As filed with the Securities and Exchange Commission on August 12, 2005
Securities Act File No. 333-127049
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
ING FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034
(Address of Principal Executive Offices) (Zip Code)
1-800-992-0180
(Registrant's Area Code and Telephone Number)
Huey P. Falgout, Jr.
ING Investments, LLC
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
(Name and Address of Agent for Service)
With copies to:
Jeffrey S. Puretz, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
---------------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective on August 29, 2005
pursuant to Rule 488 under the Securities Act of 1933, as amended
- --------------------------------------------------------------------------------
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 GOVERNMENT FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
September 23, 2005
Dear Shareholder:
Your Board of Directors has called a Special Meeting of shareholders of
ING Government Fund ("Government Fund"), which is scheduled for 10:00 a.m.,
Local time, on November 10, 2005, at 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034.
The Board of Directors of Government Fund has reviewed and recommends the
proposed reorganization (the "Reorganization") of Government Fund with and into
ING GNMA Income Fund ("GNMA Income Fund") (each a "Fund", and collectively, the
"Funds"). Both Funds are members of the mutual fund group called the "ING
Funds."
If approved by shareholders, you will become a shareholder of GNMA Income
Fund on the date that the Reorganization occurs. The Reorganization would
provide shareholders of Government Fund with an opportunity to participate in a
larger fund with similar investment objectives and strategies.
You are being asked to vote to approve an Agreement and Plan of
Reorganization. The accompanying document describes the proposed transaction and
compares the strategies and expenses of each of the Funds for your evaluation.
After careful consideration, the Board of Directors of Government 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 NOVEMBER 9, 2005.
Government Fund is using Computershare Fund Services, a 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 Computershare Fund Services, 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 GOVERNMENT FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF ING GOVERNMENT FUND
SCHEDULED FOR NOVEMBER 10, 2005
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders of ING
Government Fund ("Government Fund") is scheduled for November 10, 2005 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 among
Government Fund and ING GNMA Income Fund ("GNMA Income Fund"),
providing for the reorganization of Government Fund with and into
GNMA Income Fund; and
(2) To transact such other business, not currently contemplated, that
may properly come before the Special Meeting, or any adjournment(s)
or postponement(s) thereof, in the discretion of the proxies or
their substitutes.
Shareholders of record as of the close of business on August 16, 2005, 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 Government
Fund or by voting in person at the Special Meeting.
By Order of the Board of Directors
/s/ Theresa K. Kelety
---------------------------------------
Theresa K. Kelety
Secretary
September 23, 2005
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ING GOVERNMENT FUND
PROXY STATEMENT/PROSPECTUS
SEPTEMBER 23, 2005
TABLE OF CONTENTS
INTRODUCTION....................................................................................................... 1
SUMMARY............................................................................................................ 2
The Proposed Reorganization..................................................................................... 2
Comparison of Investment Objectives and Strategies.............................................................. 4
Comparison of Portfolio Characteristics......................................................................... 6
Comparison of Fund Performance.................................................................................. 7
Comparison of Investment Techniques and Principal Risks of Investing in the Funds............................... 10
COMPARISON OF FEES AND EXPENSES.................................................................................... 11
Management Fees................................................................................................. 11
Sub-Adviser Fees................................................................................................ 11
Administration Fees............................................................................................. 11
Distribution and Service Fees................................................................................... 11
Expense Limitation Arrangements................................................................................. 12
Expense Tables.................................................................................................. 12
General Information............................................................................................. 16
Material Differences in Rights of Government Fund's Shareholders and GNMA Income Fund's Shareholders............ 16
INFORMATION ABOUT THE REORGANIZATION............................................................................... 17
The Reorganization Agreement.................................................................................... 17
Reasons for the Reorganization.................................................................................. 17
Board Considerations............................................................................................ 18
Tax Considerations.............................................................................................. 18
Expenses of the Reorganization.................................................................................. 19
ADDITIONAL INFORMATION ABOUT THE FUNDS............................................................................. 19
Form of Organization............................................................................................ 19
Distributor..................................................................................................... 19
Dividends and Other Distributions............................................................................... 19
Capitalization.................................................................................................. 20
GENERAL INFORMATION ABOUT THE PROXY STATEMENT...................................................................... 20
Solicitation of Proxies......................................................................................... 20
Voting Rights................................................................................................... 21
Other Matters to Come Before the Special Meeting................................................................ 21
Shareholder Proposals........................................................................................... 21
Reports to Shareholders......................................................................................... 21
APPENDICES
Portfolio Managers Report for ING GNMA Income Fund.............................................................. A-1
Form of Agreement and Plan of Reorganization.................................................................... B-1
Additional Information Regarding ING GNMA Income Fund........................................................... C-1
Additional ING Funds Offered.................................................................................... D-1
Security Ownership of Certain Beneficial and Record Owners...................................................... E-1
PROXY STATEMENT/PROSPECTUS
ING GOVERNMENT FUND
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
SEPTEMBER 23, 2005
INTRODUCTION
This combined proxy statement and prospectus ("Proxy
Statement/Prospectus") is being furnished to you in connection with a special
meeting of shareholders of ING Government Fund ("Government Fund") to be held on
November 10, 2005 ("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 Government Fund with and into ING
GNMA Income Fund ("GNMA Income Fund") (each a "Fund" and collectively, the
"Funds").
Under an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), Government Fund would transfer its assets to GNMA Income Fund in
exchange for shares of beneficial interest of GNMA Income Fund and the
assumption by GNMA Income Fund of Government Fund's known liabilities as of the
Closing Date (as defined below). GNMA Income Fund shares would then be
distributed to shareholders of Government Fund so that each shareholder would
receive a number of full and fractional shares of GNMA Income Fund equal to the
aggregate value of the number of shares of Government Fund held by such
shareholder. As a result of the Reorganization, Government Fund will distribute
shares of GNMA Income Fund in liquidation of Government Fund on December 3,
2005, or such other date as the parties may agree ("Closing Date").
Because you, as a shareholder of Government Fund, are being asked to
approve the Reorganization Agreement that will result in a transaction in which
you will ultimately hold shares of GNMA Income Fund, this Proxy Statement also
serves as a Prospectus for GNMA Income Fund. GNMA Income Fund is a diversified,
open-end management investment company, which seeks to provide investors with a
high level of current income, consistent with liquidity and safety of principal,
through investment primarily in Government National Mortgage Association (GNMA)
mortgage-backed securities (also known as GNMA Certificates) that are guaranteed
as to the timely payment of principal and interest by the U.S. government.
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, dated September 23, 2005,
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. For a more detailed discussion
of the investment objectives, strategies and restrictions of the Funds, see the
Class A, B and C Prospectus and the Class I Prospectus for the Government Fund,
dated August 1, 2005, which is incorporated by reference; and the Class A, B, C
and M Prospectus, Class I Prospectus and Class Q Prospectus for GNMA Income
Fund, dated August 1, 2005. The SAI for each Fund, dated August 1, 2005
respectively, 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. The Annual Report for each Fund, dated March 31, 2005, is
incorporated herein by reference. For a copy of the current prospectus, SAI,
annual report and semi-annual report for either of the Funds without charge, or
for a copy of the SAI relating to the Proxy Statement/Prospectus, contact the
Funds at ING Funds, 7337 East Doubletree Ranch Road, Scottsdale, Arizona
85258-2034 or by calling 1-800-992-0180. You can also visit our website at
www.ingfunds.com for additional information about the funds, including the SAIs
and annual and semi-annual reports.
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 Prospectus and
Class I Prospectus, dated August 1, 2005, for more information about GNMA Income
Fund.
THE PROPOSED REORGANIZATION
At a meeting held on June 17, 2005, the Board of Directors of Government
Fund approved the Reorganization Agreement. Subject to shareholder approval, the
Reorganization Agreement provides for:
- the transfer of all of the assets of Government Fund to GNMA Income Fund
in exchange for shares of beneficial interest of GNMA Income Fund;
- the assumption by GNMA Income Fund of the liabilities of Government Fund
known as of the Closing Date (as described below);
- the distribution of GNMA Income Fund shares to the shareholders of
Government Fund; and
- the complete liquidation of Government Fund.
GNMA Income Fund shares would then be distributed to shareholders of
Government Fund so that each shareholder would receive a number of full and
fractional shares of GNMA Income Fund equal to the aggregate value of shares of
Government Fund held by such shareholder.
As a result of the Reorganization, each owner of Class A, Class B, Class C
and Class I shares of Government Fund would become a shareholder of the
corresponding class of shares of GNMA Income Fund. The Reorganization is
expected to be effective on December 3, 2005, or such other date as the parties
may agree (the "Closing Date"). Each Class A, Class B, Class C and Class I
shareholder will hold, immediately after the Closing Date, shares of the
corresponding class of GNMA Income Fund having an aggregate value equal to the
aggregate value of the shares of the corresponding class of Government Fund held
by that shareholder as of the Closing Date.
In considering whether to approve the Reorganization, you should note
that:
- The Funds have similar investment objectives;
- GNMA Fund predominantly invests in GNMA Certificates, which are backed by
the full faith and credit of the U.S. Treasury; while Government Fund
invests in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, including certain mortgage-backed
securities issued by the Federal National Mortgage Association and the
Federal Home Loan Bank;
- GNMA Income Fund is the much larger fund (approximately $675 million
versus $53 million for Government Fund as of March 31, 2005), and the
1-year, 3-year, 5-year and 10-year performance as well as the Morningstar
rating of GNMA Income Fund are superior to that of Government Fund;
- Both Funds have the same adviser, ING Investments, LLC, and the same
sub-adviser, ING Investment Management Co.; however, the Government Fund
has only been managed by its current portfolio management team since July
2003 (i.e., 2 years). The portfolio management team of GNMA Income Fund
has been led by Dennis P. Jamison since July 1981 (i.e., 24 years) and
assisted by Roseann F. McCarthy since May 1999 (i.e., 6 years). Thus, the
performance of the GNMA Fund presents a longer-term record of the
performance of the portfolio management team; and
- The proposed Reorganization is expected to result in lower gross operating
expenses per share for all classes of shares of the disappearing
Government Fund. The 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 I shares of each Fund (as
applicable) as of March 31, 2005 are as follows:
2
GROSS EXPENSES BEFORE THE REORGANIZATION
CLASS A CLASS B CLASS C CLASS I
Government Fund 1.03% 1.78% 1.78% 0.78%
GNMA Income Fund 0.98% 1.73% 1.73% 0.68%
NET EXPENSES BEFORE THE REORGANIZATION (AFTER FEE WAIVERS)
CLASS A CLASS B CLASS C CLASS I
Government Fund(1) 0.95% 1.70% 1.70% 0.70%
GNMA Income Fund(1) 0.98% 1.73% 1.73% 0.68%
AFTER THE REORGANIZATION: PRO FORMA
CLASS A CLASS B CLASS C CLASS I
Gross estimated expenses of GNMA Income Fund 0.97% 1.72% 1.72% 0.67%
Net estimated expenses of GNMA Income 0.95% 1.70% 1.70% 0.67%
Fund(1)(2) (After Fee Waiver)
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(1) Ratios reflect expense limits which will continue through at least August
1, 2006.
(2) Ratios reflect proposed 12b-1 Fee waivers to be effective upon
consummation of the merger through August 1, 2006.
Approval of the Reorganization Agreement requires the vote, if a quorum is
present, of the lesser of a majority of the shares voted in person or by proxy.
The holders of a majority of outstanding shares present in person or by proxy
shall constitute a quorum at any meeting of the shareholders.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF GOVERNMENT FUND
UNANIMOUSLY APPROVED THE PROPOSED REORGANIZATION. THE BOARD RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSED REORGANIZATION.
3
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
The following summarizes the investment objective, strategies and
management differences, if any, between Government Fund and GNMA Income Fund:
GOVERNMENT FUND GNMA INCOME FUND
----------------------------------------------- -----------------------------------------------
INVESTMENT OBJECTIVE Seeks to provide income consistent with the Seeks a high level of current income,
preservation of capital through investment consistent with liquidity and safety of
in securities issued or guaranteed by the principal, through investment primarily in
U.S. Government, its agencies or Government National Mortgage Association
instrumentalities. (GNMA) mortgage-backed securities (also
known as GNMA Certificates) that are
guaranteed as to the timely payment of
principal and interest by the U.S.
Government.
INVESTMENT STRATEGIES - Normally invests at least 80% of its assets - Normally invests at least 80% of its assets
in U.S. Government securities. in GNMA Certificates.
- U.S. Government securities include - The remaining assets of the Fund will be
securities issued by the U.S. Treasury, invested in other securities issued or
individual government agencies and certain guaranteed by the U.S. Government,
organizations created through federal including U.S. Treasury securities, and
legislation. Securities issued by the U.S. securities issued by other agencies and
Treasury are backed by the full faith and instrumentalities of the U.S. Government.
credit of the federal government, the The Fund may invest in debt securities of
strongest form of credit backing in the any maturity, although the Sub-Adviser
United States. Securities issued by expects to invest in securities with
individual agencies and organizations may be effective maturities in excess of one year.
backed by the full faith and credit of the
federal government as to principal or - The Fund intends to use the proceeds from
interest but are not direct obligations of principal payments to purchase additional
the U.S. Treasury. Certain indirect GNMA Certificates or other U.S. Government
obligations issued by federal agencies and guaranteed securities.
government-sponsored entities in which the
Fund may invest may not be backed by the - The Sub-Adviser may sell securities for a
full faith and credit of the U.S. Treasury. variety of reasons, such as to secure
Some of these indirect obligations may be gains, limit losses, or redeploy assets
supported by the right of the issuer to into opportunities believed to be more
borrow from the Treasury; others are promising.
supported by the discretionary authority of
the U.S. Government to purchase the agency's - The Fund may engage in frequent and
obligations; still others are supported only active trading of portfolio securities to
by the credit of the instrumentality. achieve its investment objective.
Government securities also include certain
mortgage-related securities that are
sponsored by a U.S. Government agency or
organization and are not direct obligations
of the U.S. Government.
- In managing the Fund, the Sub-Adviser: (i)
looks to construct an intermediate-term
portfolio (average weighted duration between
1 to 10 years) by selecting investments with
the potential to enhance the portfolio's
overall yield and total return; and (ii)
uses quantitative computer models to
identify attractive investments within the
U.S. Government securities markets. As a
4
GOVERNMENT FUND GNMA INCOME FUND
----------------------------------------------- --------------------------------------------------
result, the Fund may, at times, emphasize
one type of U.S. Government security over
another.
- The Fund may lend portfolio securities on a
short-term or long-term basis, up to 33-1/3%
of its total assets.
- The Sub-Adviser may sell securities for a
variety of reasons, such as to secure gains,
limit losses, or redeploy assets into
opportunities believed to be more promising.
- The Fund may engage in frequent and
active trading of portfolio securities to
achieve its investment objective.
INVESTMENT ADVISER ING Investments, LLC ING Investments, LLC
SUB-ADVISER ING Investment Management Co. ING Investment Management Co.
PORTFOLIO MANAGER A team of investment professionals led by Denis
P. Jamison and Roseann G. McCarthy, who have
A team of investment professionals led by James been primarily responsible for managing the
Kauffmann, who has been primarily responsible Fund since July, 1981, and May, 1999,
for managing the Fund since July, 2003. respectively.
As you can see from the chart above, the investment objectives of the Funds
are similar.
5
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following table compares certain characteristics of the Funds as of March
31, 2005:
GOVERNMENT FUND GNMA INCOME FUND
-------------------------------------- --------------------------------------------------
Net Assets $53,244,175 $674,755,793
Number of Holdings 53 363
Portfolio Turnover Rate(1) 183% 40%
Average Dollar Weighted Duration 2.96 years 3.50 years
Average Dollar Weighted Rating AAA AAA
As a Percentage of Net Assets:
U.S. Treasury Obligations 36.8% 4.3%
GNMAs 0.6% 93.0%
U.S. Government Agency
Obligations (e.g., FNMA and
FHLMC) (excluding GNMA) 44.9% 0.4%
Collateralized Mortgage
Obligations and Asset-Backed
Securities 8.1% 0.0%
Other Bonds/Sovereign Bonds
(includes corporate and
municipal bonds) 7.2% 0.0%
Other (excludes securities
lending, other assets and
liabilities) 2.4% 2.3%
Top 5 Industries (as % of net
assets) U.S. Treasury Obligations 36.8% GNMA 93.0%
FNMA 24.9% U.S. Treasury Obligations 4.3%
FHLMC 18.7% FNMA 0.2%
Whole Loan CMO 7.9% FHLMC 0.2%
Multi-National 2.9% N/A 0.0%
Top 10 Holdings (as a % of net U.S. Treasury Note/Bond,
assets) 13.250%, 05/15/14 12.6% GNMA, 6.000%, 11/20/34 2.2%
FHLMC, 5.875%, 03/21/11 6.7% Treasury Bill, 2.670%, 06/16/05 1.8%
U.S. Treasury Note/Bond,
4.000%, 03/15/10 5.6% GNMA, 5.500%, 11/15/33 1.6%
FNMA, 3.875%, 02/01/08 5.6% GNMA, 6.000%, 09/15/32 1.6%
U.S. Treasury Note/Bond,
14.000%, 11/15/11 5.0% GNMA TBA, 5.500%, 01/15/34 1.6%
Bank of America Mortgage
Securities, 3.250%, 05/25/34 4.9% GNMA, 6.840%, 10/15/36 1.6%
U.S. Treasury Note/Bond,
4.000%, 02/15/15 3.9% GNMA, 6.000%, 12/20/34 1.6%
FHLMC, 5.500%, 07/15/06 3.9% GNMA, 7.625%, 07/15/38 1.5%
FNMA, 3.350%, 01/12/07 3.7% GNMA, 7.010%, 02/15/037 1.4%
FNMA, 3.410%, 08/30/07 3.7% GNMA, 7.125%, 09/15/39 1.4%
- --------------
(1) For the one-year period ended March 31, 2005.
6
COMPARISON OF FUND PERFORMANCE
Set forth below is the performance information for each Fund. The
following performance provides some indication of the risks of investing in each
Fund. The bar charts show the performance of each Fund's Class A shares for each
of the past 10 calendar years. Class B, Class C and Class I shares will have
different performance. The bar charts do not reflect the deduction of the sales
load on Class A shares. Any sales charge will reduce your return. The tables set
forth below show the average annual total return (before and after sales taxes)
for each Fund over time for each Class of shares (including deductions for sales
charges) compared with a broad-based securities market index. The after-tax
returns shown for each Fund are for Class A only; after-tax returns for other
classes will vary. PAST PERFORMANCE (BEFORE AND AFTER TAXES) IS NOT NECESSARILY
AN INDICATION OF HOW THE FUNDS WILL PERFORM IN THE FUTURE.
GOVERNMENT FUND
CALENDAR YEAR-BY-YEAR RETURNS(1)(2)(3)
[BAR GRAPH]
YEARS %
1995 15.12
1996 1.44
1997 8.59
1998 7.47
1999 (0.62)
2000 10.14
2001 6.73
2002 8.44
2003 1.71
2004 1.64
- ---------
(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 4.97% for the quarter ended June 30, 1995, and the Fund's
worst quarterly performance was (1.99)% for the quarter ended March 31,
1996. Government Fund's year-to-date total return as of June 30, 2005 was
1.48%.
(3) Effective March 1, 2002, ING Investments, LLC serves as an investment
adviser and ING Investment Management Co., the former investment adviser,
serves as sub-adviser.
7
GNMA INCOME FUND
CALENDAR YEAR-BY-YEAR RETURNS(1)(2)(3)
[BAR GRAPH]
YEARS %
1995 15.91
1996 5.71
1997 10.20
1998 7.52
1999 0.58
2000 10.36
2001 8.65
2002 9.81
2003 2.68
2004 3.01
- ----------
(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 5.50% for the quarter ended March 31, 1995, and the Fund's
worst quarterly performance was (1.64)% for the quarter ended June 30,
2004. GNMA Income Fund's year-to-date total return as of June 30, 2005 was
1.93%.
(3) Effective March 1, 2002, ING Investments, LLC serves as an investment
adviser and ING Investment Management Co., the former investment adviser,
serves as sub-adviser.
8
AVERAGE ANNUAL TOTAL RETURN
(FOR THE PERIODS ENDED DECEMBER 31, 2004)
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION (1)
------- ------- -------- -------------
GOVERNMENT FUND
Class A - Before Taxes (3.19)% 4.65% 5.44% -
Class A - After Taxes on Distributions(2) (4.50)% 2.98% 3.53% -
Class A - After Taxes on Distributions and Sale
of Fund Shares(2) (1.96)% 2.97% 3.47% -
Class B - Before Taxes (3.99)% 4.54% - 4.01%
Class C - Before Taxes (0.08)% 4.90% - 4.10%
Class I - Before Taxes 1.89% 5.95% 6.39% -
The Lehman Brothers Intermediate Government
Bond Index (3) 2.33% 6.57% 6.75% -
GNMA INCOME FUND
Class A - Before Taxes (1.88)% 5.81% 6.82% -
Class A - After Taxes on Distributions(2) (3.63)% 3.74% 4.46% -
Class A - After Taxes on Distributions and Sale
of Fund Shares(2) (1.24)% 3.69% 4.36% -
Class B - Before Taxes (2.65)% - - 5.27%
Class C - Before Taxes 1.25% - - 5.60%
Class I - Before Taxes 3.21% - - 5.43%
The Lehman Brothers Mortgage-Backed Securities
Index (4) 4.70% 7.14% 7.56% -
- ------------
(1) On February 2, 1998, the Government Fund reclassified Adviser Class shares
as Class A. Class A, Class B, Class C and Class I shares commenced
operation on April 15, 1994, March 1, 1999, June 30, 1998, and January 4,
1994, respectively. Effective July 31, 2000, GNMA's Fund's outstanding
shares were reclassified as Class A. Class B, Class C and Class I shares
commenced operations on October 2, 2000, October 13, 2000, and January 7,
2003, respectively. The table set forth above shows the index return for
each Fund over time for Class A shares only. The index return for Class B,
Class C and Class I may be different upon the inception date of each
Class.
(2) After-tax returns are calculated using the historical highest individual
federal margin income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown. Furthermore, the after-tax
returns shown are not relevant to shareholders who hold fund shares
through tax-deferred arrangements such as 401(k) plans or individual
retirement accounts. After-tax returns for Class B and Class C shares will
vary from the after-tax returns presented for Class A shares.
(3) The Lehman Brothers Intermediate Government Bond Index is an unmanaged
index that includes those bonds found in the Lehman Brothers Government
Bond Index that have a maturity of one to 9.99 years.
(4) The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
composed of fixed income security mortgage pools sponsored by GNMA, FNMA
and FHLMC, including GNMA Graduated Payment Mortgages.
For a discussion by the Adviser regarding the performance of GNMA Income
Fund for the fiscal year ended March 31, 2005, see APPENDIX A to this Proxy
Statement/Prospectus. Additional information about GNMA Income Fund is included
in APPENDIX C to this Proxy Statement/Prospectus.
9
COMPARISON OF INVESTMENT TECHNIQUES AND PRINCIPAL RISKS OF INVESTING IN THE
FUNDS
Because the Funds have investment objectives and strategies that are
similar, many of the risks of investing in GNMA Income Fund are the same as the
risks of investing in Government 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. Both Funds are subject to risks associated with price
volatility. Debt securities in which each Fund may invest face market 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.
Changes In Interest Rates. Both Funds are subject to the risk associated
with interest rate changes. Through investment in GNMA securities and other
mortgage-related securities, each Fund may expose an investor to certain risks
which may cause you to lose money. Mortgage prepayments are affected by the
level of interest rates and other factors, including general economic conditions
and the underlying location and age of the mortgage. In periods of rising
interest rates, the prepayment rate tends to decrease, lengthening the average
life of a pool of GNMA securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the life of a pool. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that each Fund may have to reinvest the proceeds of prepayments at
lower yields.
Credit Risk. Each Fund could lose money if the issuer of a debt security
is unable to meet its financial obligations or goes bankrupt. Each Fund is
subject to less credit risk than other income funds because it principally
invests in debt securities issued or guaranteed by the U.S. Government, its
agencies and government-sponsored enterprises. Other mortgage-related securities
also are subject to credit risk associated with the underlying mortgage
properties. These securities may be more volatile and less liquid than more
traditional debt securities.
Prepayment Risk. Both Funds are subject to prepayment risk. As discussed
above, each Fund may invest in mortgage-related securities. If the borrowers on
the underlying mortgages pay off their mortgages sooner than scheduled and
interest rates are falling, the Fund may have to reinvest this money at lower
yields.
Extension Risk. Both Funds are subject to extension risk. Extension risk
arises when slower than expected principal payments on a mortgage-backed
security extend such security's life, thereby locking in a below-market interest
rate, increasing the security's duration and reducing the value of the security.
Mortgage-Related Securities. Each Fund may invest in mortgage-related
securities. The prices of mortgage-related securities are sensitive to changes
in interest rates and changes in the prepayment patterns on the underlying
instruments. If the principal on the underlying mortgage notes is repaid faster
than anticipated, the price of the mortgage-related security may fall.
Convertible Securities. While GNMA Income Fund invests at least 80% of its
assets in GNMA Certificates, the Government Fund may invest in securities issued
by U.S. government agencies. U.S. Government agency securities may be subject to
varying degrees of credit risk, and all U.S. Government securities may be
subject to price declines due to changing interest rates. If an obligation, such
as an obligation issued by the Federal National Mortgage Association, the
Student Loan Marketing Association, the Federal Home Loan Bank and the Federal
Home Loan Mortgage Corporation, is supported only by the credit of the agency or
instrumentality issuing the obligation, the investor must look principally to
the agency issuing or guaranteeing the obligation for ultimate repayment.
Securities directly supported by the full faith and credit of the U.S.
Government (e.g., GNMAs) have less credit risk.
Securities Lending. Government Fund may engage in securities lending. When
lending portfolio securities, they may not be available to the Fund on a timely
basis and the Fund may lose the opportunity to sell the securities at a
desirable price. Engaging in securities lending could have a leveraging effect,
which may intensify market risk, credit risk and other risks associated with
investments in the Fund. When the Fund lends its securities, it is responsible
for investing the cash collateral it receives from the borrower of the
securities. The Fund could incur losses in connection with the investment of
such cash collateral.
10
Portfolio Turnover. Each Fund is subject to a high portfolio turnover
rate. A high portfolio turnover rate involves greater expenses to the Fund,
including brokerage commissions and other transaction costs, and is likely to
generate more taxable short-term gains for shareholders, which may have an
adverse impact on performance.
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 GNMA Income Fund,
see "APPENDIX C: ADDITIONAL INFORMATION REGARDING GNMA INCOME FUND."
MANAGEMENT FEES
Government Fund pays a management fee of 0.500% on the first $250 million
of the Fund's average daily net assets; 0.475% on the next $250 million of the
Fund's average daily net assets; 0.450% on the next $250 million of the Fund's
average daily net assets; 0.425% on the next $1.25 billion; and 0.400% on the
Fund's average daily net assets over $2 billion.
GNMA Income Fund pays a management fee of 0.600% on the first $150 million
of the Fund's average daily net assets; 0.500% of the Fund's average daily net
assets in excess of $150 million and up to $400 million; 0.450% of the Fund's
average daily net assets in excess of $400 million and up to $800 million; and
0.400% on the Fund's average daily net assets over $800 million.
If the Reorganization is approved by shareholders, GNMA Income Fund will
continue to pay the same management fee.
SUB-ADVISER FEES
ING Investments, LLC ("ING Investments" or "Adviser") pays ING Investment
Management Co. ("ING IM" or "Sub-Adviser") a sub-advisory fee of 0.2250% on the
first $250 million of Government Fund's average daily net assets; 0.2140% of the
Fund's average daily net assets on the next $250 million; 0.2030% of the Fund's
average daily net assets on the next $250 million; 0.1910% of the Fund's assets
on the next $1.25 billion; and 0.1800% on the Fund's average daily net assets in
excess of $2 billion.
ING Investments pays ING IM a sub-advisory fee of 0.2700% on the first
$150 million of GNMA Income Fund's average daily net assets; 0.2250% of the
Fund's average daily net assets in excess of $150 million and up to $400
million; 0.2025% of the Fund's average daily net assets in excess of $400
million and up to $800 million; and 0.1800% on the Fund's average daily net
assets in excess of $2 billion. If the Reorganization is approved, GNMA Income
Fund will continue to pay the same sub-advisory fee.
ADMINISTRATION FEES
Government Fund pays an annual administration fee of 0.08% of the Fund's
average daily net assets. GNMA Income Fund pays an annual administration fee of
0.10% of the Fund's average daily net assets.
DISTRIBUTION AND SERVICE FEES
Each Fund pays the distribution (12b-1) and service fees for each Class of
shares as described in the table entitled "Annual Fund Operating Expenses."
11
EXPENSE LIMITATION ARRANGEMENTS
An expense limitation agreement is in place for Government Fund. Under the
terms of the expense limitation agreement, ING Investments has agreed to limit
the expenses of Government 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 Directors
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 August 1, 2006. Pursuant to this expense limitation
agreement, the expense limits for the Government Fund are 0.95%, 1.70%, 1.70%
and 0.70%, for Class A, B, C and I shares, respectively.
An expense limitation agreement also is in place for gnma income fund.
Under the terms of the expense limitation agreement, ing investments has agreed
to limit the expenses of gnma income 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 directors
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 august 1, 2006. Pursuant to this expense limitation
agreement, the expense limits for the gnma income fund are 1.29%, 2.04%, 2.04%
and 1.04% for class A, B, C and I, 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 I shares of GNMA
Income Fund.
TRANSACTION FEES ON NEW INVESTMENTS
(fees paid directly from your investment)
CLASS A(1) CLASS B CLASS C CLASS I
---------- ------- ------- -------
Maximum sales charge (load) imposed on purchases (as a percentage of
offering price) 4.75%(2) None None None
Maximum deferred sales charge (load)(as a percentage of the lower of
original purchase price or redemption proceeds) None (3) 5.00(4) 1.00(5) None
- ----------------
(1) The Fund does not impose any front-end sales charge (load) on reinvested
dividends or distributions.
(2) Reduced for purchases of $50,000 and over. See "Class A Shares: Initial
Sales Charge Alternative" in APPENDIX C.
(3) 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.
(4) 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.
(5) Imposed upon redemptions within 1 year from purchase.
Neither Government Fund nor GNMA Income Fund has any redemption fees,
exchange fees or sales charges on reinvested dividends.
12
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 I shares (as applicable) of the Funds for the period
ended Mach 31, 2005. Pro forma fees show estimated fees of GNMA Income Fund
after giving effect to the proposed Reorganization as adjusted to reflect
changes in contractual changes. Pro forma numbers are estimated in good faith
and are hypothetical.
ANNUAL FUND OPERATING EXPENSES AS OF MARCH 31, 2005
(expenses that are deducted from Fund assets, shown as a ratio of
expenses to average daily net assets) (1)
DISTRIBUTION TOTAL WAIVERS,
(12b-1) AND FUND REIMBURSEMENT,
MANAGEMENT SHAREHOLDER OTHER OPERATING AND NET
FEES SERVICING FEES(2) EXPENSES(3) EXPENSES RECOUPMENT (4) EXPENSES
---------- ----------------- ----------- --------- -------------- --------
CLASS A
Government Fund 0.50% 0.25% 0.28% 1.03% (0.08)% 0.95%
GNMA Income Fund 0.50% 0.25% 0.23% 0.98% - 0.98%
GNMA Income Fund
(Surviving Fund After
the Reorganization)
(Estimated Pro Forma)
(Unaudited) 0.50% 0.25% 0.22% 0.97% (0.02)%(5) 0.95%
CLASS B
Government Fund 0.50% 1.00% 0.28% 1.78% (0.08)% 1.70%
GNMA Income Fund 0.50% 1.00% 0.23% 1.73% - 1.73%
GNMA Income Fund
(Surviving Fund After
the Reorganization
(Estimated Pro Forma)
(Unaudited) 0.50% 1.00% 0.22% 1.72% (0.02)%(5) 1.70%
CLASS C
Government Fund 0.50% 1.00% 0.28% 1.78% (0.08)% 1.70%
GNMA Income Fund 0.50% 1.00% 0.23% 1.73% - 1.73%
GNMA Income Fund
(Surviving Fund After
the Reorganization
(Estimated Pro Forma)
(Unaudited) 0.50% 1.00% 0.22% 1.72% (0.02)%(5) 1.70%
CLASS I
Government Fund 0.50% - 0.28% 0.78% (0.08) 0.70%
GNMA Income Fund 0.50% - 0.18% 0.68% - 0.68%
GNMA Income Fund
(Surviving Fund After
the Reorganization)
(Estimated Pro Forma)
(Unaudited) 0.50% - 0.17% 0.67% - 0.67%
- --------------------
(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.
13
(3) ING Fund Services receives an annual administration fee equal to 0.08% of
the Government Fund's average daily net assets; ING Fund Services receives
an annual administration fee equal to 0.10% of the GNMA Income Fund's
average daily net assets.
(4) ING Investments has entered into an expense limitation agreement with
Government Fund to limit expenses of the Fund (excluding interest, taxes,
brokerage commissions, other investment related costs, extraordinary
expenses such as litigation, other expenses not incurred in the normal
course of the Fund's business, and expenses of any counsel or other
persons or services retained by the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) of the Adviser) subject
to possible recoupment by ING Investments within three years. The expense
limitation 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 August 1, 2006. 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
0.95%, 1.70%, 1.70% and 0.70% for Class A, B, C and I respectively. ING
Investments has entered into an expense limitation agreement with GNMA
Income 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 August 1, 2006. Pursuant to this expense limitation
agreement, the expense limits for the GNMA Income Fund are 1.29%, 2.04%,
2.04%, and 1.04% for Class A, B, C and I shares, respectively.
(5) Includes voluntary 12b-1 Fee waiver of 0.02% for ING GNMA Income Fund
Classes A, B and C to be in effect upon consummation of the merger and
remain in effect through August 1, 2006.
Following the Reorganization, certain holdings of Government Fund that are
transferred to GNMA Income Fund in connection with the Reorganization may be
sold. Such sales may result in increased transaction costs for GNMA Income Fund,
and the realization of taxable gains or losses for GNMA Income Fund.
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.
GOVERNMENT FUND(1) GNMA INCOME FUND
---------------------------------------- ----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $ 567 $780 $ 1,009 $ 1,668 $ 570 $772 $ 991 $ 1,619
CLASS B $ 673 $852 $ 1,157 $ 1,890 $ 676 $845 $ 1,139 $ 1,842
CLASS C $ 273 $552 $ 957 $ 2,088 $ 276 $545 $ 939 $ 2,041
CLASS I $ 72 $241 $ 425 $ 959 $ 69 $218 $ 379 $ 847
ESTIMATED PRO FORMA:
THE FUNDS COMBINED**
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
CLASS A $ 567 $ 767 $ 984 $ 1,606
CLASS B* $ 673 $ 840 $ 1,131 $ 1,830
CLASS C $ 273 $ 540 $ 931 $ 2,029
CLASS I $ 68 $ 214 $ 373 $ 835
You would pay the following expenses if you did not redeem your shares:
GOVERNMENT FUND(1) GNMA INCOME FUND
---------------------------------------- ----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $ 567 $ 780 $ 1,009 $ 1,668 $ 570 $ 772 $ 991 $ 1,619
CLASS B* $ 173 $ 552 $ 957 $ 1,890 $ 176 $ 545 $ 939 $ 1,842
CLASS C $ 173 $ 552 $ 957 $ 2,088 $ 176 $ 545 $ 939 $ 2,041
CLASS I $ 72 $ 241 $ 425 $ 959 $ 69 $ 218 $ 379 $ 847
ESTIMATED PRO FORMA:
THE FUNDS COMBINED**(1)
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
CLASS A $ 567 $ 767 $ 984 $ 1,606
CLASS B* $ 173 $ 540 $ 931 $ 1,830
CLASS C $ 173 $ 540 $ 931 $ 2,029
CLASS I $ 68 $ 214 $ 373 $ 835
- ---------------------
(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.
* The ten-year calculations for Class B shares assume conversion of the
Class B shares to Class A shares at the end of the eighth year following
the date of purchase.
** Estimated.
15
GENERAL INFORMATION
Class A shares of GNMA Income 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 Government Fund held
by that shareholder immediately prior to the Reorganization.
In addition, the period that the shareholder held shares of Government
Fund will be included in the holding period of GNMA Income Fund shares for
purposes of calculating any contingent deferred sales charge. Similarly, Class B
shares of GNMA Income 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 Government Fund were purchased by the shareholder.
Government Fund and GNMA Income Fund are both subject to the sales load
structure described in the table above in the section "Expense Tables."
Following the Reorganization, certain holdings of Government Fund that are
transferred to GNMA Income Fund in connection with the Reorganization may be
sold. Such sales may result in increased transaction costs for GNMA Income Fund,
and the realization of taxable gains or losses for GNMA Income Fund.
MATERIAL DIFFERENCES IN RIGHTS OF GOVERNMENT FUND SHAREHOLDERS AND GNMA INCOME
FUND SHAREHOLDERS
GNMA Income Fund is organized as a series of a Delaware statutory trust
and is governed by a Trust Instrument and Bylaws. Government Fund is organized
as a series of a Maryland corporation and is governed by Articles of
Incorporation and Bylaws. Material differences under the GNMA Income Fund's
Trust Instrument/Bylaws or Delaware law and the Government Fund's Articles of
Incorporation/Bylaws or Maryland Law are presented below.
GNMA INCOME FUND GOVERNMENT FUND
---------------- ---------------
The Trust Instrument permits the Articles of Incorporation does not
Trustees, without a shareholder vote to specifically address amendments to the
amend the Trust Instrument, except that charter documents; consequently,
shareholders have the right to vote on: amendments to the Fund's Articles of
(i) the election of a Trustee; (ii) the Incorporation would be governed by
removal of the Trustee (by a vote of at Maryland General Corporation Law, which
least two-thirds of the outstanding generally provides that an amendment to
shares); (iii) on any amendment required the Articles of Incorporation (except
by law or by the Trust's most current with respect to amendments to increase
registration statement; (iv) any or decrease the number of shares of
amendment to section 11.8 of the Trust stock (or class of any such stock) of
Instrument, which governs the rights of the corporation that it has the
shareholders to vote on amendments; and authority to issue) to be submitted to
(v) any amendment submitted to the shareholders at an annual or special
shareholders. meeting of the shareholders.
The Trust Instrument permits the Both the Directors and the shareholders
Trustees pursuant to a majority vote to have the right at any annual or special
amend the By-laws. meeting, as long as appropriate notice
has been given, to alter or repeal any
Bylaws of the Corporation and to make
new Bylaws.
16
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 (i) the transfer, as of the
Closing Date, of all of the assets of Government Fund in exchange for shares of
beneficial interest of GNMA Income Fund and the assumption by GNMA Income Fund
of Government Fund's known liabilities, as set forth in that Fund's Statement of
Assets and Liabilities as of the Closing Date; and (ii) the distribution of
shares of GNMA Income Fund to shareholders of Government Fund, as provided for
in the Reorganization Agreement. Government Fund will then be liquidated.
Each Class A, Class B, Class C and Class I shareholder of Government Fund
will hold, immediately after the Closing Date, shares of the corresponding class
of GNMA Income Fund having an aggregate value equal to the aggregate value of
the shares of the corresponding class of Government Fund held by that
shareholder as of the Closing Date. In the interest of economy and convenience,
shares of GNMA Income Fund generally will not be represented by physical
certificates, unless you request the certificates in writing.
Until the Closing Date, shareholders of Government Fund will continue to
be able to redeem their shares. Redemption requests received after the Closing
Date will be treated as requests received by GNMA Income 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
Government Fund. The Reorganization Agreement also requires that each of the
Funds take, or cause to be taken, all actions, and do or cause to be done, all
things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by the Reorganization Agreement. The
Reorganization Agreement may be terminated by mutual agreement of the parties or
on certain other grounds. Please refer to APPENDIX B to review the terms and
conditions of the Reorganization Agreement.
REASONS FOR THE REORGANIZATION
The Reorganization is one of several reorganizations that have taken place
among various ING Funds. The ING Fund complex has grown in recent years through
the addition of many funds. Management of the ING Funds has proposed the
consolidation of several of the ING Funds that they believe have similar or
compatible investment strategies. The reorganizations are designed to reduce the
substantial overlap in funds offered in the ING Funds complex, thereby
eliminating inefficiencies and 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 Reorganizations were presented for consideration to the Board
of Directors of Government Fund at a meeting held on June 17, 2005, and the
Board of Trustees of the GNMA Income Fund on July 21, 2005. For the reasons
discussed below, the Trustees/Directors of the Funds, including all of the
Trustees/Directors who are not "interested persons" (as defined in the
Investment Company Act of 1940, as amended) of the Funds, determined that the
interests of the shareholders of either Fund will not be diluted as a result of
the proposed Reorganization, and that the proposed Reorganization is in the best
interests of both Funds and their shareholders.
The Reorganization will allow Government Fund's shareholders to continue
to participate in a professionally-managed portfolio that seeks a high level of
current income consistent with liquidity and safety of principal. Additionally,
the proposed Reorganization is expected to result in lower gross and net
expenses for shareholders of all classes of Government Fund. As shareholders of
GNMA Income 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.
17
BOARD CONSIDERATIONS
The Board of Directors of Government Fund, in recommending the proposed
transaction, considered a number of factors, including the following:
- - the plans of management to reduce overlap in funds in the ING Fund
complex;
- - the potential benefits of the transaction to shareholders;
- - the relative investment performance of Government Fund as compared to GNMA
Income Fund;
- - expense ratios and information regarding fees and expenses of Government
Fund and GNMA Income Fund;
- - the relative size of the Funds;
- - whether the Reorganization would dilute the interests of either Fund's
current shareholders;
- - the similarity of investment objectives and strategies of GNMA Income Fund
with those of Government Fund;
- - the fees or expenses that will be borne directly by the Investment Adviser
(or an affiliate of the Investment Adviser) in connection with the merger;
- - any benefits that may be realized by the Adviser; and
- - the tax consequences of the Reorganization to Government Fund and its
shareholders, including the tax-free nature of the transaction.
The Board of Directors also considered the future potential benefits to
ING Investments in that its costs to administer both Funds may be reduced if the
Reorganization is approved.
THE DIRECTORS OF GOVERNMENT FUND RECOMMEND THAT SHAREHOLDERS APPROVE THE
REORGANIZATION WITH GNMA INCOME 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 Government
Fund nor its shareholders, nor GNMA Income 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.
Immediately prior to the Reorganization, Government Fund will pay a
dividend or dividends which, together with all previous dividends, will have the
effect of distributing to its shareholders all of Government 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
Government Fund's shareholders.
As of March 31, 2005, Government Fund and GNMA Income Fund had accumulated
capital loss carryforwards of approximately $71,847 and $16,364,731,
respectively. After the Reorganization, the losses of Government Fund generally
will be available to GNMA Income Fund to offset its capital gains, although a
portion of the amount of these losses that may offset GNMA Income Fund's capital
gains in any given year will be limited due to this Reorganization. The ability
of GNMA Income Fund to absorb losses in the future depends upon a variety of
factors that cannot be known in advance, including the existence of capital
gains against which these losses may be offset. In addition, the benefits of any
of these various capital loss carryforwards currently are available only to
pre-reorganization shareholders of each Fund. After the Reorganization, however,
these benefits will inure to the benefit of all post-reorganization shareholders
of GNMA Income Fund.
18
EXPENSES OF THE REORGANIZATION
The expenses relating to the proposed Reorganization will be borne by ING
Investments (or an affiliate of ING Investments). The costs of the
Reorganization shall include, but not be limited to, costs associated with
obtaining any necessary order of exemption from the Investment Company Act of
1940, preparation of the Registration Statement, printing and distributing the
Proxy Statement/Prospectus and proxy materials, legal fees, accounting fees,
securities registration fees, and expenses of holding the Special Meeting.
ADDITIONAL INFORMATION ABOUT THE FUNDS
FORM OF ORGANIZATION
Government Fund is a diversified series of ING Series Fund, Inc., an
open-end management investment company organized as a Maryland corporation. ING
Series Fund, Inc. is governed by a Board of Directors consisting of eight
members. For more information on the history of ING Series Fund, see the SAI.
GNMA Income 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 eleven members. For more
information on the history of ING Funds Trust, 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
The Funds generally distribute most of their net earnings in the form of
dividends and capital gain distributions. Dividends are normally expected to
consist primarily of ordinary income. Each Fund pays dividends, if any, monthly.
Each Fund distributes capital gains, if any, annually.
If the Reorganization Agreement is approved by Government Fund's
shareholders, then as soon as practicable before the Closing Date, Government
Fund will pay its shareholders a cash distribution of substantially all
undistributed net investment income and undistributed realized net capital
gains.
19
CAPITALIZATION
The following table shows on an unaudited basis the capitalization of each
of the Funds as of March 31, 2005, and on a pro forma basis as of March 31,
2005, giving effect to the Reorganization:
NET ASSET VALUE SHARES
NET ASSETS PER SHARE OUTSTANDING
-------------- --------------- -----------
GOVERNMENT FUND
Class A $ 34,205,886 $ 10.10 3,388,393
Class B $ 2,085,644 $ 10.10 206,432
Class C $ 769,437 $ 10.10 76,180
Class I $ 16,183,208 $ 10.11 1,600,662
GNMA INCOME FUND
Class A $ 521,688,038 $ 8.52 61,219,378
Class B $ 99,130,304 $ 8.48 11,688,160
Class C $ 43,094,170 $ 8.49 5,074,540
Class I $ 10,539,490 $ 8.53 1,235,640
PRO FORMA - GNMA INCOME FUND INCLUDING GOVERNMENT FUND
Class A $ 555,893,924 $ 8.52 65,234,153
Class B $ 101,215,948 $ 8.48 11,934,109
Class C $ 43,863,607 $ 8.49 5,165,169
Class I $ 26,722,698 $ 8.53 3,132,851
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 with its enclosures on or about September 23,
2005. Shareholders of Government 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. Government
Fund has retained Computershare Fund Services (the "Solicitor"), a professional
proxy solicitation firm, to assist with any necessary solicitation of proxies.
The estimated cost of the proxy solicitation is $4,000. ING Investments will
bear the cost of the proxy solicitation. Shareholders of Government 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
shareholder can vote his or her shares over the telephone and will ask if the
shareholder would like to cast a vote. Although the Solicitor's representative
is permitted to answer questions about the process, he or she is not permitted
to recommend to the shareholder how to vote, other than to read any
recommendation set forth in the Proxy Statement/Prospectus. The Solicitor will
then record the shareholder's instructions on the Proxy Card. Within 72 hours,
the shareholder will be sent a confirmation of his or her vote asking the
shareholder to call the Solicitor immediately if his or her instructions are not
correctly reflected in the confirmation.
If a shareholder wishes to participate in the Special Meeting, but does
not wish to give a proxy by telephone, the shareholder may still submit the
proxy originally sent with the Proxy Statement/Prospectus, attend in person or
vote online. Should shareholders require additional information regarding the
proxy or require replacement of the proxy, they may contact the Solicitor
toll-free at 1-866-804-3212.
A shareholder may revoke the accompanying proxy at any time prior to its
use by filing with Government 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
20
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
Government Fund that may be presented at the Special Meeting.
VOTING RIGHTS
As a shareholder of Government 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 Government Fund at the close of business on August
16, 2005 (the "Record Date") will be entitled to be present and give voting
instructions for Government Fund at the Special Meeting with respect to their
shares owned as of that Record Date. As of the Record Date, [______] shares of
Government Fund were outstanding and entitled to vote.
Approval of the Reorganization Agreement requires the vote, if a quorum is
present, of the lesser of a majority of the shares voted in person or by proxy.
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.
Government 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, Government 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 16, 2005, no current
Director owns 1% or more of the outstanding shares of either Fund, and the
officers and Directors own, as a group, less than 1% of the shares of either
Fund.
APPENDIX E hereto lists the persons that, as of August 16, 2005, owned
beneficially or of record 5% or more of the outstanding shares of any Class of
Government Fund or GNMA Income Fund.
OTHER MATTERS TO COME BEFORE THE SPECIAL MEETING
Government 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 proxy
holders will vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Government 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 Government 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.
21
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/ Theresa K. Kelety
------------------------
Theresa K. Kelety
Secretary
September 23, 2005
7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
22
APPENDIX A
REPORT FOR ING GNMA INCOME FUND
PORTFOLIO MANAGERS' REPORT ING GNMA INCOME FUND
INVESTMENT TYPES*
AS OF MARCH 31, 2005
(as a percent of net assets)
[PIE CHART]
The ING GNMA Income Fund (the "Fund") seeks to generate a high level of current
income, consistent with liquidity and safety of principal, through investment
primarily in Government National Mortgage Association ("Ginnie Mae", "GNMA")
mortgage-backed securities (also known as GNMA Certificates) that are guaranteed
as to the timely payment of principal and interest by the U.S. Government. The
Fund is managed by Denis P. Jamison, CFA, ING Investment Management Co. --the
Sub-Adviser.
Securities issued by the U.S. Treasury are backed by the full faith and credit
of the federal government. Securities issued by individual agencies and
organizations may be backed by the full faith and credit of the federal
government as to principal or interest but are not direct obligations of the
U.S. Treasury. Securities of some agencies and organizations are backed solely
by the entity's own resources or by the ability of the entity to borrow from the
U.S. Treasury. Government securities also include certain mortgage-related
securities that are sponsored by a U.S. Government agency or organization and
are not direct obligations of the U.S. Government.
PERFORMANCE: For the year ended March 31, 2005, the Fund's Class A shares,
excluding sales charges, provided a total return of 0.74% compared to 2.61% for
the Lehman Brothers Mortgage-Backed Securities Index(5).
PORTFOLIO SPECIFICS: Mortgages were one of the best performing sectors in a
generally lackluster fixed income market over the last year. The Fund has a
significant allocation to multi-family mortgages, currently about one-third of
total assets. Multi-family loans perform more in line with U.S. Treasury notes
than single-family mortgages. Our holdings tend to track the five-year U.S.
Treasury note. This sector of the market suffered a major setback as the Federal
Reserve began to tighten monetary policy. The five-year note lost 2.2% for the
year ended March 31. The Fund's holdings that track the five-year note also
sustained losses and dragged down performance for the year. Fortunately, our
multi-family loans provided much higher income than the Treasury security,
mitigating our loss.
For the year ended March 31, 2005, our emphasis was on replacing income within
the single-family mortgage portfolio. We look to generate total return primarily
through interest income rather than price appreciation. As older, higher coupon
mortgages refinance, the portfolio's yield suffers. Despite this trend, we were
able to limit the decline in the average single family mortgage coupon to just
10 basis points. On March 31, 2005, our average coupon was 5.85% versus 5.95% a
year earlier. The average coupon for the Lehman Mortgage Backed Securities Index
is just 5.41%. We are able to maintain a higher coupon by purchasing mortgages
with characteristics associated with more stable refinancing activity. Such
characteristics include low loan size and geographic origin. The average coupon
of these securities exceeds 7%.
CURRENT STRATEGY AND OUTLOOK: We continue to position the Fund defensively.
Mortgages priced below par are being sold and gradually replaced by securities
with higher income and lower interest rate sensitivity. The goal is to offset
probable future price erosion with consistent high income. We will keep some
cash on hand to opportunistically add exposure in longer-dated U.S. Treasury
bonds as market conditions warrant.
A-1
PORTFOLIO MANAGERS' REPORT ING GNMA INCOME FUND
ING GNMA Income Class A
[LINE GRAPH]
ING GNMA Income Fund ING GNMA Income Fund
Class A Class A Lehman Brothers Mortgage-Backed
With Sales Charge Without Sales Charge Securities Index
-------------------- -------------------- --------------------------------
3/31/1995 $ 9,525 $ 10,000 $ 10,000
3/31/1996 $ 10,508 $ 11,029 $ 11,049
3/31/1997 $ 11,013 $ 11,559 $ 11,707
3/31/1998 $ 12,400 $ 13,015 $ 13,012
3/31/1999 $ 13,216 $ 13,871 $ 13,828
3/31/2000 $ 13,437 $ 14,102 $ 14,140
3/31/2001 $ 15,139 $ 15,889 $ 15,928
3/31/2002 $ 15,801 $ 16,584 $ 16,945
3/31/2003 $ 17,512 $ 18,379 $ 18,415
3/31/2004 $ 18,191 $ 19,093 $ 19,167
3/31/2005 $ 18,326 $ 19,234 $ 19,667
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31,2005
SINCE INCEPTION SINCE INCEPTION SINCE INCEPTION
OF CLASS B OF CLASS C OF CLASS M
1 YEAR 5 YEAR 10 YEAR OCTOBER 6, 2000 OCTOBER 13, 2000 FEBRUARY 23, 2001
------ ------ ------- --------------- ---------------- -----------------
INCLUDING SALES CHARGE:
CLASS A(1) (4.05)% 5.37% 6.24% - - -
CLASS B(2) (4.80)% - - 4.90% - -
CLASS C(3) (0.99)% - - - 5.20% -
CLASS M(4) (2.93)% - - - - 3.83%
EXCLUDING SALES CHARGE:
CLASS A 0.74% 6.40% 6.75% - - -
CLASS B (0.02)% - - 5.27% - -
CLASS C (0.03)% - - - 5.20% -
CLASS M 0.33% - - - - 4.67%
Lehman Brothers Mortgage-Backed
Securities Index(5) 2.61% 6.82% 7.00% 6.32%(6) 6.32%(6) 5.45%(7)
Based on a $10,000 initial investment, the graph and table above illustrate the
total return of ING GNMA Income Fund against the Index or Indices indicated. 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 that the Investment Manager may have waived or recouped
fees and expenses otherwise payable by 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.
(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% and 3%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1% for the 1
year return.
(4) Reflects deduction of the maximum Class M sales charge of 3.25%.
(5) The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
composed of fixed income security mortgage pools sponsored by GNMA, FNMA
and FHLMC, including GNMA Graduated Payment Mortgages.
(6) Since inception performance for index is shown from October 1, 2000.
(7) Since inception performance for index is shown from March 1, 2001.
A-2
APPENDIX B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 21st day of July, 2005, by and between ING Funds Trust, a Delaware business
trust with its principal place of business at 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034 (the "Trust"), on behalf of its series, ING GNMA
Income Fund (the "Acquiring Fund"), and ING Series Fund, Inc., a Maryland
corporation with its principal place of business at 7337 East Doubletree Ranch
Road, Scottsdale, Arizona 85258-2034 (the "Company"), on behalf of its series,
ING Government Fund (the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange solely for Class
A, Class B, Class C, and Class I voting shares of beneficial interest of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring
Fund of the liabilities of the Acquired Fund described in paragraph 1.3, and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are series of open-end,
registered investment companies of the management type and the Acquired Fund
owns securities which generally are assets of the character in which the
Acquiring Fund is permitted to invest; and
WHEREAS, the Board of Trustees of the Trust has 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, as described in
paragraph 1.3 herein, 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 Board of Directors of the Company has 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, as described in
paragraph 1.3 herein, 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 therefor: (i) to
deliver to the Acquired Fund the number of full and fractional Class A, Class B,
Class C and Class I Acquiring Fund Shares determined by dividing the value of
the Acquired Fund's net assets with respect to each class, computed in the
manner and as of the time and date set forth in paragraph 2.1, by the net asset
value of one Acquiring Fund Share of the same class, computed in the manner and
as of the time and date set forth in paragraph 2.2; and (ii) to assume the
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 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
B-1
Statement of Assets and Liabilities as of the Closing Date delivered by the
Company, on behalf of the Acquired Fund, to the Trust, on behalf of the
Acquiring Fund, pursuant to paragraph 7.2 hereof. On or as soon as practicable
prior to the Closing Date, the Acquired Fund will declare and pay to its
shareholders of record one or more dividends and/or other distributions so that
it will have distributed substantially all (and in no event less than 98%) of
its investment company taxable income (computed without regard to any deduction
for dividends paid) and realized net capital gain, if any, for the current
taxable year through the Closing Date.
1.4. Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Fund will distribute to the Acquired Fund's shareholders of
record with respect to each class of its shares, determined as of immediately
after the close of business on the Closing Date (the "Acquired Fund
Shareholders"), on a pro rata basis within that class, the Acquiring Fund Shares
of the same class received by the Acquired Fund pursuant to paragraph 1.1, and
will completely liquidate. Such distribution and liquidation will be
accomplished, with respect to each class of the Acquired Fund's shares, by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Class A, Class B, Class C and Class I Acquiring
Fund Shares to be so credited to Class A, Class B, Class C and Class I Acquired
Fund Shareholders shall, with respect to each class, be equal to the aggregate
net asset value of the Acquired Fund shares of that same class owned by such
shareholders on the Closing Date. All issued and outstanding shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired Fund,
although share certificates representing interests in Class A, Class B, Class C
and Class I shares of the Acquired Fund will represent a number of the same
class of Acquiring Fund Shares after the Closing Date, as determined in
accordance with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Class A, Class B, Class C and Class I Acquiring Fund Shares in
connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent, as defined in paragraph 3.3.
1.6. Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the U.S. Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or local
tax authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Acquired Fund.
2. VALUATION
2.1. The value of the Assets shall be the value computed as of immediately
after the close of business of the New York Stock Exchange and after the
declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures in the
then-current prospectus and statement of additional information with respect to
the Acquiring Fund, and valuation procedures established by the Acquiring Fund's
Board of Trustees.
2.2. The net asset value of a Class A, Class B, Class C and Class I
Acquiring Fund Share shall be the net asset value per share computed with
respect to that class as of the Valuation Date, using the valuation procedures
set forth in the Acquiring Fund's then-current prospectus and statement of
additional and valuation procedures established by the Acquiring Fund's Board of
Trustees.
2.3. The number of the Class A, Class B, Class C and Class I Acquiring
Fund Shares to be issued (including fractional shares, if any) in exchange for
the Acquired Fund's assets shall be determined with respect to each such class
by dividing the value of the net assets with respect to the Class A, Class B,
Class C, and Class I shares of the Acquired Fund, as the case may be, determined
using the same valuation procedures referred to in paragraph 2.1, by the net
asset value of an Acquiring Fund Share, determined in accordance with paragraph
2.2.
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 December 3, 2005, 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
B-2
Closing Date unless otherwise agreed to by the parties. The close of business on
the Closing Date shall be as of 4:00p.m., Eastern Time. The Closing shall be
held at the offices of the Acquiring Fund or at such other time and/or place as
the parties may agree.
3.2. The Acquired Fund shall direct the Bank of New York Company, Inc., 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 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 I 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 Directors of the
Acquiring Fund, accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. Except as has been disclosed to the Acquiring Fund in a written
instrument executed by an officer of the Company, the Company, on behalf of the
Acquired Fund, represents and warrants to the Trust as follows:
(a) The Acquired Fund is duly organized as a series of the Company,
which is a corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland, with power under the Company's Articles
of Incorporation to own all of its properties and assets and to carry on its
business as it is now being conducted;
(b) The Company is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and the registration of
shares of the Acquired Fund under the Securities Act of 1933, as amended ("1933
Act"), is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act")
and the 1940 Act and such as may be required by state securities laws;
(d) The current prospectus and statement of additional information
of the Acquired Fund and each prospectus and statement of additional information
of the Acquired Fund used during the three years previous to the date of this
Agreement conforms or conformed at the time of its use in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and does not, or did not at the
time
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of its use, include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and
marketable title to the Assets and full right, power, and authority to sell,
assign, transfer and deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund
will acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in (i) a material
violation of the Company's Articles of Incorporation or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Company, on behalf of the Acquired Fund, is a party or by which it is bound;
or (ii) the acceleration of any obligation, or the imposition of any penalty,
under any agreement, indenture, instrument, contract, lease, judgment or decree
to which the Company, on behalf of the Acquired Fund, is a party or by which it
is bound;
(g) All material contracts or other commitments of the Acquired Fund
(other than this Agreement and certain investment contracts including options,
futures and forward contracts) will terminate without liability to the Acquired
Fund prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by 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
Company, on behalf of the Acquired Fund, knows of no facts which might form the
basis for the institution of such proceedings and is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(i) The Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets, and Schedule of Investments of the
Acquired Fund at March 31, 2005 have been audited by KPMG LLP, an independent
registered public accounting firm, and are in accordance with generally accepted
accounting principles ("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, 2005 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
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sufficient to distribute all of its investment company taxable income and net
capital gain for the period ending on the Closing Date;
(m) All issued and outstanding shares of the Acquired Fund are, and
on the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable, and have been offered and sold in every state and the
District of Columbia in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. All of the
issued and outstanding shares of the Acquired Fund will, at the time of Closing,
be held by the persons and in the amounts set forth in the records of the
Transfer Agent, on behalf of the Acquired Fund, as provided in paragraph 3.3.
The Acquired Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the shares of the Acquired Fund, nor
is there outstanding any security convertible into any of the Acquired Fund
shares;
(n) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action, if
any, on the part of the Directors of the Company, on behalf of the Acquired
Fund, and, subject to the approval of the shareholders of the Acquired Fund,
this Agreement will constitute a valid and binding obligation of the Acquired
Fund, enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(o) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed or to be
filed with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be accurate and
complete in all material respects and shall comply in all material respects with
Federal securities and other laws and regulations thereunder applicable thereto;
and
(p) The proxy statement of the Acquired Fund (the "Proxy Statement")
to be included in the Registration Statement referred to in paragraph 5.6,
insofar as it relates to the Acquired Fund, will, on the effective date of the
Registration Statement and on the Closing Date (i) not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not materially misleading
provided, however, that the representations and warranties in this subparagraph
(p) shall not apply to statements in or omissions from the Proxy Statement and
the Registration Statement made in reliance upon and in conformity with
information that was furnished by the Acquiring Fund for use therein; and (ii)
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder.
4.2. Except as has been disclosed to the Acquired Fund in a written
instrument executed by an officer of the Trust, the Trust, on behalf of the
Acquiring Fund, represents and warrants to the Company as follows:
(a) The Acquiring Fund is duly organized as a series of the Trust,
which is a trust duly organized, validly existing and in good standing under the
laws of the State of Delaware, with power under the Trust's Trust Instrument 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 Acquiring 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;
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(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
Company, on behalf of the Acquired Fund, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against 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, 2005 have been audited by KPMG LLP, an independent
registered public accounting firm, and are in accordance with GAAP consistently
applied, and such statements (copies of which have been furnished to the
Acquired Fund) present fairly, in all material respects, the financial condition
of the Acquiring Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquiring Fund required to be reflected on a
balance sheet (including the notes thereto) in accordance with GAAP as of such
date not disclosed therein;
(i) Since March 31, 2005, 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 shares of the Acquiring Fund 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
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terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The Class A, Class B, Class C and Class I 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.
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, Class C and
Class I Acquiring Fund Shares to be issued hereunder are not being acquired for
the purpose of making any distribution thereof, other than in accordance with
the terms of this Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.5. Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.6. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus"),
which will include the Proxy Statement referred to in paragraph 4.1(p), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the 1934 Act and the
1940 Act, in connection with the meeting of the shareholders of the Acquired
Fund to consider approval of this Agreement and the transactions contemplated
herein.
5.7. As soon as is reasonably practicable after the Closing, the Acquired
Fund will make a liquidating distribution to its shareholders consisting of the
Class A, Class B, Class C and Class I 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.
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5.9. The Company, on behalf of the Acquired Fund, covenants that the
Company will, from time to time, as and when reasonably requested by the
Acquiring Fund, execute and deliver or cause to be executed and delivered all
such assignments and other instruments, and will take or cause to be taken such
further action as the Trust, on behalf of the Acquiring Fund, may reasonably
deem necessary or desirable in order to vest in and confirm (a) the Company's,
on behalf of the Acquired Fund's, title to and possession of the Acquiring
Fund's Shares to be delivered hereunder, and (b) the 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 Company, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at the
Company's election, to the performance by 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 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 Company a certificate executed
in its name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to the Company and dated as of the
Closing Date, to the effect that the representations and warranties of 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
Company 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 Company, on behalf of the Acquired Fund, of all of the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:
7.1. All representations and warranties of the Company, on behalf of the
Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date;
7.2. The Company shall have delivered to the Acquiring Fund a statement of
the Acquired Fund's assets and liabilities, as of the Closing Date, certified by
the Treasurer of the Trust;
7.3. The Company shall have delivered to the Acquiring Fund on the Closing
Date a certificate executed in its name by its President or Vice President and
its Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Trust and dated as of the Closing Date, to the effect that the representations
and warranties of the Company, on behalf of the Acquired Fund, made in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as to such
other matters as the Trust shall reasonably request;
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7.4. The Company, on behalf of the Acquired Fund, shall have performed all
of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by the Company, on behalf of the
Acquired Fund, on or before the Closing Date;
7.5. The Acquired Fund and the Acquiring Fund shall have agreed on the
number of full and fractional Acquiring Fund Shares of each class to be issued
in connection with the Reorganization after such number has been calculated in
accordance with paragraph 1.1; and
7.6. The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last fiscal year to 4:00p.m.
Eastern time on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to the extent not
otherwise already distributed.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the Company, on behalf of the Acquired
Fund, or 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 Company's Articles of
Incorporation, By-Laws, applicable Maryland law and the 1940 Act, and certified
copies of the resolutions evidencing such approval shall have been delivered to
the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Trust nor the Company may waive the conditions set forth in this paragraph 8.1;
8.2. On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other relief
in connection with, this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Trust or the Company to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Acquiring Fund or
the Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5. The parties shall have received the opinion of Dechert LLP addressed
to the Company and 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 and the Company.
Notwithstanding anything herein to the contrary, neither the Trust nor the
Company may waive the condition set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1. The Company, on behalf of the Acquired Fund, and the Trust, on behalf
of the Acquiring Fund, represent and warrant to each other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 The expenses relating to the proposed Reorganization will be borne by
the investment adviser to the Acquiring Fund (or an affiliate of the investment
adviser). The costs of the Reorganization shall include, but not be limited
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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 Trust and the Company agree that neither party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive the Closing.
11. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties; or (ii)
by either party if the Closing shall not have occurred on or before March 31,
2006, 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 Directors or
officers, except for any such material breach or intentional misrepresentation,
as to each of which all remedies at law or in equity of the party adversely
affected shall survive.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be deemed necessary or advisable by the authorized officers of the Company
and the Trust; provided, however, that following the meeting of the shareholders
of the Acquired Fund called by the Company pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of the Class A, Class B, Class C and Class I Acquiring
Fund Shares to be issued to the Acquired Fund Shareholders under this Agreement
to the detriment of such shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to the Trust
or the Company, 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 Maryland 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
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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 Directors, shareholders, nominees,
officers, agents, or employees of the Company personally, but shall bind only
the property of the Acquired Fund, as provided in the Articles of Incorporation
of the Company. The execution and delivery by such officers shall not be deemed
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the property of such party.
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.
Attest: ING FUNDS TRUST on behalf of its
ING GNMA INCOME FUND series
By:
__________________________________ ____________________________________
SECRETARY
Its:
____________________________________
Attest: ING SERIES FUND, INC. on behalf of its
ING GOVERNMENT FUND series
By:
__________________________________ ____________________________________
SECRETARY
____________________________________
Its:
B-11
APPENDIX C
ADDITIONAL INFORMATION REGARDING ING GNMA INCOME FUND
("GNMA INCOME FUND")
SHAREHOLDER GUIDE
ING PURCHASE OPTIONS(TM)
This Proxy Statement/Prospectus relates to four separate Classes of shares
of GNMA Income Fund: Class A, Class B, Class C and Class I, each of which
represents an identical interest in GNMA Income Fund's investment portfolio, but
are offered with different sales charges and distribution (Rule 12b-1) and
service fee arrangements. As described below and elsewhere in this Proxy
Statement/Prospectus, the contingent deferred sales load structure and
conversion characteristics of GNMA Income Fund shares that will be issued to you
in the Reorganization will be the same as those that apply to ING Government
Fund ("Government Fund") shares held by you immediately prior to the
Reorganization, and the period that you held shares of Government Fund will be
included in the holding period of GNMA Income Fund shares for purposes of
calculating any contingent deferred sales charges and determining any conversion
rights. Purchases of the shares of GNMA Income 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 GNMA Income Fund
are shown and contrasted in the chart below.
CLASS A CLASS B CLASS C CLASS I
------- ------- ------- -------
Maximum Initial Sales Charge on Purchases 4.75%(1) None None None
Contingent Deferred Sales Charge ("CDSC") None(2) 5.00%(3) 1.00%(4) None
Annual Distribution (12b-1) and Service Fees
(5) 0.25% 1.00% 1.00% None
Maximum Purchase Unlimited $100,000 Unlimited Unlimited
Automatic Conversion to Class A N/A 8 Years(6) N/A N/A
- ------------------
(1) Reduced for purchases of $50,000 and over.
(2) For investments of $1 million or more, a CDSC of no more than 1% may be
assessed on redemptions of shares that were purchased without an initial
sales charge. See "Class A Shares: Initial Sales Charge Alternative" in
this APPENDIX C.
(3) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See "Class B Shares: Deferred Sales
Charge Alternative" in this APPENDIX C.
(4) Imposed upon redemption within 1 year from purchase.
(5) Annual asset-based distribution charge.
(6) Class B shares of GNMA Income Fund issued to shareholders of Government
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
Government 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 declined.
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CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of GNMA
Income 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 of
$1,000,000 or more. However, the shares will be subject to a CDSC if they are
redeemed within one or two years of purchase, depending on the amount of the
purchase, as follows:
PERIOD DURING
YOUR INVESTMENT CDSC WHICH CDSC APPLIES
- --------------- ---- ------------------
$1,000,000 - $2,499,999 1.00% 2 years
$2,500,000 - $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced
sales charge on a purchase of Class A shares of GNMA Income 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 GNMA Income 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 GNMA Income
Fund for details on the Letter of Intent option or contact the Shareholder
Servicing Agent, 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 GNMA Income Fund or any other open-end funds
in the ING Fund complex (excluding ING Aeltus Money Market Fund and ING Classic
Money Market Fund) ("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 GNMA Income Fund for details or contact the Shareholder
Servicing 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 GNMA Income 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 Servicing Agent at 1-800-992-0180, or see
the SAI for GNMA Income Fund.
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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 GNMA Income 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 CDSC
- --------------------------------- ----
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
After Sixth Year None
Class B shares will automatically convert into Class A shares eight years
after purchase. Class B shares of GNMA Income Fund issued in connection with the
Reorganization will convert to Class A shares eight years after the purchase of
the original shares of Government Fund. For additional information on the CDSC
and the conversion of Class B, see GNMA Income Fund's SAI.
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.
CLASS I SHARES. Class I shares are offered at NAV without a sales charge
to qualified retirement plans, financial and other institutions and "wrap
accounts." The minimum initial investment is $1,000,000. The Distributor may
waive the minimum from time to time.
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.
(iv) The CDSC also will be waived in the case of reinvestment of
dividends and capital gains distributions.
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
C-3
be used only once per calendar year. See the SAI for GNMA Income Fund for
details or contact the Shareholder Servicing Representative at 1-800-992-0180
for more information.
RULE 12b-1 PLAN. GNMA Income 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 GNMA Income Fund ("Rule
12b-1 Plan"). Under the Rule 12b-1 Plan, ING Funds Distributor, LLC (the
"Distributor") may receive from GNMA Income Fund an annual fee in connection
with the offering, sale and shareholder servicing of GNMA Income 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 GNMA Income Fund and in connection with services rendered to shareholders of
GNMA Income Fund, GNMA Income Fund pays the Distributor servicing fees and
distribution fees up to the annual rates set forth below (calculated as a
percentage of GNMA Income Fund's average daily net assets attributable to that
Class):
SERVICING FEE DISTRIBUTION FEE
------------- ----------------
Class A 0.00% 0.25%
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class I N/A N/A
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 GNMA
Income Fund, including payments to Authorized Dealers, and for shareholder
servicing. Because these fees are paid out of GNMA Income 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, GNMA Income Fund pays other expenses, such as legal, audit, transfer
agency and custodian fees as well as the compensation of Directors who are not
affiliated with ING Investments, LLC ("ING Investments"). Most GNMA Income Fund
expenses are allocated proportionately among all of the outstanding shares of
GNMA Income 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 GNMA Income Fund is $1,000 ($1,000,000
for Class I shares and $250 for IRAs). The minimum initial investment for a
pre-authorized retirement plan is $1,000, plus monthly installments of at least
$100. GNMA Income 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 ($1,000,000 for Class I shares or $250 for
IRAs).
GNMA Income 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.
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'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.
C-4
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.
FREQUENT TRADING -- MARKET TIMING. The Funds are intended for long-term
investment and not as short-term trading vehicles. Accordingly, organizations or
individuals that use market timing investment strategies should not purchase
shares of the Funds. The Funds reserve the right, in their sole discretion and
without prior notice, to reject, restrict or refuse purchase orders whether
directly or by exchange, including purchase orders that have been accepted by a
shareholder's or retirement plan participant's intermediary, that the Funds
determine not to be in the best interest of the Funds.
The Funds believe that market timing or frequent, short-term trading in any
account, including a retirement plan account, is not in the best interest of the
Funds or their shareholders. Due to the disruptive nature of this activity, it
can adversely affect the ability of the Adviser or Sub-Adviser to invest assets
in an orderly, long-term manner. Frequent trading can raise Fund expenses
through: increased trading and transaction costs; increased administrative
costs; and lost opportunity costs. This in turn can have an adverse effect on
Fund performance.
Funds that invest in foreign securities may present greater opportunities for
market timers and thus be at a greater risk for excessive trading. If an event
occurring after the close of a foreign market, but before the time a Fund
computes its current NAV, causes a change in the price of the foreign security
and such price is not reflected in the Fund's current NAV, investors may attempt
to take advantage of anticipated price movements in securities held by the Funds
based on such pricing discrepancies. This is often referred to as "price
arbitrage." Such price arbitrage opportunities may also occur in funds which do
not invest in foreign securities. For example, if trading in a security held by
a fund is halted and does not resume prior to the time the fund calculates its
NAV, such "stale pricing" presents an opportunity for investors to take
advantage of the pricing discrepancy. Similarly, funds that hold thinly-traded
securities, such as certain small-capitalization securities, may be exposed to
varying levels of pricing arbitrage. The Funds have adopted fair valuation
policies and procedures intended to reduce the Funds' exposure to price
arbitrage, stale pricing and other potential pricing discrepancies, however, to
the extent that a Fund's NAV does not immediately reflect these changes in
market conditions, short-term trading may dilute the value of Fund shares, which
negatively affects long-term shareholders.
The Funds' Board of Directors/Trustees ("Board") has adopted policies and
procedures designed to deter frequent, short-term trading in shares of the
Funds. Consistent with this policy, the Funds monitor trading activity.
Shareholders of each Fund are limited to four exchanges among the ING Complex of
Funds or equivalent purchase and redemption transactions, within a one-year
period, other than transactions associated with the Funds' Systematic Exchange
Privilege or other automatic purchases or redemptions. Additionally, the Funds
monitor the trading activity of persons or entities that have been associated
with market timing historically. The Funds reserve the right to modify the
frequent trading policy at any time without prior notice, depending on the needs
of the Funds and/or state or federal regulatory requirements.
If an activity is identified as problematic after further investigation, the
Funds reserve the right to take any necessary action to deter such activity.
Such action may include, but not be limited to: rejecting additional purchase
orders, whether directly or by exchange; extending settlement of a transaction
up to seven days; rejecting all purchase orders from broker-dealers or their
registered representatives suspected of violating the Funds' frequent trading
policy; or termination of the selling group agreement or other agreement with
broker-dealers or other financial intermediaries associated with frequent
trading.
Although the restrictions described above are designed to discourage frequent,
short-term trading, none of them alone, nor all of them taken together, can
eliminate the possibility that frequent, short-term trading activity in the
Funds will occur. Moreover, in enforcing such restrictions, the Funds are often
required to make decisions that are inherently subjective. The Funds strive to
make these decisions to the best of their abilities in a manner that they
believe is in the best interest of shareholders.
Shareholders may invest in the Funds through omnibus account arrangements with
financial intermediaries. Such intermediaries include broker-dealers, banks,
investment advisers, recordkeepers, retirement plans, variable insurance
products, trusts and fee-based program accounts. Omnibus accounts generally do
not identify customers' trading activity on an individual basis. The ability of
the Funds to monitor exchanges made by the underlying shareholders in omnibus
accounts maintained by financial intermediaries therefore is severely limited.
Consequently, the Funds must rely on the financial intermediary to monitor
frequent, short-term trading within the Funds by the financial intermediary's
customers. The Funds seek assurances from the financial intermediary that it has
procedures adequate to monitor and address frequent, short-term trading. There
is, however, no guarantee that the Funds will be able to identify individual
shareholders who may be making frequent, short-term trades or curtail their
trading activity. The Funds seek to implement the policies and procedures
described above through instructions to the Funds' administrator, ING Funds
Services, LLC.
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 NAV per share for each class of each Fund
is determined each business day as of the close of regular trading ("Market
Close") on the New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern time
unless otherwise designated by the NYSE). 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. To the extent a Fund invests in other registered investment
companies, the Fund's NAV is calculated based on the current NAV of the
registered investment company in which the Fund invests. The prospectuses for
those investment companies explain the circumstances under which they will use
fair value pricing and the effects of using fair value pricing.
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 available or are deemed unreliable, the Fund will
use a fair value for the security that is determined in accordance with
procedures adopted by a Fund's Board. The types of securities for which such
fair value pricing might be required include, but are not limited to:
- - Foreign securities, where a foreign security whose value at the close of the
foreign market on which it principally trades likely would have changed by the
time of the close of the NYSE, or the closing value is otherwise deemed
unreliable;
- - Securities of an issuer that has entered into a restructuring;
- - Securities whose trading has been halted or suspended;
- - Fixed-income securities that have gone into default and for which there is no
current market value quotation; and
- - Securities that are restricted as to transfer or resale.
The Funds or the Adviser may rely on the recommendations of a fair value pricing
service approved by the Funds' 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 Funds'
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
Servicing Agent at 1-800-992-0180.
RETIREMENT PLANS. GNMA Income 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 Servicing Agent 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 GNMA Income 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.
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 GNMA Income Fund will not be
issued unless you request them in writing.
C-5
TELEPHONE ORDERS. GNMA Income 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. GNMA Income 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 GNMA Income Fund and its Transfer Agent do not
employ these procedures, they may be liable for any losses due to unauthorized
or fraudulent telephone instructions.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in
writing to the Transfer Agent or by calling the Shareholder Servicing Agent at
1-800-992-0180. There is no specific limit on exchange frequency; however, GNMA
Income Fund is intended for long term investment and not as a trading vehicle.
ING Investments or the Distributor may prohibit excessive exchanges (more than
four per year). ING Investments reserves the right, upon 60 days' prior notice,
to cancel the exchange policy or restrict the frequency of, otherwise modify, or
impose charges of up to $5.00 upon exchanges. The total value of shares being
exchanged must at least equal the minimum investment requirement of GNMA Income
Fund into which they are being exchanged.
Shares of one class of GNMA Income Fund generally may be exchanged for
shares of that same Class of any other ING Fund, except for ING Corporate
Leaders Trust 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 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
GNMA Income 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 or by
going to www.ingfunds.com.
You will automatically have the ability to request an exchange by calling
the Shareholder Service Agent 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 GNMA Income Fund (or any other ING
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 GNMA Income Fund (or other ING 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, except ING Lexington Money Market Trust and ING
Corporate Leaders Trust 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, GNMA Income 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 other than as a result of a decline in the NAV
per share.
C-6
HOW TO REDEEM SHARES
Shares of GNMA Income 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.
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 Servicing Agent at 1-800-992-0180, or see GNMA Income Fund's SAI.
PAYMENTS. Payment to shareholders for shares redeemed ordinarily will be
made within three days after receipt by the Transfer Agent of a written request
in good order. GNMA Income 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. GNMA Income Fund may suspend the right of
redemption under certain extraordinary circumstances in accordance with the
Rules of the U.S. Securities and Exchange Commission. GNMA Income Fund intends
to pay in cash for all shares redeemed, but under abnormal conditions that make
payment in cash harmful to GNMA Income Fund, GNMA Income Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, GNMA Income 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.
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 select Option 2.
PRIVACY POLICY
GNMA Income 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.
PORTFOLIO HOLDINGS DISCLOSURE POLICY
A description of the Funds' policies and procedures with respect to the
disclosure of each Fund's portfolio securities is available in the SAI. Each
Fund posts its portfolio holdings schedule on its website on a calendar-quarter
basis and makes it available on the first day of the second month in the next
quarter. The portfolio holdings schedule is as of the last day of the month
preceding the quarter-end (e.g., each Fund will post the quarter ending June 30
holdings on August 1). Each Fund's portfolio holdings schedule will, at a
minimum, remain available on the Funds' website until the Funds file a Form
N-CSR or Form N-Q with the SEC for the period that includes the date as of which
the website information is current. The Funds' website is located at
www.ingfunds.com.
MANAGEMENT OF GNMA INCOME FUND
INVESTMENT ADVISER. ING Investments, an Arizona limited liability company,
serves as the investment adviser to GNMA Income Fund. ING Investments has
overall responsibility for management of GNMA Income Fund. ING Investments has
engaged a Sub-Adviser to provide the day-to-day management of the GNMA Income
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 GNMA Income Fund. As of May 31, 2005, ING Investments
managed over $39.1 billion in assets.
SUB-ADVISER. ING Investment Management Co., ("ING IM"), a registered
investment adviser, is responsible for providing the day-to-day management of
GNMA Income Fund. ING IM is an indirect, wholly-owned subsidiary of ING Groep,
N.V. (NYSE:ING) ("ING Group") and an affiliate of ING Investments. ING IM has
been managing client assets for more than a quarter century and as of May 31,
2005, managed over $164.0 billion in assets.
The following individuals share responsibility for the day to day
management of the GNMA Income Fund:
Denis P. Jamison, Senior Vice President and Senior Portfolio Manager of
ING IM, has served as Senior Portfolio Manager of GNMA Income Fund since July,
1981. Prior to joining ING's asset management operations, he was a Senior Vice
President at Lexington Management Corp. ("Lexington") since 1981.
C-7
ADDITIONAL INFORMATION REGARDING PORTFOLIO MANAGERS
The SAI provides additional information about each portfolio manager's
compensation, other accounts managed by the portfolio manager and each portfolio
manager's ownership of securities in the Fund.
PARENT COMPANY AND DISTRIBUTOR. ING Investments and the Distributor are
indirect, wholly owned subsidiaries of ING Group. ING Group 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 Group, 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 GNMA Income Fund. The Shareholder
Services Representative is responsible for responding to written and telephonic
inquiries from shareholders. GNMA Income 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 will place orders to execute
securities transactions that are designed to implement GNMA Income Fund's
investment objectives and policies. ING Investments 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 may consider brokerage and
research services provided by a broker to ING Investments or its affiliates, and
GNMA Income 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 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 GNMA Income Fund.
DIVIDENDS, DISTRIBUTIONS & TAXES
DIVIDENDS AND DISTRIBUTIONS. GNMA Income Fund generally distributes most
of its net earnings in the form of dividends and capital gain distributions.
Dividends are normally expected to consist primarily of ordinary income. The
Fund pays dividends, if any, monthly. Each Fund distributes capital gains, if
any, annually.
Current tax law generally provides for a maximum tax rate for individual
taxpayers of 15% on long-term capital gains and from certain qualifying
dividends on corporate stock. These rate reductions do not apply to corporate
taxpayers or to foreign shareholders. The following are guidelines for how
certain distributions by the 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.
Any dividends and distributions paid by GNMA Income Fund will be
automatically reinvested in additional shares of the respective class of GNMA
Income Fund, unless you elect to receive distributions in cash. When a dividend
or distribution is paid, the NAV per share is reduced by the amount of the
payment. You may, upon written request or by completing the appropriate section
of the Account Application in the Prospectus, elect to have all dividends and
other distributions paid on Class A, Class B, Class C and Class I shares of GNMA
Income Fund invested into an ING Fund that offers Class A, Class B, Class C and
Class I shares.
FEDERAL TAXES. The following information is meant as a general summary for
U.S. shareholders. Please see GNMA Income 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 GNMA Income Fund.
C-8
GNMA Income Fund will distribute all or substantially all of its net
investment income and net capital gains to its shareholders each year. Although
GNMA Income 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. It 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 GNMA Income 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.
Dividends declared by GNMA Income 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, GNMA Income Fund may be required to withhold
U.S. federal income tax at the rate of 30% of all taxable distributions payable
to you if you fail to provide GNMA Income Fund with your correct taxpayer
identification number or to make required certifications, or if you have been
notified by the IRS that you are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against your U.S. federal income tax liability.
C-9
FINANCIAL HIGHLIGHTS
The information in the table below has been derived from ING GNMA Income
Fund's financial statements, which have been audited by KPMG LLP, an independent
registered public accounting firm.
CLASS A
----------------------------------------------------------------------
THREE
MONTHS YEAR
YEAR ENDED MARCH 31, ENDED ENDED
------------------------------------------ MARCH 31, DECEMBER 31,
2005 2004 2003 2002 2001(1) 2000(2)
---------- ------- ------- -------- ---------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.91 9.00 8.53 8.63 8.41 8.08
Income (loss) from investment operations:
Net investment income $ 0.37 0.32 0.42 0.46 0.12 0.54
Net realized and unrealized gain (loss) on
investments $ (0.31) 0.02 0.49 (0.09) 0.22 0.27
Total from investment operations $ 0.06 0.34 0.91 0.37 0.34 0.81
Less distributions from:
Net investment income $ 0.45 0.43 0.44 0.47 0.12 0.48
Total distributions $ 0.45 0.43 0.44 0.47 0.12 0.48
Net asset value, end of period $ 8.52 8.91 9.00 8.53 8.63 8.41
TOTAL RETURN(3) % 0.74 3.88 10.82 4.38 4.09 10.36
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 521,688 592,066 666,433 535,903 449,460 368,615
Ratios to average net assets:
Expenses(4) % 0.98 1.04 1.13 1.22 1.16 1.06
Net investment income(4) % 4.27 3.57 4.78 5.32 5.75 6.54
Portfolio turnover rate % 40 128 75 76 33 65
- --------------
(1) The Fund changed its fiscal year end to March 31.
(2) Effective July 26, 2000, ING Investments, LLC became the Investment
Manager of the Fund.
(3) 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.
(4) Annualized for periods less than one year.
C-10
CLASS B
--------------------------------------------------------------------
THREE
MONTHS OCTOBER 6,
YEAR ENDED MARCH 31, ENDED 2000(2) TO
----------------------------------------- MARCH 31, DECEMBER 31,
2005 2004 2003 2002 2001(1) 2000
---------- ------- ------- ------- --------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.87 8.96 8.50 8.61 8.40 8.20
Income (loss) from investment operations:
Net investment income $ 0.29 0.25 0.35 0.39 0.13 0.09
Net realized and unrealized gain (loss) on
investments $ (0.29) 0.02 0.48 (0.09) 0.19 0.18
Total from investment operations $ - 0.27 0.83 0.30 0.32 0.27
Less distributions from:
Net investment income $ 0.39 0.36 0.37 0.41 0.11 0.07
Total distributions $ 0.39 0.36 0.37 0.41 0.11 0.07
Net asset value, end of period $ 8.48 8.87 8.96 8.50 8.61 8.40
TOTAL RETURN(3) % (0.02) 3.12 9.95 3.53 3.70 3.32
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 99,130 130,339 150,549 79,302 47,406 866
Ratios to average net assets:
Expenses(4) % 1.73 1.79 1.88 1.98 1.90 1.81
Net investment income(4) % 3.52 2.84 3.98 4.55 4.88 5.79
Portfolio turnover rate % 40 128 75 76 33 65
- --------------
(1) The Fund changed its fiscal year end to March 31.
(2) Commencement of operations.
(3) 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.
(4) Annualized for periods less than one year.
C-11
CLASS C
-------------------------------------------------------------------
THREE
MONTHS OCTOBER 13,
YEAR ENDED MARCH 31, ENDED 2000(2) TO
--------------------------------------- MARCH 31, DECEMBER 31,
2005 2004 2003 2002 2001(1) 2000
----------- ------ ------ ------- ---------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.88 8.97 8.51 8.61 8.40 8.24
Income (loss) from investment operations:
Net investment income $ 0.29 0.25 0.36 0.40 0.11 0.09
Net realized and unrealized gain (loss) on
investments $ (0.29) 0.02 0.47 (0.09) 0.21 0.14
Total from investment operations $ - 0.27 0.83 0.31 0.32 0.23
Less distributions from:
Net investment income $ 0.39 0.36 0.37 0.41 0.11 0.07
Total distributions $ 0.39 0.36 0.37 0.41 0.11 0.07
Net asset value, end of period $ 8.49 8.88 8.97 8.51 8.61 8.40
TOTAL RETURN(3) % (0.03) 3.11 9.95 3.65 3.69 2.82
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 43,094 65,762 87,970 37,193 13,744 1,833
Ratios to average net assets:
Expenses(4) % 1.73 1.79 1.88 1.99 1.93 1.81
Net investment income(4) % 3.51 2.92 3.97 4.52 4.87 5.79
Portfolio turnover rate % 40 128 75 76 33 65
- ------------
(1) The Fund changed its fiscal year end to March 31.
(2) Commencement of operations.
(3) 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.
(4) Annualized for periods less than one year.
C-12
CLASS I
------------------------------------------------
YEAR ENDED MARCH 31, JANUARY 7, 2002(1)
--------------------------- TO MARCH 31,
2005 2004 2003 2002
----------- ----- ----- ------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.92 9.01 8.54 8.61
Income (loss) from investment operations:
Net investment income $ 0.41 0.35 0.44 0.10
Net realized and unrealized gain (loss) on
investments $ (0.32) 0.01 0.50 (0.10)
Total from investment operations $ 0.09 0.36 0.94 0.00
Less distributions from:
Net investment income $ 0.48 0.45 0.47 0.07
Total distributions $ 0.48 0.45 0.47 0.07
Net asset value, end of period $ 8.53 8.92 9.01 8.54
TOTAL RETURN(2) % 1.05 4.21 11.18 0.04
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 10,539 8,760 6,946 1,615
Ratios to average net assets:
Expenses(3) % 0.68 0.71 0.78 0.88
Net investment income(3) % 4.59 3.94 5.00 5.83
Portfolio turnover rate % 40 128 75 76
- -----------
(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.
C-13
APPENDIX D
ING FUNDS
The following is a list of the ING Funds and the Classes of shares of each
Fund that are expected to be offered at or shortly after the Reorganization:
FUND CLASSES OFFERED
- ---- -------------------
U.S. EQUITY
Balanced Fund A, B, C, I and O
Convertible Fund A, B, C and Q
Corporate Leaders Trust Fund B
Disciplined LargeCap Fund A, B, C and I
Equity Income Fund A, B, C and I
Financial Services Fund A, B, C and O
Growth Fund A, B, C and I
Growth and Income Fund A, B, C and I
Index Plus LargeCap Fund A, B, C, I, O and R
Index Plus MidCap Fund A, B, C, I, O and R
Index Plus SmallCap Fund A, B, C, I, O 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 and M
MidCap Opportunities Fund A, B, C, I and Q
MidCap Value Fund A, B, C, I and Q
MidCap Value Choice Fund A,B, C and I
Real Estate Fund A, B, C, I and Q
Small Company Fund A, B, C and I
SmallCap Value Fund A, B, C, I and Q
SmallCap Value Choice Fund A, B, C and I
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 and C
Global Real Estate Fund A, B, C and I
Global Science and Technology Fund A, B, C, I and O
Global Value Choice Fund A, B, C and Q
International Fund A, B, C, I and Q
International Growth Fund A, B, C, I and O
International SmallCap Fund A, B, C and Q
International Value Choice Fund A, B and C
International Value Fund A, B, C, I and Q
Precious Metals Fund A
Russia Fund A
D-1
FIXED INCOME
Aeltus Money Market Fund A, B, C and I
Classic Money Market Fund A, B and C
GNMA Income Fund A, B, C, I, M and Q
High Yield Bond Fund A, B and C
Intermediate Bond Fund A, B, C, I, O and R
National Tax-Exempt Bond Fund A, B and C
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 16, 2005:
ING GOVERNMENT FUND
PERCENTAGE OF COMBINED
PERCENT OF CLASS OF SHARES FUND AFTER THE
NAME AND ADDRESS OF SHAREHOLDER AND TYPE OF OWNERSHIP PERCENTAGE OF FUND REORGANIZATION*
- ------------------------------- -------------------------- ------------------ ----------------------
- ------------------------------- -------------------------- ------------------ ----------------------
ING GNMA INCOME FUND
PERCENTAGE OF COMBINED
PERCENT OF CLASS OF SHARES FUND AFTER THE
NAME AND ADDRESS OF SHAREHOLDER AND TYPE OF OWNERSHIP PERCENTAGE OF 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 16, 2005.
E-1
PART B
ING FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 23, 2005
Acquisition of the Assets and Liabilities of: By and in Exchange for Shares of:
ING Government Fund ING GNMA Income Fund
(a series of ING Series Fund, Inc.) (a series of ING Funds Trust)
7337 East Doubletree Ranch Road 7337 East Doubletree Ranch Road
Scottsdale, Arizona 85258-2034 Scottsdale, Arizona 85258-2034
This Statement of Additional Information of ING Funds Trust ("SAI") is available
to the shareholders of ING Government Fund in connection with a proposed
transaction whereby all of the assets and known liabilities of the ING
Government Fund will be transferred to ING GNMA Income Fund, a series of ING
Funds Trust, in exchange for shares of ING GNMA Income Fund.
This SAI consists of: (i) this cover page; (ii) the "ING GNMA Income Fund
Additional Information" presented on pages 1 through 2 of this SAI, which
presents certain information with respect to the management of the ING GNMA
Income Fund; and (iii) the following documents, each of which was filed
electronically with the U.S. Securities and Exchange Commission and is
incorporated by reference herein:
1. The SAI for ING GNMA Income Fund, dated July 29, 2005, as filed on
July 21, 2005, and the SAI for ING Government Fund, dated July 29,
2005, as filed on August 3, 2005.
2. The Financial Statements of the GNMA Income Fund and Government
Fund, respectively, are included in the Classes A, B, C and I Annual
Reports, dated March 31, 2005 as filed on June 2, 2005, and the
Classes A, B, C and I Annual Reports, dated March 31, 2005, as filed
on June 2, 2005.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated September 14, 2005, relating to the
Reorganization of ING Government Fund may be obtained, without
charge, by writing to the ING Funds at 7337 East Doubletree Ranch
Road, Scottsdale, Arizona 85258-2034 or calling 1-800-992-0180. This
Statement of Additional Information should be read in conjunction
with the Prospectus/Proxy Statement.
ING GNMA INCOME FUND
ADDITIONAL INFORMATION
TABLE OF CONTENTS
TRUSTEE OWNERSHIP OF SECURITIES........................................ 1
Shareholder Ownership Policy........................................ 1
INDEPENDENT TRUSTEE OWNERSHIP OF SECURITIES............................ 1
Shareholder Ownership Policy........................................ 1
ADDITIONAL INFORMATION REGARDING PORTFOLIO MANAGERS.................... 2
PRO FORMA FINANCIAL STATEMENTS......................................... 2
ING GNMA INCOME FUND
ADDITIONAL INFORMATION
TRUSTEE OWNERSHIP OF SECURITIES
Share Ownership Policy
In order to further align the interests of the Independent Trustees with
shareholders, it is the policy to own beneficially shares of one or more ING
Funds (each a "Fund") at all times. For this purpose, beneficial ownership of
Fund shares includes ownership of a variable annuity contract or a variable life
insurance policy whose proceeds are invested in a Fund.
Under this Policy, the initial value of investments in the ING Funds that are
beneficially owned by a Trustee must equal at least $50,000. Existing Trustees
shall have a reasonable amount of time from the date of adoption of this Policy
in order to satisfy the foregoing requirements. A new Trustee shall satisfy the
foregoing requirements within a reasonable amount of time of becoming a Trustee.
A decline in the value of any Fund investments will not cause a Trustee to have
to make any additional investments under this Policy Set forth below is the
dollar range of equity securities owned by each Trustee as of December 31, 2004.
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
COMPANIES OVERSEEN BY TRUSTEE IN FAMILY
NAME OF TRUSTEES GNMA INCOME FUND OF INVESTMENT COMPANIES
- -------------------- ---------------- ---------------------------------------
John V. $0 None
Boyer(1)
Paul S. Doherty(2) $0 Over $100,000
J. Michael Earley $0 $50,001 - 100,000
R. Barbara $0 $50,001 - 100,000
Gitenstein
Patrick W. $0 None
Kenny(1)
Walter H. May $0 Over $100,000
Jock Patton $0 $10,001 - 50,000
David W. C. Putnam $0 Over $100,000
Blaine E. Rieke(2) $0 $50,001 - 100,000
Roger B. Vincent $0 Over $100,000
Richard A. Wedemeyer $0 $50,001 - 100,000
TRUSTEES WHO ARE
"INTERESTED PERSONS"
Thomas J. McInerney $0 Over $100,000
John G. Turner $0 Over $100,000
- ----------------------
(1) Commenced services as Trustee on January 1, 2005. Prior to January 1,
2005, Messrs. Boyer and Kenny were members of the board of directors of
ING Partners, Inc. On January 1, 2005, the ING Partners, Inc. board of
directors was unified with the board of the other Funds in the ING Complex
of Funds.
(2) Retired as Trustee on December 31, 2004.
1
INDEPENDENT TRUSTEE OWNERSHIP OF SECURITIES
Share Ownership Policy
As of December 31, 2004, none of the Independent Trustees or their immediate
family members owned any shares of the ING Funds' investment adviser or
principal underwriter or of any entity controlling, controlled by or under
common control with the investment adviser or principal underwriter of the ING
Funds (not including registered investment companies).
ADDITIONAL INFORMATION REGARDING PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED
The following table shows the number of accounts and total assets in the
accounts managed by the Portfolio Manager as of May 31, 2005.
OTHER POOLED INVESTMENT
REGISTERED INVESTMENT COMPANIES VEHICLES OTHER ACCOUNTS
------------------------------- ------------------------ ------------------------
NUMBER OF TOTAL ASSETS NUMBER OF TOTAL ASSETS NUMBER OF TOTAL ASSETS
PORTFOLIO MANAGER ACCOUNTS ACCOUNTS ACCOUNTS
- ----------------- ---------- ------------ --------- ------------ --------- ------------
Denis P. Jamison [ ] $[ ] [ ] $[ ] [ ] $[ ]
* Of these [ ] Accounts, [ ] Account has an advisory fee based on performance.
Compensation information regarding the Portfolio Managers:
Compensation consists of (a) fixed base salary; (b) bonus which is based
on ING IM performance, 3 and 5-year pre-tax performance of the accounts the
portfolio managers are primarily and jointly responsible for relative to account
benchmarks and peer universe performance, and revenue growth of the accounts
they are responsible for; and (c) long-term equity awards tied to the
performance of our parent company, ING Groep.
Portfolio managers are also eligible to participate in an annual cash
incentive plan. The overall design of the ING IM annual incentive plan was
developed to closely tie pay to performance, structured in such a way as to
drive performance and promote retention of top talent. As with base salary
compensation, individual target awards are determined and set based on external
market data and internal comparators. Investment performance is measured on both
relative and absolute performance in all areas. ING IM has defined indices
(Lehman Brothers Mortgage-Backed Securities for Jamison) and, where applicable,
peer groups including but not limited to Russell, Morningstar, Lipper and Lehman
and set performance goals to appropriately reflect requirements for each
investment team. The measures for each team are outlined on a "scorecard" that
is reviewed on an annual basis. These scorecards reflect a comprehensive
approach to measuring investment performance versus both benchmarks and peer
groups over one and three year periods and year-to-date net cash flow (changes
in the accounts' net assets not attributable in the value of the accounts'
investments) for all accounts managed by the team. The results for overall ING
IM scorecards are calculated on an asset weighted performance basis of the
individual team scorecards.
Investment professionals' performance measures for bonus determinations
are weighted by 25% being attributable to the overall ING IM performance and 75%
attributable to their specific team results (60% investment performance and 15%
net cash flow).
Portfolio managers whose fixed base salary compensation exceeds a
particular threshold may participate in ING's deferred compensation plan. The
plan provides an opportunity to invest deferred amounts of compensation in
mutual funds, ING stock or at an annual fixed interest rate. Deferral elections
are done on an annual basis and the amount of compensation deferred is
irrevocable.
Description of Material Conflicts of Interest
A portfolio manager may be subject to potential conflicts of interest
because the portfolio manager is responsible for other accounts in addition to a
Portfolio. These other accounts may include, among others, other mutual funds,
separately managed advisory accounts, commingled trust accounts, insurance
separate accounts, wrap fee programs and hedge funds. Potential conflicts may
arise out of the implementation of differing investment strategies for the
portfolio manager's various accounts, the allocation of investment opportunities
among those accounts or differences in the advisory fees paid by the portfolio
manager's accounts.
A potential conflict of interest may arise as a result of the portfolio
manager's responsibility for multiple accounts with similar investment
guidelines. Under these circumstances, a potential investment may be suitable
for more than one of the portfolio manager's accounts, but the quantity of the
investment available for purchase is less than the aggregate amount the accounts
would ideally devote to the opportunity. Similar conflicts may arise when
multiple accounts seek to dispose of the same investment.
A portfolio manager may also manage accounts whose objectives and policies
differ from those of the Portfolio. These differences may be such that under
certain circumstances, trading activity appropriate for one account managed by
the portfolio manager may have adverse consequences for another account managed
by the portfolio manager. For example, if an account were to sell a significant
position in a security, which could cause the market price of that security to
decrease, while the Portfolio maintained its position in that security.
A potential conflict may arise when a portfolio manager is responsible for
accounts that have different advisory fees - the difference in the fees may
create an incentive for the portfolio manager to favor one account over another,
for example, in terms of access to particularly appealing investment
opportunities. This conflict may be heightened where an account is subject to a
performance-based fee.
As part of its compliance program, ING IM has adopted policies and
procedures reasonably designed to address the potential conflicts of interest
described above.
Ownership of Securities
The following table shows the dollar range of shares of the Funds owned by
each team member as of May 31, 2005, including investments by their immediate
family members and amounts invested through retirement and deferred compensation
plans:
PORTFOLIO MANAGER FUND DOLLAR RANGE OF FUND SHARES OWNED
- ----------------- ---------------- ---------------------------------
Denis P. Jamison GNMA Income Fund $[ ]
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, 2005. 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.
2
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 2005
ING ING PRO FORMA
GOVERNMENT GNMA COMBINED
FUND FUND (UNAUDITED)
-------------- -------------- --------------
ASSETS:
Investments in securities at value+* $ 52,349,000 $ 659,366,687 $ 711,715,687
Short-term investments at amortized cost 12,137,000 - 12,137,000
Repurchase agreement 148,000 - 148,000
Cash 194,404 645,090 839,494
Cash collateral for futures 40,496 - 40,496
Receivables:
Investment securities sold - 12,797,882 12,797,882
Fund shares sold - 433,782 433,782
Dividends and interest 727,079 3,298,476 4,025,555
Prepaid expenses 15,851 37,230 53,081
Reimbursement due from manager 1,660 - 1,660
-------------- -------------- --------------
Total assets 65,613,490 676,579,147 742,192,637
-------------- -------------- --------------
LIABILITIES:
Payable for investment securities purchased - 573,639 573,639
Payable for futures variation margin 21,478 - 21,478
Payable upon return of securities loaned 12,137,000 - 12,137,000
Payable for fund shares redeemed 3,496 349,699 353,195
Payable for trustee fees - 19,587 19,587
Payable to affiliates 36,084 578,953 615,037
Payable for transfer agent fees 113,330 113,330
Payable for director fees 1,035 - 1,035
Payable for open swap contracts 121,000 - 121,000
Other accrued expenses and liabilities 49,222 188,146 237,368
-------------- -------------- --------------
Total liabilities 12,369,315 1,823,354 14,192,669
-------------- -------------- --------------
NET ASSETS $ 53,244,175 $ 674,755,793 $ 727,999,968
============== ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital $ 54,576,380 $ 681,968,696 $ 736,545,076
Undistributed net investment income (53,328) 1,158,018 1,104,690
Accumulated net realized loss on investments (89,435) (19,905,642) (19,995,077)
Net unrealized appreciation (depreciation) of investments (1,189,442) 11,534,721 10,345,279
-------------- -------------- --------------
NET ASSETS $ 53,244,175 $ 674,755,793 $ 727,999,968
============== ============== ==============
+Including securities on loan at value $ 11,935,093 $ - $ 11,935,093
*Cost of investments in securities $ 53,476,589 $ 647,831,966 $ 701,308,555
CLASS A:
Net Assets $ 34,205,886 $ 521,688,038 $ 555,893,924
Shares authorized 100,000,000 unlimited unlimited
Par value $ 0.001 $ 0.001 $ 0.01
Shares outstanding 3,388,393 61,219,378 626,382 (A) 65,234,153
Net asset value and redemption price per share(B) $ 10.10 $ 8.52 $ 8.52
Maximum offering price per share $ 10.10 $ 8.94 $ 8.94
CLASS B:
Net Assets $ 2,085,644 $ 99,130,304 $ 101,215,948
Shares authorized 100,000,000 unlimited unlimited
Par value $ 0.001 $ 0.001 $ 0.01
Shares outstanding 206,432 11,688,160 39,517 (A) 11,934,109
Net asset value and redemption price per share(C) $ 10.10 $ 8.48 $ 8.48
Maximum offering price per share $ 10.10 $ 8.48 $ 8.48
CLASS C:
Net Assets $ 769,437 $ 43,094,170 $ 43,863,607
Shares authorized 100,000,000 unlimited unlimited
Par value $ 0.001 $ 0.001 $ 0.01
Shares outstanding 76,180 5,074,540 14,449 (A) 5,165,169
Net asset value and redemption price per share(C) $ 10.10 $ 8.49 $ 8.49
Maximum offering price per share $ 10.10 $ 8.49 $ 8.49
CLASS I:
Net Assets $ 16,183,208 $ 10,539,490 $ 26,722,698
Shares authorized $ 100,000,000 unlimited unlimited
Par value $ 0.001 $ 0.001 $ 0.01
Shares outstanding 1,600,662 $ 1,235,640 296,549 (A) $ 3,132,851
Net asset value and redemption price per share $ 10.11 $ 8.53 $ 8.53
Maximum offering price per share $ 10.11 $ 8.53 $ 8.53
CLASS M:
Net Assets $ - $ 200,653 $ 200,653
Shares authorized $ - unlimited unlimited
Par value $ - $ 0.001 $ 0.01
Shares outstanding $ - $ 23,508 $ 23,508
Net asset value and redemption price per share(D) $ - $ 8.54 $ 8.54
Maximum offering price per share $ - $ 8.83 $ 8.83
CLASS Q:
Net Assets $ - $ 103,138 $ 103,138
Shares authorized $ - unlimited unlimited
Par value $ - $ 0.001 $ 0.01
Shares outstanding $ - $ 12,085 $ 12,085
Net asset value and redemption price per share $ - $ 8.53 $ 8.53
Maximum offering price per share $ - $ 8.53 $ 8.53
(A) Reflects new shares issued, net of retired shares of ING Government Fund.
(Calculation: Net Assets/ NAV per share)
(B) Maximum offering price (4.75%) is computed at 100/95.25 of net asset value.
On purchases of $50,000 or more, the offering price is reduced
(C) Redemption price per share may be reduced for any applicable contingent
deferred sales charges.
(D) Maximum offering price (3.25%) is computed at 100/96.75 of net asset value.
On purchases of $50,000 or more, the offering price is reduced
See Accompanying Notes to Financial Statements
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2005
ING
ING GNMA PRO FORMA
GOVERNMENT INCOME PRO FORMA COMBINED
FUND FUND ADJUSTMENTS (UNAUDITED)
-------------- --------------- ---------------- -------------
INVESTMENT INCOME:
Dividends, net of foreign taxes* $ 11,208 $ - $ 11,208
Interest 2,539,372 37,922,002 40,461,374
Securities lending income 15,185 - 15,185
------------- ------------- ----------- -------------
Total investment income 2,565,765 37,922,002 - 40,487,767
------------- ------------- ----------- -------------
EXPENSES:
Investment management fees 314,842 3,599,485 3,914,327
Distribution fees:
Class A 107,266 1,371,584 1,478,850
Class B 24,006 1,113,750 1,137,756
Class C 8,638 521,712 530,350
Class M - 1,709 1,709
Class Q - 267 267
Transfer agent fees: 12,050 472,689 (4,820) (A) 479,919
Administrative service fees 50,375 722,100 12,600 (B) 785,075
Shareholder reporting expense 14,547 154,415 (5,820) (A) 163,142
Registration fees 52,873 82,059 (21,150) (A) 113,782
Professional fees 19,026 68,590 (9,500) (A) 78,116
Custody and accounting expense 16,971 87,810 104,781
Director/Trustee fees 4,380 34,818 39,198
Insurance expense - 1,464 1,464
Miscellaneous expense 5,597 43,293 48,890
------------- ------------- ----------- -------------
Total expenses 630,571 8,275,745 (28,690) 8,877,626
------------- ------------- ----------- -------------
Less:
Net waived and reimbursed (51,172) - (100,498) (B) (151,670)
------------- ------------- ----------- -------------
Net expenses 579,399 8,275,745 (129,189) 8,725,955
------------- ------------- ----------- -------------
Net investment income 1,986,366 29,646,257 129,189 8,725,955
------------- ------------- ----------- -------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCIES
Net realized gain (loss) on:
Investments (80,766) (3,721,907) (3,802,673)
Foreign currencies 18,348 - 18,348
Futures, options and swaps 43,880 - 43,880
------------- ------------- ----------- -------------
Net realized gain (loss) (18,538) (3,721,907) - (3,740,445)
------------- ------------- ----------- -------------
Net change in unrealized appreciation or depreciation on:
Investments (2,397,093) (23,036,826) (25,433,919)
Futures, options and swaps (61,853) - (61,853)
------------- ------------- ----------- -------------
Net change in unrealized appreciation or depreciation (2,458,946) (23,036,826) - (25,495,772)
------------- ------------- ----------- -------------
Net realized and unrealized gain on investments and foreign
currencies (2,477,484) (26,758,733) - (29,236,217)
------------- ------------- ----------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (491,118) $ 2,887,524 $ 129,189 $ 2,525,595
============= ============= =========== =============
*Foreign taxes $ - $ - $ - $ -
(A) Reflects adjustment in expenses due to elimination of duplicative services.
(B) Reflects effects of new contractual rates.
See Accompanying Notes to Financial Statements
Portfolios of Investments as of March 31, 2005
ING ING GNMA ING ING GNMA
GOVERNMENT INCOME PRO FORMA GOVERNMENT INCOME PRO FORMA
FUND FUND (unaudited) FUND FUND (UNAUDITED)
- -------------------------------------- ----------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE
- -------------------------------------- ----------------------------------------
CORPORATE BONDS/NOTES: 0.5%
AUTO MANUFACTURERS: 0.0%
$ 306,818 $ - $ 306,818 Toyota Motor Credit Corp.,
2.750%, due 08/06/09 $290,889 $ - $290,889
----------------------------------------
290,889 - 290,889
----------------------------------------
BANKS: 0.1%
70,000 - 70,000 @@, C Bank of Ireland, 3.260%, due
12/29/49 61,772 - 61,772
60,000 - 60,000 @@, C Bank of Nova Scotia, 3.255%, due
08/31/85 50,944 - 50,944
120,000 - 120,000 @@, C Den Norske Bank ASA, 3.250%, due
08/29/49 101,700 - 101,700
190,000 - 190,000 @@, C HSBC Bank PLC, 2.839%, due
06/29/49 167,568 - 167,568
80,000 - 80,000 @@, C Royal Bank of Scotland Group PLC,
2.938%, due 12/29/49 71,544 - 71,544
330,000 - 330,000 @@, C Standard Chartered PLC, 2.838%,
due 12/29/49 273,900 - 273,900
----------------------------------------
727,428 - 727,428
----------------------------------------
DIVERSIFIED FINANCIAL SERVICES: 0.1%
118,000 - 118,000 Goldman Sachs Group, Inc.,
3.120%, due 03/02/10 118,137 - 118,137
300,000 - 300,000 @@, #, C Svensk Exportkredit AB, 6.375%,
due 10/29/49 310,935 - 310,935
----------------------------------------
429,072 - 429,072
----------------------------------------
MULTI-NATIONAL: 0.2%
1,500,000 - 1,500,000 International Finance Corp.,
5.250%, due 05/02/06 1,516,057 - 1,516,057
----------------------------------------
1,516,057 - 1,516,057
----------------------------------------
OIL AND GAS: 0.0%
320,000 - 320,000 # Pemex Project Funding Master
Trust, 4.310%, due 06/15/10 327,200 - 327,200
----------------------------------------
327,200 - 327,200
----------------------------------------
TELECOMMUNICATIONS: 0.0%
235,000 235,000 # AT&T Corp., 9.050%, due 11/15/11 268,194 - 268,194
----------------------------------------
268,194 - 268,194
----------------------------------------
Total Corporate Bonds/Notes
(Cost $3,513,359, 0, $3,513,359) 3,558,840 - 3,558,840
----------------------------------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS: 89.9%
FEDERAL HOME LOAN BANK: 0.1%
590,000 - 590,000 3.250%, due 12/17/07 577,119 - 577,119
----------------------------------------
577,119 - 577,119
----------------------------------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION: 1.6%
1,375,000 - 1,375,000 C 2.700%, due 03/16/07 1,343,009 - 1,343,009
2,000,000 - 2,000,000 C, L 3.875%, due 01/12/09 1,961,358 - 1,961,358
1,000,000 - 1,000,000 5.125%, due 10/15/08 1,027,700 - 1,027,700
2,000,000 - 2,000,000 L 5.500%, due 07/15/06 2,042,788 - 2,042,788
3,400,000 - 3,400,000 5.875%, due 03/21/11 3,580,141 - 3,580,141
- 189,521 189,521 7.000%, due 11/01/14 199,219 199,219
- 876,339 876,339 7.500%, due 12/01/14-01/01/30 926,971 926,971
- 184,715 184,715 8.000%, due 01/01/30 198,907 198,907
45,187 - 45,187 9.500%, due 07/01/20 50,272 - 50,272
----------------------------------------
10,005,268 1,325,097 11,330,365
----------------------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION: 2.0%
1,000,000 - 1,000,000 C 2.750%, due 08/11/06 985,694 - 985,694
1,050,000 - 1,050,000 3.000%, due 08/15/07 1,024,871 - 1,024,871
2,000,000 - 2,000,000 C 3.410%, due 08/30/07 1,963,072 - 1,963,072
2,000,000 - 2,000,000 C 3.550%, due 01/12/07 1,986,064 - 1,986,064
3,000,000 - 3,000,000 3.875%, due 02/01/08 2,963,586 - 2,963,586
ING ING GNMA ING ING GNMA
GOVERNMENT INCOME PRO FORMA GOVERNMENT INCOME PRO FORMA
FUND FUND FUND FUND (UNAUDITED)
- ---------------------------------------- ----------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE
- -------------------------------------- ----------------------------------------
1,500,000 - 1,500,000 4.750%, due 01/02/07 1,517,963 - 1,517,963
1,660,000 - 1,660,000 5.250%, due 04/15/07 1,699,762 - 1,699,762
- 144,290 144,290 6.500%, due 06/01/14 - 150,802 150,802
1,067,673 - 1,067,673 6.500%, due 02/01/29 1,119,500 - 1,119,500
- 190,295 190,295 7.000%, due 03/01/15 - 200,190 200,190
- 278,057 278,057 7.500%, due 05/01/28 - 298,136 298,136
- 691,644 691,644 8.500%, due 08/01/11-09/01/15 - 740,467 740,467
----------------------------------------
13,260,512 1,389,595 14,650,107
----------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION: 86.2%
- 9,324,990 9,324,990 3.750%, due 05/20/34 - 9,175,897 9,175,897
- 22,387,892 22,387,892 5.000%, due 05/15/33-03/15/35 - 22,126,078 22,126,078
- 160,164,016 160,164,016 W 5.500%, due 04/20/29-03/15/35 - 161,815,079 161,815,079
- 539,171 539,171 5.650%, due 07/15/29 - 547,510 547,510
- 152,177,443 152,177,443 6.000%, due 07/15/28-03/20/35 - 156,555,519 156,555,519
- 816,212 816,212 6.250%, due 04/15/26-04/15/28 - 849,293 849,293
- 132,090 132,090 6.340%, due 02/15/29 - 132,936 132,936
- 5,745,851 5,745,851 6.400%, due 10/15/33-08/15/38 - 5,863,417 5,863,417
- 1,151,134 1,151,134 6.470%, due 09/15/33 - 1,177,162 1,177,162
- 28,732,952 28,732,952 6.500%, due 02/15/22-02/15/40 - 30,054,519 30,054,519
- 14,400,584 14,400,584 6.625%, due 01/15/34-01/15/40 - 15,005,462 15,005,462
- 1,701,718 1,701,718 6.650%, due 10/15/14-06/15/30 - 1,821,684 1,821,684
- 3,494,400 3,494,400 6.670%, due 01/15/40 - 3,685,396 3,685,396
- 6,152,660 6,152,660 6.687%, due 07/15/40 - 6,639,800 6,639,800
- 262,957 262,957 6.700%, due 12/15/14 - 267,930 267,930
- 4,277,667 4,277,667 6.745%, due 10/15/39 - 4,469,362 4,469,362
- 12,526,186 12,526,186 6.750%, due 06/15/13-01/15/41 - 13,315,904 13,315,904
- 2,826,733 2,826,733 6.810%, due 07/15/39 - 3,009,724 3,009,724
- 4,022,189 4,022,189 6.820%, due 05/15/27-04/15/34 - 4,276,447 4,276,447
- 9,748,722 9,748,722 6.840%, due 10/15/36 - 10,663,597 10,663,597
- 1,789,229 1,789,229 6.870%, due 03/15/39 - 1,920,478 1,920,478
- 3,244,465 3,244,465 6.875%, due 02/15/40 - 3,474,136 3,474,136
- 2,148,103 2,148,103 6.900%, due 01/15/32 - 2,359,110 2,359,110
- 2,845,575 2,845,575 6.950%, due 12/15/29 - 2,938,522 2,938,522
42,543 - 42,543 7.000%, due 12/15/23 45,225 - 45,225
69,723 - 69,723 7.000%, due 04/15/26 73,957 - 73,957
- 48,119,747 48,119,747 7.000%, due 07/15/22-12/15/35 - 50,808,516 50,808,516
- 8,898,881 8,898,881 7.010%, due 02/15/37 - 9,689,523 9,689,523
- 5,520,732 5,520,732 7.100%, due 11/15/39 - 6,005,162 6,005,162
- 8,887,211 8,887,211 7.125%, due 09/15/39 - 9,491,193 9,491,193
- 3,313,606 3,313,606 7.150%, due 07/15/36 - 3,615,789 3,615,789
- 2,067,685 2,067,685 7.250%, due 08/15/22-09/15/31 - 2,218,128 2,218,128
- 2,928,677 2,928,677 7.300%, due 08/15/36 - 3,184,043 3,184,043
- 4,072,900 4,072,900 7.500%, due 12/15/19-09/15/32 - 4,332,295 4,332,295
- 4,963,633 4,963,633 7.600%, due 08/15/31 - 5,399,647 5,399,647
- 9,379,287 9,379,287 7.625%, due 07/15/38 - 10,020,844 10,020,844
- 69,862 69,862 7.650%, due 12/15/12 - 72,325 72,325
- 422,818 422,818 7.700%, due 08/15/13 - 438,586 438,586
- 6,532,272 6,532,272 7.750%, due 06/15/14-12/15/35 - 6,981,703 6,981,703
- 1,007,761 1,007,761 7.800%, due 05/15/19-01/15/42 - 1,115,745 1,115,745
- 9,762,665 9,762,665 7.875%, due 09/15/29-04/15/38 - 10,249,051 10,249,051
- 11,112,748 11,112,748 8.000%, due 12/15/14-11/15/38 - 11,803,871 11,803,871
- 98,851 98,851 8.050%, due 07/15/19-04/15/21 - 107,360 107,360
- 1,194,247 1,194,247 S 8.100%, due 06/15/12-07/15/12 - 1,226,245 1,226,245
- 4,955,907 4,955,907 8.125%, due 05/15/38 - 5,254,941 5,254,941
- 3,921,873 3,921,873 8.150%, due 12/15/11-09/15/15 - 4,034,452 4,034,452
- 4,891,245 4,891,245 8.200%, due 10/15/11-05/15/13 - 5,001,949 5,001,949
- 2,029,558 2,029,558 8.250%, due 10/15/24-03/15/41 - 2,167,245 2,167,245
- 6,803,932 6,803,932 8.500%, due 10/15/31 - 7,131,001 7,131,001
ING ING GNMA ING ING GNMA
GOVERNMENT INCOME PRO FORMA GOVERNMENT INCOME PRO FORMA
FUND FUND FUND FUND (UNAUDITED)
- ---------------------------------------- ----------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE
- -------------------------------------- ----------------------------------------
- 116,067 116,067 8.750%, due 10/15/23-06/15/27 - 119,624 119,624
49,858 - 49,858 9.000%, due 05/15/16 54,408 - 54,408
89,660 - 89,660 9.000%, due 07/15/16 97,843 - 97,843
- 2,201,961 2,201,961 9.000%, due 05/15/20-12/15/34 - 2,312,052 2,312,052
- 1,359,729 1,359,729 9.250%, due 06/15/30 - 1,414,549 1,414,549
19,798 - 19,798 9.500%, due 11/15/21 21,993 - 21,993
- 968,127 968,127 10.250%, due 08/15/29 - 1,031,133 1,031,133
----------------------------------------
293,426 627,371,934 627,665,360
----------------------------------------
OTHER AGENCY OBLIGATIONS: 0.0%
86,855 - 86,855 C Small Business Administration
Participation Certificates,
8.250%, due 11/01/11 91,662 - 91,662
----------------------------------------
91,662 - 91,662
----------------------------------------
Total U.S. Government Agency
Obligations
(Cost $24,504,601,
$618,591,78, $643,096,382) 24,227,987 630,086,626 654,314,613
----------------------------------------
U.S. TREASURY OBLIGATIONS: 3.4%
U.S. TREASURY BONDS: 2.4%
1,300,000 - 1,300,000 L 4.000%, due 02/15/14 1,254,958 - 1,254,958
1,158,000 - 1,158,000 L 4.250%, due 11/15/14 1,134,434 - 1,134,434
340,000 5,000,000 5,340,000 L, S 5.375%, due 02/15/31 370,667 5,450,980 5,821,647
5,000,000 - 5,000,000 C, L 13.250%, due 05/15/14 6,715,234 - 6,715,234
2,310,000 - 2,310,000 C, S 14.000%, due 11/15/11 2,679,602 - 2,679,602
----------------------------------------
12,154,895 5,450,980 17,605,875
----------------------------------------
U.S. TREASURY NOTES: 0.9%
25,000 - 25,000 S 2.625%, due 11/15/06 24,583 - 24,583
532,000 - 532,000 L, S 3.000%, due 11/15/07 520,612 - 520,612
1,000,000 - 1,000,000 L, S 3.500%, due 12/15/09 971,680 - 971,680
3,000,000 - 3,000,000 L, S 4.000%, due 03/15/10 2,977,503 - 2,977,503
2,130,000 - 2,130,000 L 4.000%, due 02/15/15 2,047,130 - 2,047,130
----------------------------------------
6,541,508 - 6,541,508
----------------------------------------
U.S. TREASURY STRIP: 0.1%
930,000 - 930,000 S 2.900%, due 08/15/05 919,933 - 919,933
----------------------------------------
919,933 - 919,933
----------------------------------------
Total U.S. Treasury Obligations
(Cost $20,501,992,$5,409,153,
$25,911,145) 19,616,336 5,450,980 25,067,316
----------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS: 0.6%
COMMERCIAL MORTGAGE-BACKED
SECURITIES: 0.0%
79,917 - 79,917 Credit Suisse First Boston
Mortgage Securities Corp.,
5.900%, due 12/16/1935 81,712 - 81,712
----------------------------------------
81,712 - 81,712
----------------------------------------
WHOLE LOAN COLLATERALIZED
MORTGAGE OBLIGATIONS: 0.6%
2,601,771 - 2,601,771 Bank of America Mortgage
Securities, 3.250%, due 05/25/34 2,598,547 - 2,598,547
711,671 - 711,671 C Bank of America Mortgage
Securities, 5.500%, due 12/25/33 711,615 - 711,615
900,187 - 900,187 C Thornburg Mortgage Securities
Trust, 3.220%, due 09/25/34 903,134 - 903,134
----------------------------------------
4,213,296 - 4,213,296
----------------------------------------
Total Collateralized Mortgage Obligations
(Cost $4,298,158, $0,
$4,298,158) 4,295,008 4,295,008
----------------------------------------
MUNICIPAL BONDS: 0.0%
MUNICIPAL: 0.0%
85,000 - 85,000 City of New York, 5.000%, due
11/01/08 89,771 - 89,771
85,000 - 85,000 C City of New York, 5.000%, due
11/01/11 91,547 - 91,547
85,000 - 85,000 City of New York, 5.000%, due
11/01/15 91,073 - 91,073
Total Municipal Bonds
(Cost $278,303, $0, $278,303) 272,391 - 272,391
----------------------------------------
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK: 0.1%
BANKS: 0.1%
35 - 35 #, XX DG Funding Trust $ 378,438 $ - $ 378,438
Total Preferred Stock
(Cost $380,176, $0, $380,176) 378,438 - 378,438
----------------------------------------
Total Long-Term Investments
(Cost $53,476,589,
$624,000,934, $677,477,523) 52,349,000 635,537,606 687,886,606
----------------------------------------
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 5.0%
U.S. TREASURY BILLS: 3.3%
$ - $5,000,000 $5,000,000 2.560%, due 05/26/05 $ - $ 4,980,189 $ 4,980,189
- 12,000,000 12,000,000 2.670%, due 06/16/05 - 11,931,912 11,931,912
- 7,000,000 7,000,000 2.940%, due 08/25/05 - 6,916,980 6,916,980
Total U.S. Treasury Bills
(Cost $0, $23,831,032,
$23,831,032) - 23,829,081 23,829,081
----------------------------------------
Repurchase Agreement: 0.0%
148,000 - 148,000 S Goldman Sachs Repurchase
Agreement dated 03/31/05, 2.830%,
due 04/01/05, $148,012 to be
received upon repurchase
(Collateralized by $155,000
Federal Home Loan Bank, 4.625%,
Market Value plus accrued
Interest $155,045, due 08/15/12) 148,000 - 148,000
Total Repurchase Agreement
(Cost $148,000, $0, $148,000) 148,000 - 148,000
----------------------------------------
SECURITIES LENDING COLLATERAL(CC):
1.7%
2,452,000 - 2,452,000 Bear Stearns & Co. Repurchase
Agreement, 2.850%, due 04/01/05 2,452,000 - 2,452,000
1,800,000 - 1,800,000 Deutsche Bank Securities, Inc.
Repurchase Agreement, 2.880%, due
04/01/05 1,800,000 - 1,800,000
1,907,000 - 1,907,000 Goldman Sachs & Co. Repurchase
Agreement, 2.900%, due 04/01/05 1,907,000 - 1,907,000
1,800,000 - 1,800,000 J.P. Morgan Securities Repurchase
Agreement, 2.800%, due 04/01/05 1,800,000 - 1,800,000
2,480,000 - 2,480,000 Merrill Lynch & Co., Inc.
Repurchase Agreement, 2.830%, due
04/01/05 2,480,000 - 2,480,000
1,698,000 - 1,698,000 Morgan Stanley Repurchase
Agreement, 2.900%, due 04/01/05 1,698,000 - 1,698,000
Total Securities Lending Collateral
(Cost $12,137,000, $0,
$12,137,000) 12,137,000 - 12,137,000
----------------------------------------
Total Short-Term Investments
(Cost $12,285,000,
$23,831,032, $36,116,032) 12,285,000 23,829,081 36,114,081
----------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST
$65,761,589, $647,831,966 and $701,456,555)* 99.5% $ 64,634,000 $659,366,687 $724,000,687
OTHER ASSETS AND LIABILITIES -- NET 0.5% (11,389,825) 15,389,106 3,999,281
-----------------------------------------------
NET ASSETS 100.0% $ 53,244,175 $674,755,793 $727,999,968
===============================================
Government National Mortgage Association ("GNMA") manages a program of Mortgage-backed
securities in order to attract funds for secondary mortgages and provide liquidity for
existing mortgage securities. GNMA is a quasi-government agency.
Federal Home Loan Mortgage Corporation ("FHLMC") purchase mortgages from a mortgage
originator and holds them as investments in its portfolio, or securitizes them. FHLMC is a
private organization.
@@ Foreign issuer
# Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may
not be resold subject to that rule except to qualified institutional buyers. These
securities have been determined to be liquid under the guidelines established by the Funds'
Board of Directors/Trustees.
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
C Bond may be called prior to maturity date.
cc Securities purchased with cash collateral
for securities loaned.
W When-issued or delayed delivery security.
S Segregated securities for futures, when-issued
or delayed delivery securities held at March 31,
2005.
L Loaned security, a portion or all of the
security is on loan at March 31, 2005.
XX Value of securities obtained from one or more
dealers making markets in the securities in
accordance with the Fund's valuation procedures.
* Cost for federal income tax purposes is
$65,771,815, 647,833,377 and $713,605,192. Net
unrealized appreciation consists of:
Gross Unrealized Appreciation $ 125,674 $16,840,233 $16,965,907
Gross Unrealized Depreciation (1,263,489) (5,306,923) (6,570,412)
----------------------------------------
Net Unrealized Appreciation $(1,137,815) $11,533,310 $10,395,495
========================================
Information concerning open futures contracts
for the ING Government Fund and the proforma
ING GNMA Fund at March 31, 2005 is shown below:
NO. OF NOTIONAL UNREALIZED GAIN
SHORT CONTRACTS CONTRACTS MARKET VALUE EXPIRATION DATE (LOSS)
--------------- --------- ------------ --------------- ---------------
U.S. 5 Year Treasury Note 9 ($963,844) 6/30/2005 $3,963
U.S. 10 Year Treasury Note 5 (546,328) 6/30/2005 (2,916)
U.S. 5 Year Treasury Note 12 (2,482,687) 7/6/2005 6,315
------------ --------------
($3,992,859) $7,362
============ ==============
Information concerning the Interest Rate Swap
Agreements outstanding for the ING Government
Fund and the proforma ING GNMA Fund at March 31,
2005, is shown below:
NOTIONAL UNREALIZED
PRINCIPAL DEPRECIATION
--------- ------------
TYPE
Receive a fixed rate equal to
2.955% and pay a floating rate
based on the 3-month USD-LIBOR
Counterparty: Morgan Stanley,
Expires: 04/20/07 $5,000,000 ($121,000)
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF COMBINATION:
Dated July 21, 2005 the Board of Directors of the ING Government Fund
("Government") and the Board of Trustees of the ING GNMA Income Fund ("GNMA
Fund"), approved an Agreement and Plan of Reorganization (the "Plan") whereby,
subject to approval by the shareholders of Government, GNMA Fund will acquire
all of the assets of the Government, subject to the liabilities of such Fund, in
exchange for a number of shares of GNMA Fund equal in value to the net assets of
Government (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, 2005. The unaudited pro forma portfolio of
investments and statement of assets and liabilities reflect the financial
position of Government and GNMA Fund at March 31, 2005. The unaudited pro forma
statement of operations reflects the results of operations of Government and
GNMA Fund for the year ended March 31, 2005. 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 Government and GNMA 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 GNMA
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 Government
by GNMA Fund as of March 31, 2005. The number of additional shares issued was
calculated by dividing the net asset value of each Class of Government by the
respective Class net asset value per share of GNMA 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, 2005. Government
expenses were adjusted assuming GNMA Fund's fee structure was in effect for the
year ended March 31, 2005.
NOTE 5 - MERGER COSTS:
No merger costs are to be incurred by the Funds. ING Investments, LLC or an
affiliate, the Investment Adviser to the Funds, will bear the cost of the merger
expense of the Funds carrying out their obligations under the Plan including
merger related legal fees, accounting fees, printing costs and mailing charges
related to the proposed 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 GOVERNMENT FUND
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS ON NOVEMBER 10, 2005. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) HUEY P. FALGOUT, JR., THERESA K. KELETY,
AND TODD MODIC or any one or all of them, proxies, with full power of
substitution, to vote all shares of the above-referenced Fund (the "Fund"),
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 November 10, 2005 at 10:00 a.m., Local
time, and at any adjournment(s) or postponement(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 CARD 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 PROXY CARD.
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 ING Government Fund and ING GNMA Income Fund,
providing for the reorganization of ING Government Fund with and into ING
GNMA Income 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) or
postponement(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 (s) (if held jointly) Date
PART C:
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Article X of the Registrant's Declaration of Trust 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
in the Delaware Act 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 of 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 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 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 Series from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such Covered
Person that such amount will be paid over by him to the Trust or
Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.2; provided, however, that
either (a) such Covered Person shall have provided appropriate
security for such undertaking, (b) the Trust is insured against
losses arising out of any such advance payments or (c) either a
majority of the Trustees who are neither Interested Persons of the
Trust nor parties to the matter, or independent legal counsel in a
written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Section
10.2.
Article IX of the Registrant's By-Laws provides the following:
The Trust may purchase and maintain insurance on behalf of any Covered Person or
employee of the Trust, including any Covered Person or employee of the Trust who
is or was serving at the request of the Trust as a Trustee, officer or employee
of a corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Trustees would have the
power to indemnify him against such liability.
The Trust may not acquire or obtain a contract for insurance that protects or
purports to protect any Trustee or officer of the Trust against any liability to
the Trust or its Shareholder to which he would otherwise be subject by reason or
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Reference is made to Article IX of Registrants By-Law 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 Agreement and Section 20 of the Distribution Agreement
between the Registrant and Distributor limit the liability of Manager, the
Sub-Advisor 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 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 "Securities 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 U.S.
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officers 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
Securities Act and will be governed by the final adjudication of such issue.
Section 7 of Registrant's Administration Agreement provides for the
indemnification of Registrant's Administrator against all liabilities incurred
by it in performing its obligations under the agreement, except with respect to
matters involving its disabling conduct
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.
(n) Amendment No. 9, effective August 25, 2003, to the Trust Instrument
- previously filed as an Exhibit to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A on May 25,
2004 and incorporated herein by reference.
(o) Amendment No. 10, effective August 25, 2003, to the Trust Instrument
- previously filed as an Exhibit to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A on May 25,
2004 and incorporated herein by reference.
(p) Amendment No. 11, effective April 23, 2004, to the Trust Instrument
- previously filed as an Exhibit to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A on May 25,
2004 and incorporated herein by reference.
(q) Amendment No. 12, effective March 24, 2004, to the Trust Instrument
(Class O shares of ING Intermediate Bond) - previously filed as an
Exhibit to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A on May 25, 2004 and incorporated
herein by reference.
(r) Plan of Liquidation and Dissolution of Series to the Trust
Instrument (ING Strategic Bond Fund) - previously filed as an
Exhibit to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A on May 25, 2004 and incorporated
herein by reference.
(s) Amendment No. 13, effective September 2, 2004, to the Trust
instrument (ING High Yield Opportunity Fund) - previously filed as
an Exhibit to Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on Form N-1A on May 13, 2005 and incorporated
herein by reference.
(t) Amendment No. 14, effective October 28, 2004, (ING High Yield
Opportunity Fund) Abolition of Series of Shares of Beneficial
Interest - previously filed as an Exhibit to Post-Effective
Amendment No. 28 to the Registrant's Registration Statement on Form
N-1A on May 13, 2005 and incorporated herein by reference.
(u) Amendment No. 15, effective March 15, 2005, (ING Lexington Money
Market Trust) Abolition of Series of Shares of Beneficial Interest -
to be filed by subsequent Amendment.
(v) Amendment No. 16, effective July 29, 2005 (ING Institutional Prime
Money Market Fund) Establishment of New Series - to be filed by
subsequent Amendment.
(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 GNMA Income Fund series and ING Series Fund, Inc., on
behalf of its ING Government Fund series - Filed as an
exhibit to the Registrant's Form N-14 Registration Statement on July 29,
2005.
(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 (a) above and in Articles IV, VI, and XIII of the Bylaws
referenced in Exhibit (b) above.
(6) (a) Amended and Restated Investment Management Agreement between
Registrant and ING Investment, LLC with respect to ING Classic Money
Market Fund, ING High Yield Bond Fund, ING Intermediate Bond Fund,
ING National Tax Exempt Bond Fund and ING Institutional Prime Money
Market Fund - to be filed by subsequent Amendment.
(b) Investment Management Agreement dated September 23, 2002 between
Registrant and ING Investments, LLC (successor to Pilgrim
Investments, LLC) with respect to ING GNMA Income Fund - 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) First Amendment, effective September 2, 2004, to the
Investment Management Agreement - previously filed as an
Exhibit to Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on Form N-1A on May 13, 2005 and
incorporated herein by reference.
(c) Amended and Restated Expense Limitation Agreement amended and
restated February 1, 2005, between Registrant and ING Investment,
LLC - previously filed as an Exhibit to Post-Effective Amendment No.
28 to the Registrant's Registration Statement on Form N-1A on May
13, 2005 and incorporated herein by reference.
(i) Amended Schedule A to the Amended and Restated Expense
Limitation Agreement - to be filed by subsequent Amendment.
(ii) Voluntary Expense Limitations Agreement dated February 1, 2004
- previously filed as an Exhibit to Post-Effective Amendment
No. 25 to the Registrant's Registration Statement on Form N-1A
on May 25, 2004 and incorporated herein by reference.
(iii) Voluntary Expense Limitations Agreement dated February 25,
2004 (ING Intermediate Bond Class O) - previously filed as an
Exhibit to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A on May 25, 2004 and
incorporated herein by reference.
(iv) Fee waiver letter dated January 1, 2005 (ING National
Tax-Exempt Bond Fund) - previously filed as an Exhibit to
Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on Form N-1A on May 13, 2005 and
incorporated herein by reference.
(d) Sub-Advisory Agreement dated August 1, 2003 between ING Investments,
LLC and Aeltus Investment Management, 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.
(i) First Amendment to Sub-Advisory Agreement effective September
1, 2003 between ING Investments, LLC and Aeltus Investment
Management, Inc. - previously filed as an Exhibit to
Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A on May 25, 2004 and
incorporated herein by reference.
(ii) Amended Schedule A with respect to the Sub-Advisory Agreement
between ING Investments, LLC and Aeltus Investment Management,
Inc. - to be filed by subsequent Amendment.
(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.
(i) Substitution Agreement made October 8, 2002 between Registrant
and ING Funds Distributor, Inc. - previously filed as an
Exhibit to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A on May 25, 2004 and
incorporated herein by reference.
(ii) Amended Schedule A to the Underwriting Agreement - to be filed
by subsequent Amendment.
(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.
(i) Amended Exhibit A to the Custody Agreement between Registrant
and The Bank of New York - to be filed by subsequent
Amendment.
(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.
(vi) Amended Exhibit A to the Foreign Custody Manager Agreement -
to be filed by subsequent Amendment.
(c) Master Repurchase Agreement dated April 7, 2003 between Registrant
and Goldman Sachs & Co. - 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.
(d) Fund Accounting Agreement between Registrant and The Bank of New
York dated January 6, 2003 - previously filed as an Exhibit to
Post-Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A on May 25, 2004 and incorporated herein by
reference.
(i) Amended Exhibit A to the Fund Accounting Agreement - to be
filed by subsequent Amendment.
(e) Securities Lending Agreement and Guaranty, dated as of August 7,
2003, between Registrant and The Bank of New York - previously filed
as an Exhibit to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A on May 25, 2004 and incorporated
herein by reference.
(i) Amended Exhibit A with respect to the Securities Lending
Agreement and Guaranty - to be filed by subsequent Amendment.
(f) The Bank of New York Cash Reserve Agreement dated March 31, 2003,
between Registrant and the Bank of New York - previously filed as an
Exhibit to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement on Form N-1A on May 25, 2004 and incorporated
herein by reference.
(i) Amended Exhibit A with respect to The Bank of New York Cash
Reserve Agreement dated February 25, 2004 - previously filed
as an Exhibit to Post-Effective Amendment No. 25 to the
Registrant's
Registration Statement on Form N-1A on May 25, 2004 and
incorporated herein by reference.
(10) (a) Amended and Restated Distribution Plan for Class A shares dated July
11, 2002 - 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) Service and Distribution Plan for Class A shares dated August 20,
2002 with respect to ING GNMA Income Fund - 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.
(c) Letter Agreement dated September 23, 2002 - 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 Letter Agreement dated August 1, 2003, with respect to
the Distribution Plan for Class A Shares - previously filed as
an Exhibit to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A on May 25,
2004 and incorporated herein by reference.
(d) Amended and Restated Distribution Plan for Class B shares dated May
9, 2001 - 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) Service and Distribution Plan for Class B shares with respect to ING
GNMA Income Fund dated August 20, 2002 - 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.
(f) Amended and Restated Distribution Plan for Class C shares dated
August 20, 2002 - 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.
(g) Service and Distribution Plan for Class C shares with respect to ING
GNMA Income Fund dated August 20, 2002 - 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.
(h) Service and Distribution Plan for Class M shares with respect to ING
GNMA Income Fund dated August 20, 2002 - 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) Shareholder Service Plan for Class Q shares with respect to ING GNMA
Fund dated August 20, 2002 - 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) Amended and Restated Shareholder Servicing Plan for Classes A, B,
and C with respect to ING High Yield Bond, ING Intermediate Bond,
ING National Tax Exempt Bond, and ING Classic Money Market Funds
dated August 20, 2002 - 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) Amended and Restated Multiple Class Plan pursuant to 18f-3 last
approved June 3, 2004 - previously filed as an Exhibit to
Post-Effective Amendment No. 28 to the Registrant's Registration
Statement on Form N-1A on May 13, 2005 and incorporated herein by
reference.
(l) Amended Schedules A & B to Amended and Restated Multiple Class Plan
- to be filed by subsequent Amendment.
(11) Form of Opinion and Consent of Counsel - Filed as an exhibit to the
Registrant's Form N-14 Registration Statement on July 29, 2005.
(12) Opinion and Consent of Counsel Supporting Tax Matters and Consequences -
to be filed by subsequent post-effective amendment.
(13) (a) Administration Agreement between Registrant and ING Funds Services,
LLC - 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 A to the Administration Agreement - to be
filed by subsequent Amendment.
(b) Agency Agreement dated November 30, 2000 between Registrant and DST
Systems, 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.
(i) Amended and Restated Exhibit A with respect to the Agency
Agreement - to be filed by subsequent Amendment.
(ii) Exhibit B - 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) Exhibit B.1 - 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) Exhibit B.2 - 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) Exhibit C - 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.
(vi) Exhibit D - 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.
(c) Amended and Restated Shareholder Service Agreement dated July 29,
1999, As Amended and Restated July 11, 2002 - 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) Fee Schedule dated July 30, 2002 - 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.
(d) Code of Ethics of Aeltus Investment Management 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.
(e) ING Funds and Advisers ("ING Investments, LLC") Code of Ethics,
effective February 1, 2005 - previously filed as an Exhibit to
Post-Effective Amendment No. 28 to the Registrant's Registration
Statement on Form N-1A on May 13, 2005 and incorporated herein by
reference.
(14) Consent of independent registered public accounting firm - filed herewith.
(15) Not applicable.
(16) Powers of attorney - Filed as an Exhibit to the Registrant's Form N-14
Registration Statement on July 29, 2005.
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 12th day of August,
2005.
ING FUNDS TRUST
By: /s/ Huey P. Falgout, Jr.
---------------------------------------
Huey P. 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
- ---------------------------------- ------------------------------------- ---------------
__________________________________ President and Chief Executive Officer August 12, 2005
James M. Hennessy*
__________________________________ Senior Vice President, August 12, 2005
Todd Modic* Chief/Principal Financial Officer
and Assistant Secretary
__________________________________ Chairman and Trustee August 12, 2005
Jock Patten*
__________________________________ Trustee August 12, 2005
John V. Boyer*
__________________________________ Trustee August 12, 2005
J. Michael Earley*
__________________________________ Trustee August 12, 2005
R. Barbara Gitenstein*
__________________________________ Trustee August 12, 2005
Patrick W. Kenny*
__________________________________ Trustee August 12, 2005
Walter H. May, Jr.*
__________________________________ Trustee August 12, 2005
John G. Turner*
SIGNATURE TITLE DATE
- ---------------------------------- ------- ---------------
__________________________________ Trustee August 12, 2005
David W.C. Putnam*
__________________________________ Trustee August 12, 2005
Roger B. Vincent*
__________________________________ Trustee August 12, 2005
Richard A. Wedemeyer*
__________________________________ Trustee August 12, 2005
Thomas J. McInerney*
*By: /s/ Huey P. Falgout, Jr.
_________________________
Huey P. Falgout, Jr.
Attorney-in-Fact**
** Executed pursuant to powers of attorney filed in this Registration Statement.
EXHIBIT INDEX
(14) Consent of Independent Registered Public Accounting Firm