 $1,158 $1,978
CLASS B* $698 $914 $1,256 $2,116
CLASS C $298 $614 $1,056 $2,284
CLASS M(2) N/A N/A N/A N/A
You would pay the following expenses if you did not redeem your shares:
HIGH YIELD OPPORTUNITY FUND HIGH YIELD BOND FUND(1)
--------------------------- -----------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $603 $877 $1,172 $2,009 $600 $873 $1,166 $1,997
CLASS B* $200 $622 $1,071 $2,148 $207 $627 $1,073 $2,143
CLASS C $200 $622 $1,071 $2,315 $207 $627 $1,073 $2,311
CLASS M $494 $853 $1,236 $2,308 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 $601 $870 $1,158 $1,978
CLASS B* $198 $614 $1,056 $2,116
CLASS C $198 $614 $1,056 $2,284
CLASS M(2) N/A N/A N/A N/A
- ----------
(1) The examples reflect the contractual expense limitation for the one-year
period, and the first year of the three-, five- and ten-year periods.
(2) Class M shareholders of High Yield Opportunity Fund that are transitioned
to Class A shares of High Yield Bond Fund in the Reorganization are not
subject to sales charges on future purchases of Class A shares of High
Yield Bond Fund for the life of their account.
* 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.
16
GENERAL INFORMATION
Class A shares of High Yield 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
deferred sales charge, if any, applicable to the corresponding shares of High
Yield Opportunity Fund held by that shareholder immediately prior to the
Reorganization.
In addition, the period that the shareholder held shares of High Yield
Opportunity Fund will be included in the holding period of High Yield Bond Fund
shares for purposes of calculating any contingent deferred sales charge.
Similarly, Class B shares of High Yield 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 High Yield Opportunity Fund were
purchased by the shareholder. Class A, Class B and Class C shares of High Yield
Opportunity Fund and High Yield Bond Fund are both subject to the sales load
structure described in the table above in the section "Expense Tables."
As described above, Class M shares of High Yield Opportunity Fund
currently have a lower front-end sales charge than Class A shares of High Yield
Bond Fund. Class M shareholders of High Yield Opportunity Fund that are
transitioned to Class A shares of High Yield Bond Fund in the Reorganization are
not subject to sales charges on future purchases of Class A shares of High Yield
Bond Fund for the life of their account.
Following the Reorganization, certain holdings of High Yield Opportunity
Fund that are transferred to High Yield Bond Fund in connection with the
Reorganization may be sold. Such sales may result in increased transaction costs
for High Yield Bond Fund, and the realization of taxable gains or losses for
High Yield Bond Fund.
MATERIAL DIFFERENCES IN RIGHTS OF HIGH YIELD OPPORTUNITY FUND SHAREHOLDERS AND
HIGH YIELD BOND FUND SHAREHOLDERS
Each Fund is organized as a series of a Delaware statutory trust and is
governed by the same Trust Instrument and Bylaws. As such, there are no material
differences in the rights of either Fund's shareholders. The Trust Instrument
permits the Trustees, without a shareholder vote, to amend the Trust Instrument,
except that shareholders have the right to vote on: (i) the election of a
Trustee; (ii) the removal of the Trustee (by a vote of at least two-thirds of
the outstanding shares); (iii) on any amendment required by law or by the
Trust's most current registration statement; (iv) any amendment to section 11.8
of the Trust Instrument, which governs the rights of shareholders to vote on
amendments; and (v) any amendment submitted to the shareholders. The Trust
Instrument permits the Trustees pursuant to a majority vote to amend the
By-laws.
17
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 High Yield Opportunity Fund in exchange for shares
of beneficial interest of High Yield Bond Fund and the assumption by High Yield
Bond Fund of High Yield Opportunity Fund's liabilities as set forth in that
Fund's statement of assets and liabilities as of the Closing Date. Potential
liabilities of the High Yield Opportunity Fund that are not known as of the
Closing Date are not assumed by the High Yield Bond Fund under the terms of the
Reorganization Agreement. Shares of High Yield Bond Fund will then be
distributed to shareholders of High Yield Opportunity Fund, as provided for in
the Reorganization Agreement. High Yield Opportunity Fund will then be
liquidated.
Each Class A, Class B and Class C shareholder will hold, immediately after
the Closing Date, shares of the corresponding class of High Yield Bond Fund
having an aggregate value equal to the aggregate value of the shares of the
corresponding class of High Yield Opportunity Fund held by that shareholder as
of the Closing Date. Each Class M shareholder will hold, immediately after the
Closing Date, shares of Class A of High Yield Bond Fund having an aggregate
value equal to the aggregate value of the shares of Class M of High Yield
Opportunity Fund, respectively, held by that shareholder as of the Closing Date.
In the interest of economy and convenience, shares of High Yield Bond Fund
generally will not be represented by physical certificates, unless you request
the certificates in writing.
Until the Closing Date, shareholders of High Yield Opportunity Fund will
continue to be able to redeem their shares. Redemption requests received after
the Closing Date will be treated as requests received by High Yield 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 High
Yield Opportunity 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 Funds 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 Trustees of each
Fund for consideration at a meeting held on June 3, 2004. For the reasons
discussed below, the Board of Trustees of the High Yield Opportunity 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 High Yield Opportunity 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 High
Yield 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
18
shareholders of High Yield 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.
The Reorganization will allow High Yield Opportunity Fund's shareholders
to continue to participate in a professionally-managed portfolio that invests
primarily in high yield bonds. Additionally, as shown in the fee tables above,
the proposed Reorganization is expected to result in lower gross expenses as
well as lower net operating expenses (excluding short-term, nonrecurring,
reorganization expenses) per share for shareholders of all Classes. As
shareholders of High Yield 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 Trustees of each Fund 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 Funds
complex;
- the relative investment performance of High Yield Bond Fund as
compared to High Yield Opportunity Fund, and the Funds' comparative
Morningstar ratings;
- expense ratios and information regarding fees and expenses of High
Yield Opportunity Fund and High Yield 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 High Yield
Bond Fund with those of High Yield Opportunity Fund;
- the fees or expenses that will be borne directly or indirectly 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 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 High Yield Bond Fund.
The Board of Trustees also considered the new expense limitation agreement
for High Yield Bond Fund, which would continue in effect at least through March
31, 2007.
THE TRUSTEES OF HIGH YIELD OPPORTUNITY FUND RECOMMEND THAT SHAREHOLDERS
APPROVE THE REORGANIZATION WITH AND INTO HIGH YIELD 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 High Yield
Opportunity Fund nor its shareholders, nor High Yield 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.
19
Immediately prior to the Reorganization, High Yield Opportunity Fund will pay a
dividend or dividends which, together with all previous dividends, will have the
effect of distributing to its shareholders all of High Yield Opportunity 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 High
Yield Opportunity Fund's shareholders. High Yield Opportunity Fund shareholders'
holding period in the High Yield Bond Fund shares received in the Reorganization
will include the High Yield Opportunity Fund shares surrendered in the
Reorganization provided that they held those shares as capital assets. High
Yield Opportunity Fund shareholders' aggregate basis in the High Yield Bond Fund
shares received in the Reorganization will be the same as shareholders'
aggregate basis in the High Yield Opportunity Fund.
EXPENSES OF THE REORGANIZATION
ING Investments will bear half the cost of the Reorganization. The Funds
will bear the other half of the expenses related to the proposed Reorganization,
including, but not limited to, the costs of solicitation of voting instructions
and any necessary filings with the SEC. Of the Reorganization expenses allocated
to the Funds, each Fund will bear a pro rata portion based on its relative net
asset values immediately before the Closing Date.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION
Each 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. 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 High Yield Bond Fund and High Yield Opportunity 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 High Yield Opportunity
Fund's shareholders, then as soon as practicable before the Closing Date, High
Yield Opportunity Fund will pay its shareholders a cash distribution of
substantially all undistributed net investment income and undistributed realized
net capital gains.
20
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 PER SHARES
NET ASSETS SHARE OUTSTANDING
HIGH YIELD OPPORTUNITY FUND
Class A $ 81,082,340 $7.14 11,363,706
Class B $165,296,327 $7.18 23,034,074
Class C $ 21,195,064 $7.17 2,955,262
Class M $ 2,980,615 $7.13 418,266
Class Q** $ 170,983 $7.16 23,888
Total High Yield Opportunity Fund $270,725,329
HIGH YIELD BOND FUND
Class A $ 44,009,423 $8.88 4,955,851
Class B $ 18,752,896 $8.88 2,112,523
Class C $ 10,780,464 $8.88 1,214,223
Class M N/A N/A
Class Q N/A N/A
Total High Yield Bond Fund $ 73,542,783
PRO FORMA - HIGH YIELD BOND FUND INCLUDING HIGH YIELD OPPORTUNITY FUND
Class A $128,072,378 $8.88 14,422,400
Class B $184,049,223 $8.88 20,726,974
Class C $ 31,975,528 $8.88 3,601,055
Class M* N/A N/A N/A
Class Q** N/A N/A N/A
Total Pro Forma High** $344,097,129
Yield Bond Fund
- -----------------------------
* Class M shares of High Yield Opportunity Fund will convert to Class A shares
of High Yield Bond Fund.
** Class Q has no outstanding shares as of the Record Date and will cease to
exist immediately after the Closing Date. The Total Pro Forma Assets
including Class Q are $344,268,112.
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
August 23, 2004. Shareholders of High Yield Opportunity 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. High Yield Opportunity 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 $86,000. ING Investments will
bear half the cost of the proxy solicitation. Of the proxy solicitation expenses
allocated to the Funds, each Fund will bear a pro rata portion based on its
relative net assets immediately prior to the closing of the Reorganization.
Shareholders of High Yield Opportunity 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
21
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 1-888-999-7716.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with High Yield Opportunity 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 High Yield Opportunity Fund that may
be presented at the Special Meeting.
VOTING RIGHTS
As a shareholder of High Yield Opportunity 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 High Yield Opportunity Fund at the close of business
on July 15, 2004 (the "Record Date") will be entitled to be present and give
voting instructions for High Yield Opportunity Fund at the Special Meeting with
respect to their shares owned as of that Record Date. As of the Record Date,
[_____] shares of High Yield Opportunity 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.
High Yield Opportunity 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, High Yield Opportunity 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 August 6, 2004, no current
Trustee owns 1% or more of the outstanding shares of either Fund, and the
officers and Trustees own, as a group, less than 1% of the shares of either
Fund.
22
APPENDIX E hereto lists the persons that, as of August 6, 2004, owned
beneficially or of record 5% or more of the outstanding shares of any Class of
High Yield Opportunity Fund or High Yield Bond Fund.
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
High Yield Opportunity 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
High Yield Opportunity 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 High Yield Opportunity 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
August 23, 2004
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
23
APPENDIX A
PORTFOLIO MANAGERS' REPORT FOR ING HIGH YIELD BOND FUND
PORTFOLIO MANAGEMENT TEAM: A team of investment professionals led by Greg
Jacobs, CFA and Kurt Kringelis, CFA, CPA, Aeltus Investment Management, Inc.
- -- the Sub-Adviser.
GOAL: The ING High Yield Bond Fund (the "Fund") seeks to provide investors with
a high level of current income and total return by investing at least 80% of its
assets in high yield (high risk) bonds, which are commonly referred to as "Junk
Bonds," that are unrated or rated below investment grade.
PERFORMANCE: For the year ended March 31, 2004, the Fund's Class A shares,
excluding sales charges, provided a total return of 14.70% compared to 22.66%
for the Lehman Brothers High Yield Bond Index.
PORTFOLIO SPECIFICS: The portfolio managers' long-term strategy is to outperform
the Index by achieving lower credit losses than the benchmark. Consistent with
this strategy, the Fund is typically positioned conservatively relative to the
benchmark. In 2003, this strategy had a significant negative impact on the
Fund's performance relative to the benchmark, as the market experienced few
credit losses and many previously distressed issuers recovered from a market
perspective. As a result, while the absolute returns of the Fund were strong,
performance lagged relative to the Index.
From a credit quality perspective, the Fund was underweight securities rated Caa
and below. This factor specifically hurt relative performance, as the lower
rated part of the high yield universe outperformed the benchmark by an average
of 20-40%. From a sector perspective, the Fund was underweight the more
volatile, most risky sectors, including finance, utilities, airlines and cable,
all of which experienced significant outperformance relative to the benchmark.
MARKET OUTLOOK: We remain constructive on the prospects of the high yield
market. An improving economy and continued declining default rates should help
boost returns for high yield investors. Though we believe that the high yield
markets are favorable, we do not expect the 2004 returns to match the
historically high returns of 2003. Returns for 2004 are expected to be more
modest, but still attractive relative to other fixed income alternatives.
In response to the benign environment, in 2003 we selectively added risk to the
portfolio. Consistent with our style, we are focused on reducing principal
losses through credit deterioration. However, given the improving micro and
macro fundamentals, investors may benefit from higher returns without
significantly increasing the risk of credit loss.
2003 was largely a year that rewarded high yield investors who traded down in
credit quality, regardless of issuer strength or industry sector. We expect that
in 2004 this trend may cease, and that sector and issuer selection will once
again be the most important factors differentiating high yield investors.
Additionally, while we are encouraged by the prospects of the high yield market,
we continue to be cautious on the lower quality, distressed part of the
universe. Many issuers in this space have solved near term financing issues, but
operational improvements in many low quality issuers have yet to be seen. As a
result, while we have selectively added risk, we are focusing on investing in
companies that have not only satisfied their near-term liquidity needs, but also
have positive operating momentum.
A-1
(LINE GRAPH)
ING High Yield ING High Yield Lehman Brothers
Bond Fund Class A Bond Fund Class A High Yield Bond
with sales charge without sales charge Securities Index
----------------- -------------------- ----------------
12/15/1998 $ 9,524 $ 10,000 $ 10,000
3/31/1999 $ 9,906 $ 10,401 $ 10,196
3/31/2000 $ 10,256 $ 10,769 $ 10,011
3/31/2001 $ 10,902 $ 11,447 $ 10,263
3/31/2002 $ 11,113 $ 11,668 $ 10,330
3/31/2003 $ 11,362 $ 11,930 $ 10,779
3/31/2004 $ 13,047 $ 13,699 $ 13,221
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2003
SINCE INCEPTION
OF CLASSES
A, B AND C
1 YEAR 5 YEARS 12/15/98
------ ------- ---------------
Including Sales Charge:
Class A(1) 9.38% 4.63% 5.15%
Class B(2) 9.01% 4.59% 5.19%
Class C(3) 13.03% 4.87% 5.33%
Excluding Sales Charge:
Class A 14.70% 5.65% 6.12%
Class B 14.01% 4.88% 5.32%
Class C 14.03% 4.87% 5.33%
Lehman Brothers High Yield
Bond Securities Index(4) 22.66% 5.33% 5.37%(5)
(1) Reflects deduction of the maximum Class A sales charge of 4.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5%, 2% and 1%,
respectively, for the 1 year, 5 years and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1% for the 1
year return.
(4) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(5) Since inception performance for index is shown from December 1, 1998.
Based on a $10,000 initial investment, the graph and table above illustrate the
total return of ING High Yield Bond Fund against the Lehman Brothers High Yield
Bond Securities Index. The Index is unmanaged and has no cash in its portfolio,
imposes no sales charges and incurs no operating expenses. An investor cannot
invest directly in an index. The Fund's performance is shown both with and
without the imposition of sales charges.
The performance graph and table do not reflect the deduction of taxes that a
shareholder will pay on Fund distributions or the redemption of Fund shares.
Total returns reflect the fact that the Investment Adviser has waived certain
fees and expenses otherwise payable by the Fund. Total returns would have been
lower had there been no waiver to the Fund.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. THE FUND'S PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA
SHOWN. PLEASE LOG ON TO WWW.INGFUNDS.COM OR CALL (800) 992-0180 TO GET
PERFORMANCE THROUGH THE MOST RECENT MONTH END.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
Fund holdings are subject to change daily.
A-2
PRINCIPAL RISK FACTOR(S): Investments in high yield bonds are high risk
investments. Certain high yield/high risk bonds carry particular market,
prepayment and credit risks and may experience greater volatility in market
value than investment grade corporate bonds. International investing does pose
special risks including currency fluctuation, economic and political risks not
found in investments that are soley domestic. The value of the Fund's
investments may fall when interest rates rise. The Fund may be sensitive to
changes in interest rates because it 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. The Fund could lose money
if it cannot sell a security at the time and price that would be most beneficial
to the Fund. Investment in small-capitalization companies involves greater risk
than is customarily associated with larger, more established companies. The
securities may have limited market stability and may be subject to more erratic
market movements than securities of larger, more established companies or the
market averages in general.
A-3
APPENDIX B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 3rd day of June, 2004, by and between ING Funds Trust, a Delaware statutory
trust (the "Trust"), with its principal place of business at 7337 East
Doubletree Ranch Road, Scottsdale, Arizona 85258-2034, on behalf of ING High
Yield Bond Fund (the "Acquiring Fund"), a separate series of the Trust, and the
Trust, on behalf of ING High Yield Opportunity Fund (the "Acquired Fund"),
another separate series of the Trust.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of the regulations under
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 and Class C 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 each a series of an
open-end, registered investment company 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 the 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 Trustees of the Trust 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
and Class C 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; (ii) to deliver to the Acquired
Fund the number of full and fractional Class A Acquiring Fund Shares determined
by dividing the value of the Acquired Fund's net assets with respect to Class M
shares, 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 Class A,
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (iii) 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
Trust, on behalf of the Acquired Fund, to 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 (i) distribute to the Acquired Fund's shareholders
of record with respect to Class A, Class B and Class C shares, determined as of
immediately after the close of business on the Closing Date, 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; (ii) distribute to the Acquired Fund's
shareholders of record with respect to Class M shares, determined as of
immediately after the close of business on the Closing Date, on a pro rata basis
within that class, the Acquiring Fund Shares of Class A received by the Acquired
Fund pursuant to paragraph 1.1; and (iii) 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
Class A, Class B, Class C and Class M Acquired Fund shareholders ("Acquired Fund
Shareholders"). The aggregate net asset value of Class A, Class B and Class C
Acquiring Fund Shares to be so credited to Class A, Class B and Class C 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. The aggregate net asset value of Class A
Acquiring Fund Shares to be so credited to Class M Acquired Fund Shareholders
shall be equal to the aggregate net asset value of the Acquired Fund shares of
Class M owned by such shareholders on the Closing Date. All issued and
outstanding Class A, Class B and Class C Acquired Fund shares will
simultaneously be canceled on the books of the Acquired Fund, although share
certificates representing interests in Class A, Class B and Class C 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. All
issued and outstanding Class M Acquired Fund shares will simultaneously be
canceled on the books of the Acquired Fund, although share certificates
representing interests in Class M shares of the Acquired Fund will represent a
number of Class A 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 and Class C 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 and Class C 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
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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 and Class C 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 and Class C
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 of the same Class, determined in accordance with paragraph
2.2. The number of the Class A Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's Class M assets
shall be determined with respect to Class M by dividing the value of the net
assets with respect to the Class M shares of the Acquired Fund determined using
the same valuation procedures referred to in paragraph 2.1, by the net asset
value of a Class A Acquiring Fund Share, determined in accordance with paragraph
2.2.
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 October 23, 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 State Street Bank and Trust Company,
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 and Class M 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 Trustees 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
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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 Trust, the Trust, on behalf of the
Acquired Fund, represents and warrants to the Acquiring Fund as follows:
(a) The Acquired Fund is duly organized as a series of the Trust,
which is a statutory trust duly organized, validly existing and in good standing
under the laws of the State of Delaware, with power under the Trust to own all
of its properties and assets and to carry on its business as it is now being
conducted;
(b) The 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
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 Trust's Trust Instrument or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the Trust,
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 Trust, 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 the
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
Trust, 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;
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(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 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 Trustees of the Trust, 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
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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 the Trust, the Trust, on behalf of the
Acquiring Fund, represents and warrants to the Acquired Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the Trust,
which is a statutory trust duly organized, validly existing and in good standing
under the laws of the State of Delaware, with power under the Trust to own all
of its properties and assets and to carry on its business as it is now being
conducted;
(b) The 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 the Trust's Trust Instrument or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the 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
the 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
Trust, 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 the 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. The
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;
B-6
(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;
(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 the 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 the 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 and Class C 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 the 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.
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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.
5.3. The Acquired Fund covenants that the Class A, Class B and Class C
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 and Class 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 Trust, on behalf of the Acquired Fund, covenants that the Trust
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
the Acquiring Fund may reasonably deem necessary or desirable in order to vest
in and confirm (a) the Trust'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
Trust'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 Trust, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at the Trust's
election, to the performance by the 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 the 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
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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. The Trust shall have delivered to the Acquired Fund 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 Acquired Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of the 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 Acquired Fund shall reasonably request;
6.3. The 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 the 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 the Trust, on behalf of the Acquiring Fund, to complete
the transactions provided for herein shall be subject, at the Trust's election,
to the performance by the Trust, 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 Trust, 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 Trust 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 Trust;
7.3. The Trust 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 the
Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Trust, 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 the Trust shall reasonably request;
7.4. The Trust, 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 Trust, 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.
B-9
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 Trust, on behalf of the Acquired
Fund, or the 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 Trust's Trust
Instrument, By-Laws, applicable Delaware law and the 1940 Act, and certified
copies of the resolutions evidencing such approval shall have been delivered to
the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Acquired Fund nor the Acquiring Fund 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
the Trust 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 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 the Trust. Notwithstanding anything herein
to the contrary, neither the Acquired Fund nor the Acquiring Fund may waive the
condition set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1. The Acquired Fund and 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 shared
so that (1) half of such costs are borne by the investment adviser to the
Acquiring Fund, and (2) half are borne by the Acquired and Acquiring Funds and
will be paid by the Acquired Fund and Acquiring Fund pro rata based upon the
relative net assets of the Acquired Fund and the Acquiring Fund as of the close
of business on the Closing Date. 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. The Acquired Fund and the Acquiring Fund 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.
B-10
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 October 23,
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 become void and there shall be no liability
hereunder on the part of any party or their respective Trustees 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 Trust;
provided, however, that following the meeting of the shareholders of the
Acquired Fund called by the Trust 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 Acquiring Fund Shares to be
issued to the Class A, Class B, Class C and Class M 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 the Trust,
on behalf of the Acquired Fund, or the Trust, on behalf of the Acquiring Fund,
at 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 Trust personally, but shall bind only the trust
property of the Acquired Fund, as provided in the Trust Instrument. 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 HIGH YIELD BOND FUND series
Attest:
By:
--------------------------------
- ---------------------------------
Secretary
Title:
--------------------------------
ING FUNDS TRUST, on behalf of its
ING HIGH YIELD OPPORTUNITY FUND series
Attest:
By:
--------------------------------
- ---------------------------------
Secretary
Title:
--------------------------------
B-12
APPENDIX C
ADDITIONAL INFORMATION REGARDING ING HIGH YIELD BOND FUND
("HIGH YIELD BOND FUND")
SHAREHOLDER GUIDE
ING PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to four separate Classes of shares
of High Yield Bond Fund: Class A, Class B and Class C, each of which represents
an identical interest in High Yield 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 charge and conversion
characteristics of Class A, Class B and Class C shares of High Yield Bond Fund
that will be issued to you in the Reorganization will be the same as those that
apply to ING High Yield Opportunity Fund ("High Yield Opportunity Fund") shares
held by you immediately prior to the Reorganization, and the period that you
held shares of High Yield Opportunity Fund will be included in the holding
period of High Yield Bond Fund shares for purposes of calculating any contingent
deferred sales charges and determining any conversion rights. Purchases of the
Class A, Class B and Class C shares of High Yield 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 High
Yield Bond Fund are shown and contrasted in the chart below.
CLASS A CLASS B CLASS C
Maximum Initial Sales Charge on 4.75%(1) None None
Purchases
Contingent Deferred Sales
Charge ("CDSC") None(2) 5.00%(3) 1.00%(4)
Annual Distribution (12b-1) and
Service Fees (5) 0.35% 1.00% 1.00%
Maximum Purchase Unlimited $100,000 Unlimited
Automatic Conversion to Class A N/A 8 Years(6) N/A
- ---------------
(1) Reduced for purchases of $50,000 and over. Shareholders that purchased
Class M shares of High Yield Opportunity Fund and are transitioned to
Class A shares of High Yield Bond Fund in the Reorganization are not
subject to sales charges on future purchases of Class A shares of High
Yield Bond Fund for the life of their account.
(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 High Yield Bond Fund issued to shareholders of High
Yield Opportunity 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 High Yield Opportunity 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 $100,000 will be accepted as orders for Class A shares or
declined.
C-1
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of High
Yield 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.
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 in an
amount 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
WHICH CDSC
YOUR INVESTMENT 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 High Yield 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 High Yield 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 High
Yield 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 High Yield 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 High Yield 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 High Yield 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 High Yield Bond Fund.
C-2
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 High Yield 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 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 $100,000 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 High Yield 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 High Yield 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 High
Yield 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.
C-3
If you think you may be eligible for a CDSC waiver, contact a Shareholder
Servicing Representative at 1-800-992-0180.
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 High Yield Bond Fund for details or contact the Shareholder
Servicing Representative at 1-800-992-0180 for more information.
RULE 12B-1 PLAN. High Yield 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 and Class C shares of High Yield Bond Fund ("Rule
12b-1 Plan"). Under the Rule 12b-1 Plan, the "Distributor" may receive from High
Yield Bond Fund an annual fee in connection with the offering, sale and
shareholder servicing of High Yield Bond Fund's Class A, Class B and Class C
shares.
DISTRIBUTION AND SERVICING FEES. As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of shares
of High Yield Bond Fund and in connection with services rendered to shareholders
of High Yield Bond Fund, High Yield Bond Fund pays the Distributor servicing
fees and distribution fees up to the annual rates set forth below (calculated as
a percentage of High Yield Bond Fund's average daily net assets attributable to
that Class):
SERVICING FEE DISTRIBUTION FEE
------------- ----------------
Class A 0.00% 0.35%
Class B 0.25% 0.75%
Class C 0.25% 0.75%
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 or Class C shares of High
Yield Bond Fund, including payments to Authorized Dealers, and for shareholder
servicing.
Because these fees are paid out of High Yield 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, High Yield 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 High Yield Bond Fund expenses are allocated proportionately
among all of the outstanding shares of High Yield 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 High Yield Bond Fund is $1,000. The
minimum initial investment for a pre-authorized retirement plan is $1,000, plus
monthly installments of at least $100. High Yield 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.
High Yield 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 are a participant in a qualified retirement plan, you should make
purchases through your plan administrator or sponsor, who is responsible for
transmitting orders
C-4
MARKET TIMERS. A Fund may restrict or refuse purchase orders, whether
directly or by exchange, by market timers. "Market timing" is defined as
effecting frequent trades into or out of a Fund in an effort to anticipate or
time market movements. Due to the frequent and disruptive nature of this
activity, it can adversely impact the ability of the Sub-Adviser to invest
assets in an orderly, long-term manner, which in turn, may adversely impact the
performance of a Fund.
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 FROM 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.
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 all 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 60 days
or less 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:
C-5
- 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; and
- 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.
RETIREMENT PLANS. High Yield 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.
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 High Yield 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 High Yield Bond Fund will not be
issued unless you request them in writing.
TELEPHONE ORDERS. High Yield 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. High Yield 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 High Yield 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.
C-6
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, High Yield 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 written 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 High Yield Bond Fund into which they are
being exchanged.
Shares of one class of High Yield 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 High Yield 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.
CDSC ON EXCHANGE INTO ING SENIOR INCOME FUND. You are not required to pay
an applicable CDSC upon any exchange from High Yield 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 High
Yield 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. 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, High Yield 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 ($250,000 for Class Q) other than as a
result of a decline in the NAV per share.
HOW TO REDEEM SHARES
Shares of High Yield 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.
C-7
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount of $100 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. For additional information, contact the
Shareholder Services Representative at 1-800-992-0180, or see High Yield Bond
Fund's SAI.
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. High
Yield 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. High Yield 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. High Yield Bond Fund intends to pay in cash
for all shares redeemed, but under abnormal conditions that make payment in cash
harmful to High Yield Bond Fund, High Yield Bond Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, High Yield 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 trustees 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.
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.
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
High Yield 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 HIGH YIELD BOND FUND
INVESTMENT ADVISER. ING Investments, an Arizona limited liability company,
serves as the investment adviser to High Yield Bond Fund. ING Investments has
overall responsibility for management of High Yield Bond Fund. ING Investments
has engaged a Sub-Adviser to provide the day-to-day management of the High Yield
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 High Yield Bond Fund. As of March 31, 2004, ING
Investments managed over $34.8 billion in assets.
C-8
SUB-ADVISER. ING Investment Management Co. ("ING Investment Management"),
which changed its name from ING Aeltus Investment Management, Inc. ("ING
Aeltus") in July 2004, is a registered investment adviser and is responsible for
providing the day-to-day management of High Yield Bond Fund. ING Investment
Management 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 the sale of the High Yield 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 High Yield Bond Fund has been managed by a team of
investment professionals led by Greg Jacobs, Portfolio Manager, and Kurt
Kringelis, Portfolio Manager, since January 2001. Both Mr. Jacobs and Mr.
Kringelis joined ING in January 1998. They each have more than eight years
investment experience managing high yield investments.
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 High Yield Bond Fund. The Shareholder
Services Representative is responsible for responding to written and telephonic
inquiries from shareholders. High Yield 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 Investment Management will
place orders to execute securities transactions that are designed to implement
High Yield Bond Fund's investment objectives and policies. ING Investments or
ING Investment Management 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 Investment Management may consider brokerage and research
services provided by a broker to ING Investments or ING Investment Management or
an affiliate, and High Yield 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 Investment Management 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 High Yield Bond Fund. ING Investments also may consider a broker's
sale of Fund shares if ING Investments is satisfied that High Yield Bond Fund
would receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS. High Yield Bond Fund generally distributes
most or all of its net earnings in the form of dividends. High Yield 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 High Yield Bond Fund will be
automatically reinvested in additional shares of the respective class of High
Yield 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. A shareholder may still at
any time after a purchase of Fund shares request that dividends and/or
C-9
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 and Class C shares of High Yield Bond
Fund invested into the corresponding Class of an ING Fund that offers that Class
of shares.
FEDERAL TAXES. The following information is meant as a general summary for
U.S. shareholders. Please see High Yield 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 High
Yield Bond Fund.
High Yield Bond Fund will distribute all or substantially all of its net
investment income and net capital gains to its shareholders each year. Although
High Yield 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 Fund shares. For example, if High Yield 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 High Yield 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 High Yield 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 High Yield 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, High Yield 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 High Yield 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
C-10
IRS ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against your U.S. federal income tax liability.
C-11
FINANCIAL HIGHLIGHTS
The information below for the year ended March 31, 2004 and for all
periods prior to November 1, 2000, is audited by KPMG LLP, independent
registered public accounting firm. 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 High Yield Bond's financial statements, which,
had been audited by other independent accountants. [CONFIRM STATEMENT]
CLASS A
---------------------------------------------------------------------------------
FIVE DECEMBER 15,
YEAR YEAR YEAR MONTHS YEAR 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 $ 8.29 8.74 9.36 9.24 9.96 10.00
Income (loss) from investment operations:
Net investment income $ 0.59 0.61 0.78 0.39 0.85 0.67
Net realized and unrealized gain (loss)
on investments $ 0.60 (0.45) (0.62) 0.12 (0.65) (0.04)
Total from investment operations $ 1.19 0.16 0.16 0.51 0.20 0.63
Less distributions from:
Net investment income $ 0.60 0.61 0.78 0.39 0.86 0.67
Net realized gains on investments $ -- -- -- -- 0.06 --
Total distributions $ 0.60 0.61 0.78 0.39 0.92 0.67
Net asset value, end of period $ 8.88 8.29 8.74 9.36 9.24 9.96
TOTAL RETURN(2): % 14.70 2.24 1.94 5.61 1.89 6.37
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 44,009 43,375 38,525 33,459 33,220 30,537
Ratios to average net assets:
Net expenses after expense
reimbursement/recoupment(3)(5) % 1.29 1.30 1.30 1.09 1.04 1.00
Gross expense prior to expense
reimbursement/recoupment(3) % 1.33 1.43 1.79 1.63 2.16 2.32
Net investment income after expense
reimbursement/recoupment(3)(5) % 6.81 7.48 8.67 10.24 8.75 7.53
Portfolio turnover rate % 105 122 344 253 481 756
- -------------------
(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 recoupment by ING
Investments within three years.
C-12
CLASS B
-----------------------------------------------------------------------------------
FIVE DECEMBER 15,
YEAR YEAR YEAR MONTHS YEAR 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 $ 8.28 8.74 9.36 9.23 9.96 10.00
Income (loss) from investment operations:
Net investment income $ 0.53 0.55 0.72 0.36 0.78 0.60
Net realized and unrealized gain (loss)
on investments $ 0.60 (0.46) (0.62) 0.14 (0.66) (0.05)
Total from investment operations $ 1.13 0.09 0.10 0.50 0.12 0.55
Less distributions from:
Net investment income $ 0.53 0.55 0.72 0.37 0.79 0.59
Net realized gains on investments $ -- -- -- -- 0.06 --
Total distributions $ 0.53 0.55 0.72 0.37 0.85 0.59
Net asset value, end of period $ 8.88 8.28 8.74 9.36 9.23 9.96
TOTAL RETURN(2): % 14.01 1.37 1.29 5.43 1.02 5.57
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 18,753 11,584 6,673 5,025 3,702 2,374
Ratios to average net assets:
Net expenses after expense
reimbursement/recoupment(3)(5) % 2.04 2.05 2.05 1.84 1.79 1.72
Gross expense prior to expense % 1.98 2.07 2.44 2.28 2.41 2.64
reimbursement/recoupment(3)
Net investment income after expense
reimbursement/recoupment(3)(5) % 6.04 6.73 7.85 9.49 7.99 6.90
Portfolio turnover rate % 105 122 344 253 481 756
- --------------------------
(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 recoupment by ING
Investments within three years.
C-13
CLASS C
----------------------------------------------------------------------------------
FIVE DECEMBER 15,
YEAR YEAR YEAR MONTHS YEAR 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 $ 8.28 8.74 9.36 9.23 9.96 10.00
Income (loss) from investment operations:
Net investment income $ 0.53 0.56 0.71 0.37 0.78 0.62
Net realized and unrealized gain (loss)
on investments $ 0.60 (0.46) (0.61) 0.12 (0.66) (0.06)
Total from investment operations $ 1.13 0.10 0.10 0.49 0.12 0.56
Less distributions from:
Net investment income $ 0.53 0.56 0.72 0.36 0.79 0.60
Net realized gains on investments $ -- -- -- -- 0.06 --
Total distributions $ 0.53 0.56 0.72 0.36 0.85 0.60
Net asset value, end of period $ 8.88 8.28 8.74 9.36 9.23 9.96
TOTAL RETURN(2): % 14.03 1.43 1.21 5.39 1.02 5.67
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 10,780 5,281 1,633 1,314 1,578 776
Ratios to average net assets:
Net expenses after expense
reimbursement/recoupment(3)(5) % 2.04 2.04 2.05 1.84 1.79 1.73
Gross expense prior to expense
reimbursement/recoupment(3) % 1.98 2.06 2.44 2.29 2.40 2.66
Net investment income after expense
reimbursement/recoupment(3)(5) % 6.04 6.72 7.92 9.42 7.98 7.01
Portfolio turnover rate % 105 122 344 253 481 756
- --------------------------
(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 recoupment by ING
Investments within three years.
C-14
APPENDIX D
ADDITIONAL ING FUNDS OFFERED
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
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
Classic Money Market Fund A, B, C and I
GNMA Income Fund A, B, C, I, M and Q
Government Fund A, B, C and I
D-1
FUND CLASSES OFFERED
- ---- ---------------
High Yield Bond Fund A, B and C
Intermediate Bond Fund A, B, C, I, O 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 August 6, 2004:
ING HIGH YIELD OPPORTUNITY FUND
PERCENTAGE OF
PERCENT OF CLASS COMBINED FUND
NAME AND ADDRESS OF OF SHARES AND PERCENTAGE OF AFTER THE
SHAREHOLDER TYPE OF OWNERSHIP FUND REORGANIZATION*
ING HIGH YIELD BOND FUND
PERCENTAGE OF
PERCENT OF CLASS COMBINED FUND
NAME AND ADDRESS OF OF SHARES AND PERCENTAGE OF AFTER THE
SHAREHOLDER TYPE OF OWNERSHIP FUND 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 August 6, 2004.
E-1
PART B
ING FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 23, 2004
Acquisition of the Assets and Liabilities of: By and in Exchange for Shares of:
ING High Yield Opportunity Fund ING High Yield Bond Fund
(a series of ING Funds Trust) (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 High Yield Opportunity Fund in connection with a proposed
transaction whereby all of the assets and known liabilities of the ING High
Yield Opportunity Fund will be transferred to ING High Yield Bond Fund, a series
of ING Funds Trust, in exchange for shares of ING High Yield Bond Fund.
This Statement of Additional Information of ING Funds Trust consists of this
cover page and 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 High Yield Bond Fund and ING High Yield Opportunity Fund,
dated August 1, 2003, as filed on July, 29 2003.
2. The Financial Statements of the High Yield Bond Fund and High Yield
Opportunity Fund, respectively, are included in the Classes A, B, C, M and R
Annual Report, dated March 31, 2004, as filed on June 10, 2004, and the Classes
I and Q Annual Report, dated March 31, 2004, as filed on June 10,2004.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated August 23, 2004 relating to the Reorganization
of ING High Yield Opportunity 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.
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
ING ING PRO FORMA PRO FORMA
HIGH YIELD HIGH YIELD COMBINED COMBINED
OPPORTUNITY BOND (PRE-MERGER PRO FORMA (POST MERGER
FUND FUND EXPENSE) ADJUSTMENTS EXPENSE)
---- ---- -------- ----------- --------
ASSETS:
Investments in securities at value+* $ 259,147,990 $ 69,637,617 $328,785,607 $328,785,607
Repurchase agreement 1,237,000 2,731,000 3,968,000 3,968,000
Cash 3,169,251 580 3,169,831 3,169,831
Cash collateral for securities loaned 77,944,315 17,415,421 95,359,736 95,359,736
Receivables:
Investment securities sold 3,435,412 253,448 3,688,860 3,688,860
Fund shares sold 95,269 190,428 285,697 285,697
Dividends and interest 6,417,387 1,467,288 7,884,675 7,884,675
Prepaid expenses 36,040 16,138 52,178 52,178
------------- ------------- ------------ ------------
Total assets 351,482,664 91,711,920 443,194,584 - 443,194,584
------------- ------------- ------------ ------------
LIABILITIES:
Payable for investment securities
purchased 805,000 230,000 1,035,000 1,035,000
Payable upon return of securities
loaned 77,944,315 17,415,421 95,359,736 95,359,736
Payable for fund shares redeemed 550,027 95,580 645,607 645,607
Income distribution payable 683,069 247,294 930,363 930,363
Payable to affiliates 390,826 120,680 511,506 511,506
Payable for trustee fees 6,655 783 7,438 7,438
Payable for transfer agent 120,696 26,343 147,039 147,039
Other accrued expenses and
liabilities 256,747 33,036 289,783 75,000 (A) 364,783
------------- ------------- ------------ ------------- ------------
Total liabilities 80,757,335 18,169,137 98,926,472 75,000 99,001,472
------------- ------------- ------------ ------------- ------------
NET ASSETS $ 270,725,329 $ 73,542,783 $344,268,112 $ (75,000) $344,193,112
============= ============= ============ ============= ============
NET ASSETS CONSIST OF:
Paid-in capital $ 726,633,558 $ 76,582,647 $803,216,205 $803,216,205
Accumulated net investment loss (3,557,741) (37,562) (3,595,303) (75,000) (3,670,303)
Accumulated net realized loss on
investments (438,636,391) (6,578,088) (445,214,479) (445,214,479)
Net unrealized appreciation
(depreciation) of investments (13,714,097) 3,575,786 (10,138,311) (10,138,311)
------------- ------------- ------------ ------------- ------------
NET ASSETS $ 270,725,329 $ 73,542,783 $344,268,112 $ (75,000) $344,193,112
============= ============= ============ ============= ============
+Including securities on loan at value $ 75,999,185 $ 16,993,855 $ 92,993,040 $ 92,993,040
*Cost of investments in securities $ 272,931,812 $ 66,061,831 $338,993,643 $338,993,643
CLASS A:
Net Assets $ 81,082,340 $ 44,009,423 $128,072,378 $ (27,915) $128,044,463
Shares authorized unlimited unlimited unlimited unlimited
Par value $ 0.01 $ 0.01 $ 0.01 $ 0.01
Shares outstanding 11,363,706 4,955,851 (1,897,157)(C) 14,422,400 14,441,655
Net asset value and redemption
price per share $ 7.14 $ 8.88 $ 8.88 $ 8.88
Maximum offering price per share (B) $ 7.50 $ 9.32 $ 9.32 $ 9.32
CLASS B:
Net Assets $ 165,296,327 $ 18,752,896 $184,049,223 $ (40,116) $184,009,107
Shares authorized unlimited unlimited unlimited unlimited
Par value $ 0.01 $ 0.01 $ 0.01 $ 0.01
Shares outstanding 23,034,074 2,112,523 (4,419,623)(C) 20,726,974 20,726,974
Net asset value and redemption
price per share $ 7.18 $ 8.88 $ 8.88 $ 8.88
CLASS C:
Net Assets $ 21,195,064 $ 10,780,464 $ 31,975,528 $ (6,969) $ 31,968,559
Shares authorized unlimited unlimited unlimited unlimited
Par value $ 0.01 $ 0.01 $ 0.01 $ 0.01
Shares outstanding 2,955,262 1,214,223 (568,430)(C) 3,601,055 3,601,055
Net asset value and redemption
price per share $ 7.17 $ 8.88 $ 8.88 $ 8.88
CLASS M:
Net Assets $ 2,980,615 n/a (2,980,615)(D) n/a $ - n/a
Shares authorized unlimited n/a n/a n/a
Par value $ 0.01 n/a n/a n/a
Shares outstanding 418,266 n/a (418,266)(D) n/a n/a
Net asset value and redemption
price per share $ 7.13 n/a n/a n/a
Maximum offering price per share (E) $ 7.37 n/a n/a n/a
CLASS Q:
Net Assets $ 170,983 n/a $ (170,983)(F) n/a $ - n/a
Shares authorized unlimited n/a n/a n/a
Par value $ 0.01 n/a n/a n/a
Shares outstanding(F) 23,888 n/a (23,888)(F) n/a n/a
Net asset value and redemption
price per share $ 7.16 n/a n/a n/a
(A) Reflects adjustment for estimated one time merger expenses (See Note 5 in
Notes to Unaudited Pro Forma Financial Statements).
(B) 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.
(C) Reflects new shares issued, net of retired shares of ING High Yield
Opportunity Fund. (Calculation: Net Assets / NAV per share)
(D) Reflects adjustment due to merging Class M into Class A.
(E) Maximum offering price is computed at 100/96.75 of net asset value. On
purchases of $50,000 or more, the offering price is reduced.
(F) Class Q has no outstanding shares as of the Record Date and will cease to
exist immediately after the Closing Date. The Total Pro Forma Net Assets
including Class Q is $344,268,112.
See Accompanying Notes to Financial Statements
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2004
ING ING
HIGH YIELD HIGH YIELD
OPPORTUNITY BOND PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
---- ---- ----------- --------
INVESTMENT INCOME:
Dividends, net of foreign taxes* $ 1,959,883 $ 400,677 $ 2,360,560
Interest 23,590,258 5,215,302 28,805,560
Securities lending income 102,245 20,930 123,175
Other 4,584 - 4,584
------------- ----------- ------------- -------------
Total investment income 25,656,970 5,636,909 - 31,293,879
------------- ----------- ------------- -------------
EXPENSES:
Investment management fees 1,894,619 452,198 90,213 (A) 2,437,030
Distribution fees:
Class A 340,565 153,525 21,006 (B) 515,096
Class B 1,889,439 165,968 2,055,407
Class C 247,516 86,860 334,376
Class M 24,280 - (24,280) (B) -
Class Q 1,184 - (1,184) (B) -
Transfer agent fees:
Class A 150,653 55,899 (514) (C) 206,038
Class B 282,901 22,231 (18,510) (C) 286,622
Class C 37,057 11,745 (1,989) (C) 46,813
Class M 3,832 - (3,832) (C) -
Class Q 179 - (179) (C) -
Administrative service fees 315,955 69,568 385,523
Shareholder reporting expense 158,448 5,570 (115,851) (C) 48,167
Registration fees 107,114 38,874 (34,240) (C) 111,748
Professional fees 36,933 11,588 (15,767) (C) 32,754
Custody and accounting expense 51,560 9,100 60,660
Trustee fees 7,796 1,098 8,894
Insurance expense - 520 520
Miscellaneous expense 96,559 2,034 98,593
Merger expense - - 75,000 (D) 75,000
------------- ----------- ------------- -------------
Total expenses without 12B-1 AND T/A 5,646,590 1,086,778 (30,126) 6,703,242
------------- ----------- ------------- -------------
Less:
Net waived and reimbursed/recouped fees 67,539 3,303 76,328 (A) 147,170
------------- ----------- ------------- -------------
Net expenses 5,579,051 1,083,475 (106,454) 6,556,072
------------- ----------- ------------- -------------
Net investment income 20,077,919 4,553,434 106,454 24,737,807
------------- ----------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments (15,037,328) 2,675,633 (12,361,695)
Foreign currencies 113,524 - 113,524
------------- ----------- ------------- -------------
Net realized gain (loss) (14,923,804) 2,675,633 - (12,248,171)
------------- ----------- ------------- -------------
Net change in unrealized appreciation or depreciation on:
Investments 38,437,409 1,950,137 40,387,546
Foreign currencies 101,300 - 101,300
------------- ----------- ------------- -------------
Net change in unrealized appreciation or depreciation 38,538,709 1,950,137 - 40,488,846
------------- ----------- ------------- -------------
Net realized and unrealized gain on investments
and foreign currencies 23,614,905 4,625,770 - 28,240,675
------------- ----------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 43,692,824 $ 9,179,204 $ 106,454 $ 52,978,482
============ =========== ============== =============
*Foreign taxes $ 1,977 $ 486 $ - $ 2,463
- ----------
(A) Reflects adjustment in expenses due to effects of new contractual rates.
(B) Reflects adjustment in expenses due to merging Class M and Class Q into
Class A.
(C) Reflects adjustment in expenses due to elimination of duplicative
services.
(D) Reflects adjustment for estimated one time merger expenses (See Note 5 in
Notes to Unaudited Pro Forma Financial Statements).
See Accompanying Notes to Financial Statements
PORTFOLIOS OF INVESTMENTS AS OF MARCH 31, 2004 (UNAUDITED)
ING ING ING ING
HIGH YIELD HIGH YIELD HIGH YIELD HIGH YIELD
OPPORTUNITIES BOND PRO FORMA OPPORTUNITIES BOND PRO FORMA
FUND FUND PRINCIPAL FUND FUND PRINCIPAL
- ------------------------------------ ------------------------------------
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS: 93.3%
ADVERTISING: 0.5%
$ 715,000 $ 185,000 $ 900,000 Vertis, Inc., 9.750%,
due 04/01/09 $ 777,562 $ 201,187 $ 978,749
535,000 135,000 670,000 L Vertis, Inc., 10.880%,
due 06/15/09 541,688 136,688 678,376
----------- --------- ----------
1,319,250 337,875 1,657,125
----------- --------- ----------
AEROSPACE/DEFENSE: 1.0%
690,000 180,000 870,000 DRS Technologies, Inc.,
6.880%, due 11/1/2013 721,050 188,100 909,150
670,000 175,000 845,000 L-3 Communications Corp.,
6.130%, due 07/15/13 695,125 181,563 876,688
685,000 180,000 865,000 L-3 Communications Corp.,
7.630%, due 06/15/12 756,925 198,900 955,825
825,000 - 825,000 L Sequa Corp., 8.880%, due 04/01/08 921,938 - 921,938
50,000 215,000 265,000 Sequa Corp., 9.000%, due 08/01/09 56,500 242,950 299,450
----------- --------- ----------
3,151,538 811,513 3,963,051
----------- --------- ----------
AIRLINES: 0.0%
235,000 50,000 285,000 L Delta Air Lines, Inc., 7.300%, due
9/18/2006 196,502 41,809 238,311
----------- --------- ----------
196,502 41,809 238,311
----------- --------- ----------
APPAREL: 1.0%
1,225,000 250,000 1,475,000 Phillips-Van Heusen, 8.130%, due 5/1/2013 1,326,063 270,625 1,596,688
1,385,000 305,000 1,690,000 Russell Corp., 9.250%, due 05/01/10 1,478,487 325,588 1,804,075
----------- --------- ----------
2,804,550 596,213 3,400,763
----------- --------- ----------
AUTO PARTS & EQUIPMENT: 3.0%
565,000 145,000 710,000 ArvinMeritor, Inc., 6.630%, due 6/15/2007 589,013 151,163 740,176
290,000 75,000 365,000 L Collins & Aikman Products, 10.750%,
due 12/31/11 299,425 77,438 376,863
310,000 80,000 390,000 Dana Corp., 7.000%, due 03/15/28 310,775 80,200 390,975
550,000 120,000 670,000 L Dana Corp., 10.130%, due 03/15/10 638,000 139,200 777,200
730,000 190,000 920,000 L Dura Operating Corp., 8.630%, due 4/15/2004 781,100 203,300 984,400
940,000 210,000 1,150,000 Eagle-Picher Industries, Inc., 9.750%,
due 09/01/13 1,034,000 231,000 1,265,000
166,000 24,000 190,000 HLI Operating Co., Inc., 10.500%,
due 6/15/2010 189,655 27,420 217,075
435,000 105,000 540,000 Lear Corp., 8.110%, due 05/15/09 516,563 124,688 641,251
960,000 170,000 1,130,000 Rexnord Corp., 10.130%, due 12/15/12 1,056,000 187,000 1,243,000
1,230,000 315,000 1,545,000 Tenneco Automotive, Inc., 10.250%
due 07/15/13 1,420,650 363,825 1,784,475
1,185,000 331,000 1,516,000 L TRW Automotive, Inc., 11.000%,
due 2/15/2013 1,421,999 397,199 1,819,198
----------- --------- ----------
8,257,180 1,982,433 10,239,613
----------- --------- ----------
BUILDING MATERIALS: 0.6%
2,456,000 - 2,456,000 @, I, XX, Intl. Utility Structures, Inc., 0.000%,
@@, ** due 2/1/2008 2 - 2
660,000 155,000 815,000 # Nortek Holdings, Inc., 0.000%,
due 5/15/2011 504,900 118,575 623,475
420,000 110,000 530,000 # Nortek Holdings, Inc., 4.170%,
due 12/31/2010 426,300 111,650 537,950
745,000 175,000 920,000 L Nortek, Inc., 9.880%, due 06/15/11 841,850 197,750 1,039,600
----------- --------- ----------
1,773,052 427,975 2,201,027
----------- --------- ----------
CHEMICALS: 3.4%
1,355,000 345,000 1,700,000 L Equistar Funding Corp., 10.630%,
due 5/1/2011 1,466,788 373,463 1,840,251
1,450,000 640,000 2,090,000 IMC Global, Inc., 10.880%, due 6/1/2008 1,754,500 774,400 2,528,900
985,000 330,000 1,315,000 L Lyondell Chemical Co., 9.630%,
due 5/1/2007 1,024,400 343,200 1,367,600
2,000,000 500,000 2,500,000 #, L Nalco Co., 7.750%, due 11/15/11 2,100,000 525,000 2,625,000
1,265,000 325,000 1,590,000 L PolyOne Corp., 8.880%, due 05/01/12 1,233,375 316,875 1,550,250
1,335,000 345,000 1,680,000 L Rockwood Specialties Group, Inc., 10.630%,
due 05/15/11 1,481,850 382,950 1,864,800
----------- --------- ----------
9,060,913 2,715,888 11,776,801
----------- --------- ----------
COMMERCIAL SERVICES: 1.0%
1,045,000 205,000 1,250,000 Corrections Corp. of America, 7.500%,
due 05/01/11 1,106,394 217,044 1,323,438
1,145,000 290,000 1,435,000 #, L United Rentals North America, Inc., 6.500%,
due 02/15/12 1,145,000 290,000 1,435,000
570,000 145,000 715,000 #, L United Rentals North America, Inc., 7.000%,
due 02/15/14 538,650 137,025 675,675
----------- --------- ----------
2,790,044 644,069 3,434,113
----------- --------- ----------
COMPUTERS: 0.3%
775,000 200,000 975,000 @@, L Seagate Technology HDD Holdings, 8.000%,
due 05/15/09 850,563 219,500 1,070,063
----------- --------- ----------
850,563 219,500 1,070,063
----------- --------- ----------
DISTRIBUTION/WHOLESALE: 0.5%
1,470,000 340,000 1,810,000 Aviall, Inc., 7.630%, due 07/01/11 1,580,250 365,500 1,945,750
----------- --------- ----------
1,580,250 365,500 1,945,750
----------- --------- ----------
DIVERSIFIED FINANCIAL SERVICES: 2.2%
680,000 145,000 825,000 @@ Eircom Funding, 8.250%, due 8/15/2013 761,600 162,400 924,000
345,000 90,000 435,000 # Global Cash Finance Corp., 8.750%, due
03/15/12 360,525 94,050 454,575
3,012,929 553,439 3,566,368 # Hollinger Participation Trust, 12.130%,
due 11/15/10 3,491,232 641,297 4,132,529
1,230,000 320,000 1,550,000 Nexstar Finance, Inc., 12.000%,
due 4/1/2008 1,389,900 361,600 1,751,500
355,000 90,000 445,000 Universal City Development Partners,
11.750%, due 04/01/10 414,906 105,188 520,094
----------- --------- ----------
6,418,163 1,364,535 7,782,698
----------- --------- ----------
ELECTRIC: 6.8%
1,975,000 910,000 2,885,000 #, L AES Corp., 8.750%, due 05/15/13 2,182,375 1,005,549 3,187,924
1,500,000 395,000 1,895,000 # Allegheny Energy Supply Statutory Trust 2001,
10.250%, due 11/15/07 1,642,500 432,525 2,075,025
60,000 15,000 75,000 # Allegheny Energy Supply Statutory 61,800 15,450 77,250
180,000 45,000 225,000 L Calpine Corp., 8.500%, due 02/15/11 133,200 33,300 166,500
1,460,000 380,000 1,840,000 #, L Calpine Corp., 8.750%, due 07/15/13 1,343,200 349,600 1,692,800
1,095,000 250,000 1,345,000 Edison Mission Energy, 7.730%, due 6/15/2009 1,062,150 242,500 1,304,650
2,030,000 520,000 2,550,000 FirstEnergy Corp., 6.450%, due 11/15/2011 2,226,552 570,348 2,796,900
1,065,000 215,000 1,280,000 Homer City Funding LLC, 8.730%, due 10/1/2026 1,187,475 239,725 1,427,200
475,000 100,000 575,000 Illinois Power Co., 7.500%, due 7/15/2025 486,875 102,500 589,375
1,250,000 250,000 1,500,000 L Illinois Power Co., 11.500%, due 12/15/2010 1,512,500 302,500 1,815,000
1,795,000 460,000 2,255,000 Nevada Power Co., 10.880%, due 10/15/2009 2,100,150 538,200 2,638,350
1,760,000 460,000 2,220,000 #, L NRG Energy, Inc., 8.000%, due 12/15/2013 1,826,000 477,250 2,303,250
1,285,000 275,000 1,560,000 # PG&E Corp., 6.880%, due 07/15/08 1,408,681 301,469 1,710,150
1,420,000 310,000 1,730,000 L TECO Energy, Inc., 7.500%, due 6/15/2010 1,537,150 335,575 1,872,725
----------- --------- ----------
18,710,608 4,946,491 23,657,099
----------- --------- ----------
ELECTRICAL COMPONENTS & EQUIPMENT: 0.5%
800,000 145,000 945,000 @@ FIMEP SA, 10.500%, due 02/15/13 956,000 173,275 1,129,275
500,000 115,000 615,000 #, L General Cable Corp., 9.500%, due 11/15/2010 552,500 127,075 679,575
----------- --------- ----------
1,508,500 300,350 1,808,850
----------- --------- ----------
ELECTRONICS: 0.8%
385,000 100,000 485,000 Sanmina-SCI Corp., 10.380%, due 1/15/2010 456,225 118,500 574,725
925,000 165,000 1,090,000 Stoneridge, Inc., 11.500%, due 5/1/2012 1,107,687 197,587 1,305,274
655,000 165,000 820,000 # Viasystems, Inc., 10.500%, due 1/15/2011 735,238 185,213 920,451
----------- --------- ----------
2,299,150 501,300 2,800,450
----------- --------- ----------
ENTERTAINMENT: 2.6%
825,000 215,000 1,040,000 #, L AMC Entertainment, Inc., 8.000%,
due 3/1/2014 822,938 214,463 1,037,401
985,000 245,000 1,230,000 #, L American Casino & Entertainment Properties
LLC, 7.850%, due 02/01/12 989,925 246,225 1,236,150
1,180,000 245,000 1,425,000 L Argosy Gaming Co., 9.000%, due 9/1/2011 1,333,399 276,849 1,610,248
930,000 245,000 1,175,000 #, L Carmike Cinemas, Inc., 7.500%, due 2/15/2014 950,925 250,513 1,201,438
890,000 225,000 1,115,000 Cinemark USA, Inc., 9.000%, due 2/1/2013 972,325 245,813 1,218,138
950,000 250,000 1,200,000 L Regal Cinemas, Inc., 9.380%, due 2/1/2012 1,078,250 283,749 1,361,999
535,000 135,000 670,000 # Six Flags, Inc., 9.630%, due 06/01/14 571,113 144,113 715,226
520,000 135,000 655,000 L Six Flags, Inc., 9.750%, due 04/15/13 555,100 144,113 699,213
----------- --------- ----------
7,273,975 1,805,838 9,079,813
----------- --------- ----------
ENVIRONMENTAL CONTROL: 1.7%
2,380,000 100,000 2,480,000 #,L Allied Waste North America, 6.130%, due 02/15/14 2,311,575 97,125 2,408,700
915,000 925,000 1,840,000 L Allied Waste North America, 8.500%, due 12/01/08 1,029,375 1,040,625 2,070,000
965,000 290,000 1,255,000 Imco Recycling, Inc., 10.380%, due 10/15/2010 1,037,375 311,750 1,349,125
--------- --------- ----------
4,378,325 1,449,500 5,827,825
--------- --------- ----------
FOOD: 2.9%
1,220,000 300,000 1,520,000 L Del Monte Corp., 8.625%, due 12/15/2012 1,378,600 339,000 1,717,600
730,000 445,000 1,175,000 Delhaize America, Inc., 8.125%, due 4/15/2011 843,150 513,975 1,357,125
425,000 105,000 530,000 Delhaize America, Inc., 9.000%, due 4/15/1931 509,469 125,869 635,338
1,450,000 545,000 1,995,000 # Land O' Lakes, Inc., 9.000%, due 12/15/2010 1,471,750 553,175 2,024,925
605,000 155,000 760,000 # Michael Foods, Inc., 8.000%, due 11/15/2013 644,325 165,075 809,400
625,000 135,000 760,000 Roundy's, Inc., 8.880%, due 06/15/12 690,625 149,175 839,800
1,235,000 320,000 1,555,000 Smithfield Foods, Inc., 7.750%, due 5/15/2013 1,364,675 353,600 1,718,275
595,000 150,000 745,000 Swift & Co., 12.500%, due 01/01/10 639,625 161,250 800,875
--------- --------- ----------
7,542,219 2,361,119 9,903,338
--------- --------- ----------
FOREST PRODUCTS & PAPER: 3.0%
1,780,000 455,000 2,235,000 Appleton Papers, Inc., 12.500%, due 12/15/2008 2,020,299 516,425 2,536,724
1,360,000 480,000 1,840,000 L Georgia-Pacific Corp., 8.130%, due 5/15/2011 1,550,400 547,199 2,097,599
930,000 180,000 1,110,000 L Georgia-Pacific Corp., 8.880%, due 2/1/2010 1,090,425 211,050 1,301,475
1,165,000 305,000 1,470,000 Georgia-Pacific Corp., 9.380%, due 2/1/2013 1,377,613 360,663 1,738,276
1,275,000 375,000 1,650,000 @@,#,L Millar Western Forest Products Ltd., 7.750%, due 11/15/13 1,361,063 400,313 1,761,376
735,000 190,000 925,000 @@,# Norske Skog Canada Ltd., 7.380%, due 03/01/14 760,725 196,650 957,375
--------- --------- ----------
8,160,525 2,232,300 10,392,825
--------- --------- ----------
HEALTHCARE-SERVICES: 2.1%
1,305,000 330,000 1,635,000 # Genesis HealthCare Corp., 8.000%, due 10/15/13 1,396,350 353,100 1,749,450
2,250,000 645,000 2,895,000 HCA, Inc., 7.880%, due 02/01/11 2,594,302 743,700 3,338,002
- 450,000 450,000 HCA, Inc., 8.750%, due 09/01/10 - 539,620 539,620
770,000 195,000 965,000 L Tenet Healthcare Corp., 7.380%, due 2/1/2013 698,775 176,963 875,738
615,000 155,000 770,000 #,L Triad Hospitals, Inc., 7.000%, due 11/15/2013 633,450 159,650 793,100
--------- --------- ----------
5,322,877 1,973,033 7,295,910
--------- --------- ----------
HOLDING COMPANIES-DIVERSIFIED: 0.0%
165,000 40,000 205,000 L SCG Holding Corp., 12.000%, due 8/1/2009 179,025 43,400 222,425
--------- --------- ----------
179,025 43,400 222,425
--------- --------- ----------
HOME BUILDERS: 3.4%
170,000 40,000 210,000 Beazer Homes USA, Inc., 8.380%, due 4/15/2012 190,825 44,900 235,725
560,000 145,000 705,000 DR Horton, Inc., 7.880%, due 8/15/2011 658,000 170,375 828,375
165,000 35,000 200,000 L K Hovnanian Enterprises, Inc., 6.500%, due 01/15/14 169,538 35,963 205,501
625,000 165,000 790,000 L K Hovnanian Enterprises, Inc., 7.750%, due 05/15/13 684,375 180,675 865,050
580,000 150,000 730,000 KB Home, 7.750%, due 02/01/10 630,750 163,125 793,875
700,000 180,000 880,000 Meritage Corp., 9.750%, due 06/01/11 798,000 205,200 1,003,200
430,000 80,000 510,000 L Ryland Group, Inc., 9.130%, due 6/15/2011 494,500 92,000 586,500
415,000 105,000 520,000 Standard-Pacific Corp., 5.130%, due 4/1/2009 413,963 104,738 518,701
690,000 165,000 855,000 L Standard-Pacific Corp., 7.750%, due 3/15/2013 765,900 183,150 949,050
1,130,000 370,000 1,500,000 Technical Olympic USA, Inc., 9.000%, due 07/01/10 1,234,525 404,224 1,638,749
895,000 165,000 1,060,000 Technical Olympic USA, Inc., 10.380%, due 07/01/12 1,013,588 186,863 1,200,451
1,310,000 250,000 1,560,000 L WCI Communities, Inc., 10.630%, due 2/15/2011 1,486,849 283,750 1,770,599
1,010,000 255,000 1,265,000 #,L William Lyon Homes, Inc., 7.500%, due 02/15/14 1,055,450 266,475 1,321,925
--------- --------- ----------
9,596,263 2,321,438 11,917,701
--------- --------- ----------
HOME FURNISHINGS: 0.3%
710,000 180,000 890,000 # Norcraft Finance Corp., 9.000%, due 11/1/2011 759,700 192,600 952,300
--------- --------- ----------
759,700 192,600 952,300
--------- --------- ----------
HOUSEHOLD PRODUCTS/WARES: 1.1%
890,000 230,000 1,120,000 #,L American Achievement Corp., 8.250%, due 04/01/12 918,925 237,475 1,156,400
1,825,000 450,000 2,275,000 L American Greetings, 11.750%, due 7/15/2008 2,144,375 528,750 2,673,125
--------- --------- ----------
3,063,300 766,225 3,829,525
--------- --------- ----------
IRON/STEEL: 0.4%
1,050,000 210,000 United States Steel Corp., 9.750%, due 1,202,250 240,450 1,442,700
05/15/10
--------- --------- ----------
1,202,250 240,450 1,442,700
--------- --------- ----------
LEISURE TIME: 0.9%
865,000 205,000 1,070,000 @@ Royal Caribbean Cruises Ltd., 7.500%, due 10/15/27 882,300 209,100 1,091,400
1,355,000 350,000 1,705,000 @@ Royal Caribbean Cruises Ltd., 8.000%, due 05/15/10 1,537,925 397,250 1,935,175
---------- --------- ----------
2,420,225 606,350 3,026,575
---------- --------- ----------
LODGING: 7.0%
2,070,000 490,000 2,560,000 Ameristar Casinos, Inc., 10.750%, due 2/15/2009 2,403,787 569,012 2,972,799
985,000 250,000 1,235,000 L Aztar Corp., 9.000%, due 08/15/11 1,111,819 282,188 1,394,007
1,270,000 710,000 1,980,000 Caesars Entertainment, Inc., 7.880%, due 03/15/10 1,422,400 795,199 2,217,599
1,270,000 325,000 1,595,000 Caesars Entertainment, Inc., 9.380%, due 02/15/07 1,435,100 367,250 1,802,350
650,000 225,000 875,000 Extended Stay America, Inc., 9.880%, due 06/15/11 767,000 265,500 1,032,500
300,000 360,000 660,000 Hilton Hotels Corp., 7.630%, due 12/1/2012 346,125 415,350 761,475
960,000 290,000 1,250,000 Mandalay Resort Group, 9.500%, due 8/1/2008 1,148,400 346,913 1,495,313
3,790,000 1,120,000 4,910,00 0 L MGM Mirage, 8.380%, due 02/01/11 4,396,399 1,299,199 5,695,598
190,000 315,000 505,000 Starwood Hotels & Resorts Worldwide, Inc., 7.880%,
due 05/01/12 215,650 357,525 573,175
1,400,000 355,000 1,755,000 # Station Casinos, Inc., 6.000%, due 4/1/2012 1,456,000 369,200 1,825,200
1,140,000 290,000 1,430,000 #,L Station Casinos, Inc., 6.500%, due 2/1/2014 1,155,675 293,988 1,449,663
1,155,000 290,000 1,445,000 Venetian Casino Resort LLC, 11.000%, due 06/15/10 1,334,025 334,950 1,668,975
1,080,000 270,000 1,350,000 L Wynn Las Vegas Capital Corp., 12.000%, due 11/01/10 1,306,800 326,700 1,633,500
---------- --------- ----------
18,499,180 6,022,974 24,522,154
---------- --------- ----------
MACHINERY-DIVERSIFIED: 0.3%
635,000 165,000 800,000 Cummins, Inc., 9.500%, due 12/01/10 750,888 195,113 946,001
---------- --------- ----------
750,888 195,113 946,001
---------- --------- ----------
MEDIA: 12.8%
505,000 125,000 630,000 Allbritton Communications Co., 7.750%, due 12/15/12 526,463 130,313 656,776
1,220,000 275,000 1,495,000 Block Communications, Inc., 9.250%, due 04/15/09 1,305,400 294,250 1,599,650
365,000 105,000 470,000 W,# Cablevision Systems Corp., 0.000%, due 04/01/09 366,369 105,394 471,763
800,000 195,000 995,000 @@ CanWest Media, Inc., 10.630%, due 5/15/2011 912,000 222,300 1,134,300
1,715,000 445,000 2,160,000 #,L CCO Holdings Capital Corp., 8.750%, due 11/15/13 1,757,874 456,124 2,213,998
920,000 240,000 1,160,000 Charter Communications Holdings Capital Corp., 9.630%,
due 11/15/09 782,000 204,000 986,000
440,000 125,000 565,000 W,# CSC Holdings, Inc., 6.750%, due 4/15/2012 447,700 127,188 574,888
470,000 155,000 625,000 L CSC Holdings, Inc., 7.630%, due 4/1/2011 498,200 164,300 662,500
1,685,000 430,000 2,115,000 CSC Holdings, Inc., 7.880%, due 12/15/2007 1,819,799 464,399 2,284,198
245,000 65,000 310,000 L CSC Holdings, Inc., 8.130%, due 7/15/2009 264,600 70,200 334,800
455,000 120,000 575,000 L Dex Media East Finance Co., 12.130%, due 11/15/12 533,488 140,700 674,188
610,000 160,000 770,000 #,L Dex Media Finance Co., 9.880%, due 8/15/2013 680,150 178,400 858,550
930,000 245,000 1,175,000 # Dex Media, Inc., 8.000%, due 11/15/13 927,675 244,388 1,172,063
1,620,000 450,000 2,070,000 DirecTV Holdings LLC, 8.380%, due 3/15/2013 1,854,899 515,249 2,370,148
1,015,000 260,000 1,275,000 # Echostar DBS Corp., 5.750%, due 10/1/2008 1,053,063 269,750 1,322,813
215,000 55,000 270,000 #,L Echostar DBS Corp., 6.380%, due 10/1/2011 229,513 58,713 288,226
840,000 165,000 1,005,000 Entravision Communications Corp., 8.130%, due 03/15/09 905,100 177,788 1,082,888
1,535,000 390,000 1,925,000 # Granite Broadcasting Corp., 9.750%, due 12/01/10 1,488,949 378,300 1,867,249
1,470,000 440,000 1,910,000 L Gray Television, Inc., 9.250%, due 12/15/2011 1,650,074 493,899 2,143,973
1,430,000 365,000 1,795,000 Hollinger Intl. Publishing, 9.000%, due 12/15/2010 1,580,149 403,325 1,983,474
745,000 210,000 955,000 Houghton Mifflin Co., 8.250%, due 2/1/2011 770,144 217,088 987,232
265,000 65,000 330,000 L Houghton Mifflin Co., 9.880%, due 2/1/2013 274,938 67,438 342,376
190,000 45,000 235,000 Insight Communications Co., Inc., 0.000%, due 02/15/11 161,500 38,250 199,750
655,000 170,000 825,000 L LIN Television Corp., 6.500%, due 5/15/2013 682,838 177,225 860,063
560,000 140,000 700,000 L Mediacom LLC, 9.500%, due 01/15/13 557,200 139,300 696,500
560,000 140,000 700,000 # Nexstar Finance, Inc., 7.000%, due 1/15/2014 557,200 139,300 696,500
415,000 105,000 520,000 L Paxson Communications Corp., 10.750%, due 07/15/08 436,788 110,513 547,301
1,390,000 360,000 1,750,000 Primedia, Inc., 8.880%, due 05/15/11 1,431,700 370,800 1,802,500
1,205,000 310,000 1,515,000 @@,L Quebecor Media, Inc., 11.130%, due 7/15/2011 1,388,763 357,275 1,746,038
580,000 150,000 730,000 Radio One, Inc., 8.880%, due 7/1/2011 646,700 167,250 813,950
420,000 110,000 530,000 #,L Reader's Digest Association, Inc., 6.500%, due 03/01/11 434,700 113,850 548,550
730,000 190,000 920,000 Salem Communications Holding Corp., 9.000%, due 07/01/11 800,263 208,288 1,008,551
905,000 235,000 1,140,000 Sinclair Broadcast Group, Inc., 8.000%, due 03/15/12 985,319 255,856 1,241,175
623,056 - 623,056 **, X, I Source Media, Inc., 0.000%, due 11/1/2004 1 - 1
1,005,000 240,000 1,245,000 # Spanish Broadcasting System, 9.630%, due 11/01/09 1,069,069 255,300 1,324,369
590,000 150,000 740,000 @@ Sun Media Corp., 7.630%, due 2/15/2013 644,575 163,875 808,450
805,000 205,000 1,010,000 @@ Videotron Ltee, 6.880%, due 01/15/14 845,250 215,250 1,060,500
1,600,000 400,000 2,000,000 @@ Vivendi Universal SA, 6.250%, due 7/15/2008 1,735,999 433,999 2,169,998
890,000 215,000 1,105,000 #, L Young Broadcasting, Inc., 8.500%, due 12/15/2008 965,650 233,275 1,198,925
965,000 253,000 1,218,000 L Young Broadcasting, Inc., 10.000%, due 03/01/11 1,037,375 271,975 1,309,350
---------- --------- ----------
35,009,437 9,035,087 44,044,524
---------- --------- ----------
MISCELLANEOUS MANUFACTURING: 1.6%
745,000 185,000 930,000 # Koppers, Inc., 9.880%, due 10/15/13 823,225 204,425 1,027,650
415,000 105,000 520,000 L SPX Corp., 7.500%, due 01/01/13 450,275 113,925 564,200
2,595,000 810,000 3,405,000 @@ Tyco Intl. Group SA, 6.750%, due 2/15/11 2,893,755 903,253 3,797,008
---------- --------- ----------
4,167,255 1,221,603 5,388,858
---------- --------- ----------
OFFICE/BUSINESS EQUIPMENT: 0.6%
320,000 80,000 400,000 L Xerox Capital Trust I, 8.000%, due 2/1/27 316,000 79,000 395,000
1,295,000 330,000 1,625,000 L Xerox Corp., 7.630%, due 06/15/13 1,385,650 353,100 1,738,750
---------- --------- ----------
1,701,650 432,100 2,133,750
---------- --------- ----------
OIL AND GAS: 3.3%
1,985,000 520,000 2,505,000 Chesapeake Energy Corp., 7.500%, due 09/15/13 2,203,350 577,200 2,780,550
430,000 90,000 520,000 Energy Partners Ltd., 8.750%, due 8/1/2010 462,250 96,750 559,000
1,660,000 425,000 2,085,000 Swift Energy Co., 9.380%, due 5/1/2012 1,859,200 476,000 2,335,200
2,250,000 550,000 2,800,000 @@ Western Oil Sands, Inc., 8.380%, due 5/1/2012 2,694,375 658,625 3,353,000
1,725,000 375,000 2,100,000 Westport Resources Corp., 8.250%, due 11/01/11 1,927,688 419,063 2,346,751
---------- --------- ----------
9,146,863 2,227,638 11,374,501
---------- --------- ----------
OIL AND GAS SERVICES: 1.8%
2,950,000 175,000 3,125,000 Grant Prideco Escrow Corp., 9.000%, due 12/15/09 3,340,875 198,188 3,539,063
- 500,000 500,000 Grant Prideco, Inc., 9.630%, due 12/1/07 - 567,500 567,500
280,000 70,000 350,000 Hanover Compressor Co., 0.000%, due 3/31/07 217,000 54,250 271,250
1,240,000 385,000 1,625,000 L Hanover Equipment Trust, 8.500%, due 9/01/08 1,333,000 413,875 1,746,875
250,000 - 250,000 L Hanover Equipment Trust, 8.750%, due 9/1/11 271,250 - 271,250
---------- --------- ----------
5,162,125 1,233,813 6,395,938
---------- --------- ----------
PACKAGING AND CONTAINERS: 4.3%
955,000 295,000 1,250,000 BWAY Corp., 10.000%, due 10/15/10 1,026,625 317,125 1,343,750
1,025,000 645,000 1,670,000 @@ Crown European Holdings SA, 10.880%, due 03/01/13 1,199,250 754,650 1,953,900
1,600,000 375,000 1,975,000 Greif, Inc., 8.880%, due 08/01/12 1,752,000 410,625 2,162,625
1,500,000 340,000 1,840,000 Jefferson Smurfit Corp. US, 8.250%, due 10/01/12 1,642,500 372,300 2,014,800
560,000 135,000 695,000 @@ Norampac, Inc., 6.750%, due 6/01/13 596,400 143,775 740,175
1,350,000 320,000 1,670,000 L Owens-Brockway, 8.250%, due 5/15/13 1,397,250 331,200 1,728,450
2,215,000 765,000 2,980,000 L Owens-Brockway, 8.875%, due 2/15/2009 2,403,275 830,025 3,233,300
1,360,000 360,000 1,720,000 #, L Solo Cup Co., 8.500%, due 02/15/14 1,416,100 374,850 1,790,950
---------- --------- ----------
11,433,400 3,534,550 14,967,950
---------- --------- ----------
PHARMACEUTICALS: 0.7%
1,365,000 50,000 1,415,000 AmerisourceBergen Corp., 7.250%, due 11/15/12 1,491,263 54,625 1,545,888
250,000 485,000 735,000 AmerisourceBergen Corp., 8.130%, due 09/01/08 280,000 543,200 823,200
---------- --------- ----------
1,771,263 597,825 2,369,088
---------- --------- ----------
PIPELINES: 4.8%
1,110,000 265,000 1,375,000 ANR Pipeline Co., 8.880%, due 3/15/10 1,237,650 295,475 1,533,125
780,000 205,000 985,000 CenterPoint Energy Resources Corp., 7.750%, due 2/15/11 890,627 234,075 1,124,702
850,000 210,000 1,060,000 #, L Dynegy Holdings, Inc., 9.880%, due 7/15/10 928,625 229,425 1,158,050
1,130,000 245,000 1,375,000 L El Paso Corp., 7.880%, due 6/15/12 1,017,000 220,500 1,237,500
0 82,000 82,000 GulfTerra Energy Finance Corp., 10.630%, due 12/01/12 - 103,320 103,320
1,653,000 166,000 1,819,000 GulfTerra Energy Partners LP, 8.500%, due 06/01/10 1,917,480 192,560 2,110,040
1,230,000 200,000 1,430,000 Southern Natural Gas Co., 7.350%, due 02/15/31 1,186,950 193,000 1,379,950
600,000 210,000 810,000 L Southern Natural Gas Co., 8.000%, due 03/01/32 619,500 216,825 836,325
1,425,000 355,000 1,780,000 Transcontinental Gas Pipe LN, 7.250%, due 12/01/26 1,492,688 371,863 1,864,551
3,155,000 815,000 3,970,000 Transcontinental Gas Pipe LN, 8.880%, due 07/15/12 3,754,449 969,849 4,724,298
420,000 105,000 525,000 @@ Utilicorp Canada Finance Corp., 7.750%, due 06/15/11 405,300 101,325 506,625
---------- --------- ----------
13,450,269 3,128,217 16,578,486
---------- --------- ----------
REAL ESTATES: 0.9%
20,000 - 20,000 Felcor Lodging LP, 9.000%, due 6/1/11 21,550 - 21,550
- 350,000 350,000 Felcor Lodging LP, 9.500%, due 9/1508 - 374,500 374,500
255,000 95,000 350,000 Host Marriott Corp., 7.880%, due 8/1/08 266,156 99,156 365,312
635,000 170,000 805,000 # iStar Financial, Inc., 5.130%, due 4/1/11 631,825 169,150 800,975
885,000 170,000 1,055,000 # La Quinta Properties, Inc., 8.880%, due 03/15/11 1,004,475 192,950 1,197,425
205,000 55,000 260,000 # Omega Healthcare Investors, Inc., 7.000%, due 04/01/14 211,150 56,650 267,800
---------- --------- ----------
2,135,156 892,406 3,027,562
---------- --------- ----------
RETAIL: 6.2%
1,075,000 270,000 1,345,000 Asbury Automotive Group, Inc., 9.000%, due 06/15/12 1,155,625 290,250 1,445,875
415,000 105,000 520,000 #, L CSK Auto, Inc., 7.000%, due 01/15/14 419,150 106,050 525,200
1,365,000 400,000 1,765,000 Dollar General Corp., 8.630%, due 6/15/10 1,624,350 475,999 2,100,349
660,000 170,000 830,000 L Domino's, Inc., 8.250%, due 07/01/11 714,450 184,025 898,475
1,105,000 285,000 1,390,000 L Gap, Inc., 10.550%, due 12/15/08 1,375,725 354,825 1,730,550
660,000 150,000 810,000 # General Nutrition Centers, Inc., 8.500%, due 12/01/10 696,300 158,250 854,550
560,000 145,000 705,000 L JC Penney Co., Inc., 6.880%, due 10/15/15 620,200 160,588 780,788
2,105,000 540,000 2,645,000 L JC Penney Co., Inc., 8.000%, due 3/1/10 2,478,638 635,849 3,114,487
1,485,000 385,000 1,870,000 Rite Aid Corp., 8.130%, due 05/01/10 1,596,375 413,875 2,010,250
740,000 190,000 930,000 L Rite Aid Corp., 9.250%, due 06/01/13 788,100 202,350 990,450
294,000 63,000 357,000 #, L Saks, Inc., 7.000%, due 12/01/13 310,170 66,465 376,635
500,000 100,000 600,000 Saks, Inc., 8.250%, due 11/15/08 565,000 113,000 678,000
1,920,000 525,000 2,445,000 # Star Gas Finance Co., 10.250%, due 2/15/13 2,150,400 588,000 2,738,400
1,140,000 300,000 1,440,000 L Toys R US, Inc., 7.630%, due 8/01/11 1,197,000 315,000 1,512,000
1,115,000 310,000 1,425,000 Yum! Brands, Inc., 8.880%, due 4/15/11 1,397,931 388,663 1,786,594
---------- --------- ----------
17,089,414 4,453,189 21,542,603
---------- --------- ----------
SEMICONDUCTORS: 0.3%
380,000 100,000 480,000 L Amkor Technology, Inc., 9.250%, due 2/15/2008 420,850 110,750 531,600
472,000 93,000 565,000 L ON Semiconductor Corp., 13.000%, due 05/15/08 573,480 112,995 686,475
---------- --------- ----------
994,330 223,745 1,218,075
---------- --------- ----------
TELECOMMUNICATIONS: 8.7%
2,285,000 600,000 2,885,000 #, L American Tower Corp., 9.380%, due 2/1/09 2,422,099 635,999 3,058,098
955,000 250,000 1,205,000 L American Towers, Inc., 7.250%, due 12/1/11 981,263 256,875 1,238,138
895,000 230,000 1,125,000 Centennial Communications Corp., 10.130%, due 06/15/13 926,325 238,050 1,164,375
530,000 140,000 670,000 L Cincinnati Bell, Inc., 7.250%, due 7/15/13 537,950 142,100 680,050
525,000 145,000 670,000 L Cincinnati Bell, Inc., 8.380%, due 1/15/14 517,125 142,825 659,950
135,000 35,000 170,000 Crown Castle Intl. Corp., 7.500%, due 12/1/13 133,313 34,563 167,876
145,000 55,000 200,000 L Crown Castle Intl. Corp., 9.380%, due 8/1/11 158,050 59,950 218,000
1,445,000 330,000 1,775,000 L Crown Castle Intl. Corp., 10.750%, due 8/1/11 1,625,624 371,249 1,996,873
285,000 75,000 360,000 L Dobson Communications Corp., 10.880%, due 07/01/10 253,650 66,750 320,400
3,600,000 - 3,600,000 ##, X, I,** ICG Services, Inc., 0.000%, due 2/15/08 4 - 4
580,000 145,000 725,000 #, @@, L Inmarsat Finance PLC, 7.630%, due 2/30/12 607,550 151,888 759,438
885,000 225,000 1,110,000 # Insight Capital, Inc., 10.500%, due 11/1/10 955,800 243,000 1,198,800
380,000 95,000 475,000 L Lucent Technologies, Inc., 6.450%, due 3/15/29 323,000 80,750 403,750
530,000 140,000 670,000 L Lucent Technologies, Inc., 7.250%, due 7/15/06 557,825 147,350 705,175
375,000 95,000 470,000 MetroPCS, Inc., 10.750%, due 10/1/11 399,375 101,175 500,550
875,000 205,000 1,080,000 L Nextel Communications, Inc., 6.880%, due 10/31/13 934,063 218,838 1,152,901
2,480,000 625,000 3,105,000 L Nextel Communications, Inc., 7.380%, due 8/1/15 2,696,999 679,687 3,376,686
1,335,000 325,000 1,660,000 L Nextel Communications, Inc., 9.380%, due 11/15/09 1,458,487 355,063 1,813,550
- 25,000 25,000 Nextel Partners, Inc., 8.130%, due 7/1/11 - 26,563 26,563
555,000 110,000 665,000 Nextel Partners, Inc., 12.500%, due 11/15/09 654,900 129,800 784,700
385,000 95,000 480,000 L PanAmSat Corp., 8.500%, due 2/1/12 404,250 99,750 504,000
645,000 165,000 810,000 # Qwest Corp., 9.130%, due 03/15/12 735,300 188,100 923,400
790,000 220,000 1,010,000 #, L Qwest Services Corp., 13.000%, due 12/15/07 912,450 254,100 1,166,550
1,349,000 345,000 1,694,000 #, L Qwest Services Corp., 13.500%, due 12/15/10 1,574,957 402,787 1,977,744
1,090,000 295,000 1,385,000 @@ Rogers Wireless Communications, Inc., 9.630%, due 5/1/11 1,339,338 362,480 1,701,818
290,000 75,000 365,000 # Rural Cellular Corp., 8.250%, due 3/15/12 297,975 77,063 375,038
955,000 225,000 1,180,000 #, L SBA Telecommunications, Inc., 0.000%, due 12/15/11 675,663 159,188 834,851
520,000 135,000 655,000 L Spectrasite, Inc., 8.250%, due 5/15/10 559,000 145,125 704,125
75,000 295,000 370,000 @@ TELUS Corp., 8.000%, due 06/01/11 90,498 355,959 446,457
305,000 75,000 380,000 # UbiquiTel Operating Co., 9.880%, due 3/1/11 298,900 73,500 372,400
8,267,451 - 8,267,451 X, I, ** US Interactive, 0.000%, due 04/17/05 117,398 - 117,398
835,000 240,000 1,075,000 Western Wireless Corp., 9.250%, due 7/15/13 862,138 247,800 1,109,938
- 6,250,000 6,250,000 I, ** WinStar Communications, Inc., 0.000%, 625 - 625
----------- ---------- -----------
24,011,894 6,448,327 30,460,221
----------- ---------- -----------
Total Corporate Bonds 255,942,071 68,894,291 324,836,362
----------- ---------- -----------
( Cost $260,907,272, $65,336,592, $326,243,864)
Shares Value
- ----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK: 1.1%
MEDIA: 1.1%
19,500 4,800 24,300 Cablevision Systems Corp. $2,040,674 $ 502,320 $ 2,542,994
4,189 1,025 5,214 @ Paxson Communications Corp. 378,033 92,506 470,539
629 134 763 Spanish Broadcasting System 636,863 135,675 772,538
---------- --------- -----------
3,055,570 730,501 3,786,071
---------- --------- -----------
TELECOMMUNICATIONS: 0.0%
- 373 373 @@, I, X O Sullivan Industries, Inc. - - -
---------- --------- -----------
- - -
---------- --------- -----------
Total Preferred Stock
(Cost $3,018,810, $718,562, $3,737,372) 3,055,570 730,501 3,786,071
---------- --------- -----------
COMMON STOCK: 0.0%
DIVERSIFIED FINANCIAL SERVICES: 0.0%
17,906 - 17,906 North Atlantic Trading Co. 18 - 18
---------- --------- -----------
18 - 18
---------- --------- -----------
PACKAGING AND CONTAINERS: 0.0%
100,000 - 100,000 Russell-Stanley Holdings, Inc. 10 - 10
---------- --------- -----------
10 - 10
---------- --------- -----------
RETAIL: 0.0%
341,370 - 341,370 Intl. Fast Food Corp - - -
---------- --------- -----------
- - -
---------- --------- -----------
TELECOMMUNICATIONS: 0.0%
61,806 - 61,806 @, X Adelphia Business Solutions 6 - 6
132 - 132 @, @@ Completel Europe NV 5,061 - 5,061
1,481 - 1,481 X, I ICG Communications, Inc. 8,886 - 8,886
83,445 - 483,445 X, I Intl. Wireless Communications Holdings, Inc. 48 - 48
2,350 - 2,350 X, I Jordan Telecommunications 65,511 - 65,511
15 - 15 @ Mpower Holding Corp. 22 - 22
---------- --------- -----------
79,534 - 79,534
---------- --------- -----------
Total Common Stock
(Cost $8,965,004, $0, $8,965,004) 79,562 - 79,562
---------- --------- -----------
WARRANTS: 0.0%
490 90 580 @, # American Tower Corp. 69,825 12,825 82,650
92,950 - 92,950 @, X, I Comforce Corp. 930 - 930
3,100 - 3,100 @, #, I Dayton Superior Corp. 31 - 31
- 500 500 ##,@@, I, X GT Group Telecom, Inc. - - -
6,600 - 6,600 @, #, X ICG Communications, Inc. 1 - 1
- 1,000 1,000 @@, I, X O Sullivan Industries, Inc. - - -
3,000 - 3,000 Travelcenters Of America, Inc. - - -
---------- --------- -----------
70,787 12,825 83,612
---------- --------- -----------
Total Warrants
(Cost $40,726, $6,677, $47,403) 70,787 12,828 3,612
----------- ----------- ------------
Total Long Term Investments
(Cost $272,931,812, $66,061,831, $338,993,643) 259,147,990 69,637,617 328,785,607
----------- ----------- ------------
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 1.2%
REPURCHASE AGREEMENT: 1.2%
$ 1,237,000 $ - $ 1,237,000 Goldman Sachs Repurchase Agreement dated
03/31/04, 1.0700%, due 04/01/04, $1,237,037
to be received upon repurchase (Collater-
alized by Federal Home Loan Bank, 5.2500%,
Market Value $1,266,414, due 05/13/05) $ 1,237,000 $ - $ 1,237,000
- 2,731,000 2,731,000 Goldman Sachs Repurchase Agreement dated
03/31/04, 1.0700%, due 04/01/04,$2,731,081
to be received upon repurchase (Collater-
alized by Federal Home Loan Bank, 6.3750%,
Market Value $2,790,965, due 08/15/06) - 2,731,000 2,731,000
------------ ----------- ------------
1,237,000 2,731,000 3,968,000
------------ ----------- ------------
Total Repurchase Agreements
(Cost $1,237,000, $2,731,000, $3,968,000) 1,237,000 2,731,000 3,968,000
------------ ----------- ------------
TOTAL INVESTMENTS IN SECURITIES(COST $274,168,812,
$68,792,831, $342,961,643)* 96.7% $ 60,384,990 $72,368,617 $332,753,607
OTHER ASSETS AND LIABILITIES-NET 3.3 10,340,339 1,174,166 11,514,505
----- ------------ ----------- ------------
NET ASSETS 100% $270,725,329 $73,542,783 $344,268,112
===== ============ =========== ============
@ Non-income producing security
@@ Foreign issuer
X Trustees.
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 institu-
tional buyers. These securities have
been determined to be liquid under the
guidelines established by the Portfolio's
Board of Directors. At March 31, 2004,
these securities totaled $75,470,846 or
21.9% of net assets.
## Illiquid and restricted security
I Illiquid Security
L Loaned security, a portion or all of the
security is on loan at March 31, 2004.
** Defaulted security
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF COMBINATION:
On June 3, 2004, the Board of Trustees of the ING High Yield Opportunity
Fund ("High Yield Opportunity Fund") and the ING High Yield Bond Fund ("High
Yield Bond Fund"), approved an Agreement and Plan of Reorganization (the "Plan")
whereby, subject to approval by the shareholders of High Yield Opportunity Fund,
High Yield Bond Fund will acquire all of the assets of the High Yield
Opportunity Fund, subject to the liabilities of such Fund, in exchange for a
number of shares of High Yield Bond Fund equal in value to the net assets of the
High Yield Opportunity 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 High Yield Opportunity Fund and High Yield Bond Fund at March 31,
2004. The unaudited pro forma statement of operations reflects the results of
operations of High Yield Opportunity Fund and High Yield 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 High Yield Opportunity Fund and High Yield Bond
Fund under accounting principles generally accepted in the United States of
America for investment companies. The historical cost of investment securities
will be carried forward to the surviving entity and the results of operations of
High Yield 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. Securities reported by the NASDAQ will
be valued at the NASDAQ official closing price. Portfolio securities traded on
an exchange or NASDAQ for which there has been no sale and securities traded in
the over-the-counter-market are valued at the mean between the last reported bid
and ask prices. All investments quoted in foreign currencies will be valued
daily in U.S. dollars on the basis of the foreign currency exchange rates
prevailing at the time such valuation is determined by each Fund's custodian.
Debt securities are valued at bid prices obtained from independent services or
from one or more dealers making markets in the securities and may be adjusted
based on the Fund's valuation procedures. U.S. Government obligations are valued
by using market quotations or independent pricing services that use prices
provided by market-makers or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics. Securities
for which market quotations are not readily available are valued at their fair
values as determined in good faith and in accordance with policies set by the
Board of Trustees ("Board") of the Funds. Among 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.
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 High Yield
Opportunity Fund by High Yield Bond Fund as of March 31, 2004. In connection
with the Plan, the Class M Shares of the High Yield Opportunity Fund will merge
into the Class A Shares of the High Yield Bond Fund. The number of
additional shares issued was calculated by dividing the net asset value of each
Class of High Yield Opportunity Fund by the respective Class net asset value per
share of High Yield 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. High Yield
Opportunity Fund expenses were adjusted assuming High Yield Bond Fund's fee
structure was in effect for the year ended March 31, 2004.
NOTE 5 - MERGER COSTS:
Merger costs to be incurred by the Funds are estimated at approximately
$75,000. These costs represent one half of the estimated expense of all the
Funds carrying out their obligations under the Plan and consist of management's
estimate of legal fees, accounting fees, printing costs and mailing charges
related to the proposed merger. ING Investments LLC, Investment Adviser to the
Funds, will bear the other half of the cost of the Merger.
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 for investment companies.
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 HIGH YIELD OPPORTUNITY FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON OCTOBER 7, 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 High Yield Opportunity Fund (the "Fund"), a series of ING
Funds Trust, 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 October 7, 2004 at
10:00 a.m., Local time, and at any adjournment(s) 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. TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE
STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY BALLOT AS SOON AS
POSSIBLE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IF
YOU VOTE VIA PHONE OR THE INTERNET, YOU DO NOT NEED TO RETURN YOUR BALLOT.
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 (the "Reorganization
Agreement") by and among High Yield Opportunity Fund and ING High Yield
Bond Fund ("High Yield Bond Fund"), providing for the merger of High Yield
Opportunity Fund with and into High Yield Bond Fund; 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 a
defense 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 of
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 dated July 30,1998 - 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) Amendment dated February 22, 2001 to the Trust Instrument -
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 dated February 27, 2001 to the Trust
Instrument - 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) Certificate of Amendment dated May 9, 2001 to the Trust Instrument -
previously filed as an Exhibit to Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on Form N-1A on July 29,
2003 and incorporated herein by reference.
(e) Amendment No. 1 dated November 2, 2001 to the 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. 2 to the 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) Amendment No. 3 to the 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.
(h) Certificate of Amendment dated February 15, 2002 to the Trust
Instrument - previously filed as an Exhibit to Post-Effective
Amendment No. 24 to the Registrant's Registration Statement on Form
N-1A on July 29, 2003 and incorporated herein by reference.
(i) Amendment No. 4 dated March 1, 2002 to the Trust Instrument -
previously filed as an Exhibit to Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on Form N-1A on July 29,
2003 and incorporated herein by reference.
(j) Amendment No. 5 dated September 23, 2002 to the Trust Instrument -
previously filed as an Exhibit to Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on Form N-1A on July 29,
2003 and incorporated herein by reference.
(k) Amendment No. 6 dated September 23, 2002 to the Trust Instrument -
previously filed as an Exhibit to Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on Form N-1A on July 29,
2003 and incorporated herein by reference.
(l) Amendment No. 7 dated November 22, 2002 to the Trust Instrument -
previously filed as an Exhibit to Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on Form N-1A on July 29,
2003 and incorporated herein by reference.
(m) Amendment No. 8 dated June 2, 2003 to the Trust Instrument -
previously filed as an Exhibit to Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on Form N-1A on July 29,
2003 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 High Yield Opportunity Fund series and ING Funds Trust,
on behalf of its ING High Yield 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 - previously filed as an Exhibit to the Registrant's
Registration Statement on Form N-14 on April 30, 2004 and
incorporated herein by reference.
(7) (a) Underwriting Agreement dated September 23, 2002 between Registrant
and ING Funds Distributor, Inc. - previously filed as an Exhibit to
Post-Effective Amendment No. 24 to the Registrant's Registration
Statement on Form N-1A on July 29, 2003 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) Custody Agreement dated January 6, 2003 between Registrant and The
Bank of New York. - previously filed as an Exhibit to Post-Effective
Amendment No. 24 to the Registrant's Registration Statement on Form
N-1A on July 29, 2003 and incorporated herein by reference.
(b) Foreign Custody Manager Agreement dated January 6, 2003 between
Registrant and The Bank of New York.- previously filed as an Exhibit
to Post-Effective Amendment No. 24 to the Registrant's Registration
Statement on Form N-1A on July 29, 2003 and incorporated herein by
reference.
(i) Amended Schedule 1 dated January 13, 2003 - previously filed
as an Exhibit to Post-Effective Amendment No. 24 to the
Registrant's Registration Statement on Form N-1A on July 29,
2003 and incorporated herein by reference.
(ii) Amended Schedule 1 dated March 13, 2003 - previously filed as
an Exhibit to Post-Effective Amendment No. 24 to the
Registrant's Registration Statement on Form N-1A on July 29,
2003 and incorporated herein by reference.
(iii) Amended Schedule 1 dated April 7, 2003- previously filed as an
Exhibit to Post-Effective Amendment No. 24 to the Registrant's
Registration Statement on Form N-1A on July 29, 2003 and
incorporated herein by reference.
(iv) Amended Schedule 1 dated May 1, 2003 - previously filed as an
Exhibit to Post-Effective Amendment No. 24 to the Registrant's
Registration Statement on Form N-1A on July 29, 2003 and
incorporated herein by reference.
(v) Amended Schedule 2 dated June 6, 2003 - previously filed as an
Exhibit to Post-Effective Amendment No. 24 to the Registrant's
Registration Statement on Form N-1A on July 29, 2003 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 - filed herewith.
(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 2nd day of July, 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
- ------------------------ ----------------------------- ------------
________________________
John G. Turner* Trustee and Chairman July 2, 2004
________________________ President and Chief Executive
James M. Hennessy* Officer July 2, 2004
________________________ Executive Vice President and
Michael J. Roland* Principal Financial Officer July 2, 2004
________________________
Paul S. Doherty* Trustee July 2, 2004
________________________
J. Michael Earley* Trustee July 2, 2004
________________________
R. Barbara Gitenstein* Trustee July 2, 2004
________________________
Walter H. May, Jr.* Trustee July 2, 2004
________________________
Thomas J. McInerney* Trustee July 2, 2004
________________________
Jock Patton* Trustee July 2, 2004
________________________
David W.C. Putnam* Trustee July 2, 2004
________________________
Blaine E. Rieke* Trustee July 2, 2004
________________________
Richard A. Wedemeyer* Trustee July 2, 2004
________________________
Roger B. Vincent* Trustee July 2, 2004
*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 High Yield Opportunity Fund series and ING Funds Trust,
on behalf of its ING High Yield Bond Fund series
(11) Form of Opinion and Consent of Counsel
(14) Consent of Independent Auditors
(16) Powers of Attorney