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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8220
ING Variable Products Trust
(Exact name of registrant as specified in charter)
7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258
(Address of principal executive offices) (Zip code)
C T Corporation System,
101 Federal Street,
Boston, MA 02110
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-992-0180
Date of fiscal year end: December 31
Date of reporting period: December 31, 2002
ITEM 1. REPORTS TO STOCKHOLDERS.
The following is a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1):
Annual Report
December 31, 2002 DOMESTIC EQUITY GROWTH PORTFOLIOS
ING VARIABLE PRODUCTS TRUST ING VP Growth + Value Portfolio
CLASS R ING VP Growth Opportunities Portfolio
ING VP MidCap Opportunities Portfolio
ING VP SmallCap Opportunities Portfolio
ING VP Research Enhanced Index Portfolio
DOMESTIC EQUITY VALUE PORTFOLIO
ING VP MagnaCap Portfolio
INTERNATIONAL EQUITY PORTFOLIO
ING VP International Value Portfolio
FIXED INCOME PORTFOLIO
ING VP High Yield Bond Portfolio
[PHOTO]
[LION LOGO]
ING FUNDS
TABLE OF CONTENTS
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President's Letter .................................... 1
Portfolio Managers' Reports:
Domestic Equity Growth Portfolios ................ 2
Domestic Equity Value Portfolio .................. 12
International Equity Portfolio ................... 14
Fixed Income Portfolio ........................... 16
Index Descriptions .................................... 18
Report of Independent Auditors ........................ 19
Statements of Assets and Liabilities .................. 20
Statements of Operations .............................. 22
Statements of Changes in Net Assets ................... 24
Financial Highlights .................................. 28
Notes to Financial Statements ......................... 36
Portfolios of Investments ............................. 47
Tax Information ....................................... 68
Trustee and Officer Information ....................... 69
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present the December 31, 2002 Annual Report for the Class R
shares of the ING Variable Products Trust.
The year ended December 31, 2002 proved to be a difficult year as a weak economy
and continued accounting scandals in the corporate sector took their toll on the
U.S. equity markets.
Amid the difficulties of the past year, we were successful in integrating the
operations of various mutual fund groups that have been acquired by ING Groep,
N.V. over the past two years. The ING Funds family now offers more than 100
open- and closed-end funds and variable products with a wide range of investment
objectives and styles.
At ING Funds, we are dedicated to providing core investments for serious
investors. Our goal is to understand and anticipate your needs and objectives,
and manage our products accordingly. We greatly appreciate your continued
investment in the ING Funds.
Sincerely,
/s/ James M. Hennessy
James M. Hennessy
President
ING Funds Services, LLC
January 15, 2003
1
ING VP GROWTH + VALUE PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Louis Navellier, Chief Investment Officer and Alan
Alpers, Senior Portfolio Manager, Navellier Fund Management, Inc.
GOAL: The ING VP Growth + Value Portfolio (the "Portfolio") seeks long-term
capital appreciation by investing primarily in stocks from a universe of small
to mid capitalization U.S. companies with market capitalization ranging from
$500 million to $10 billion.
MARKET OVERVIEW: The current bear market is now longer and deeper than the
1973-1974 bear market, especially if an investor uses the NASDAQ market as a
benchmark. Many high dividend-yielding stocks were unmercifully punished during
the market exodus that bottomed in late July and again in early October.
Unfortunately, between the stock market sell off and the housing bubble losing
some air, consumers have definitely turned more cautious in recent months.
However, consumers continue to refinance their homes and lower their respective
mortgage payments. Although interest rates remained low much to the benefit of
those purchasing new homes or refinancing existing homes, the Federal Reserve
Board ("Fed") was forced to admit that deflation is the greater threat to
overall economic recovery. Evidence of deflationary forces were exhibited in the
third quarter as U.S. non-financial businesses saw prices for their products
fall 1.2% from the year before.
The uncertainty surrounding the possibility of a war with Iraq continues to add
to investor anxiety and makes financial markets nervous. However, once decisive
action is taken, the uncertainty that has been plaguing financial markets will
likely dissipate and the stock market could rebound. Of course, the U.S. or the
U.N. should not attack Iraq just to boost world stock markets, but during every
major attack, such as the Gulf War over a decade ago, the stock market has
rallied strongly. Hopefully a U.S. or U.N. assault on Iraq may be short-lived
and significantly benefit the world as a whole.
The recent rally that began in early October has been dominated by money-losing
technology stocks that appeared to be rallying based on short covering. Although
these short-covering rallies can be spectacular (technology stocks rallied
approximately 45% a year ago on short-covering), these rallies often fizzle
fast. Fortunately, utility stocks recently joined the rally after the Fed cut
key interest rates, so it appears that the stock market rally is now spreading
to other industry groups. We expect that the stock market rally will likely
continue to spread to more industry groups soon.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, returned -37.33%, compared to the Russell 2000
Index, which returned -20.48% and the Russell 3000 Index, which returned -21.54%
over the same time period.
PORTFOLIO SPECIFICS: The strong stock selection and advantageous over-weighting
in outperforming sectors that helped performance in the 2nd and 3rd quarters
seriously damaged the performance of the portfolio in October and November. The
two biggest impacts on the portfolio were inferior stock selection in both the
consumer discretionary and technology sectors. These two sectors alone accounted
for over 50% of the portfolio's underperformance. The stocks that led this
market rally in October and November possessed no earnings and poor overall
fundamentals. In fact, those stocks (i.e., money-losers) in the technology
sector that led the rally are still down in excess of -75.0% since March 2000.
We believe that this disconnect will likely be resolved in our favor, as
fundamentals become important again in the new year.
MARKET OUTLOOK: There is little doubt in our minds that 2003 will likely be a
banner year for the stock market. The stock market is now shrugging off bad news
and is looking forward to better days. Business spending is slowly improving
after a three-year drought. Consumer confidence picked up after the Fed's latest
50 basis point interest rate cut. The earnings environment is expected to
improve for the next two quarters, simply because the year-over-year earnings
comparisons should be strong.
Much of our optimism is based on the fact that the Midterm Election Cycle is
historically the best year for the stock market. The Bush administration and the
leadership of the new Congress are already working on a substantial economic
stimulus package. The Republican leadership realizes the urgency to fix both the
U.S. economy and the stock market, otherwise they may not control Congress two
years from now.
The only real danger that we can possibly foresee for the overall stock market
is that it might go through some more wild oscillations like it did after it
bottomed out during the 1973-1974 stock market collapse. Back then, the
leadership of the stock market kept shifting rapidly and basically confused
investors for several years.
The underlying fundamentals associated with our portfolios remain stronger than
ever. Even though we have added mainly technology stocks to our portfolios
during the past couple months, the median price-to-earnings (PE) ratio for our
growth portfolios is still extremely reasonable. The earnings visibility for
next year's forecasted earnings still remain unclear by the analyst community;
however, we expect that if the average stock in our growth portfolios can
sustain its recent sales growth, then it may be trading at less than 18 times
next year's estimated earnings.
We expect that when the overall stock market gets more volatile, our portfolios
might get even stronger due to strong fundamentals associated with our average
stock. During the third quarter earnings announcement season, many stocks in our
growth portfolios posted earnings surprises. Unfortunately, Wall Street was not
rewarding strong earnings results and surprises during the past couple months
like it normally does. We expect that many small-capitalization stocks may be
catching up with the overall stock market and will likely stage a strong rally
in the coming months. The more fundamentally focused the stock market becomes,
the better many small-capitalization stocks will likely perform as a result of
their substantially lower price-to-earnings ratios.
2
Portfolio Managers' Report ING VP GROWTH + VALUE PORTFOLIO
- --------------------------------------------------------------------------------
We are now at the time of year when the stock market is seasonally strong, this
occurs between December and May, when pension contributions typically boost the
inflows into the stock market. Thinly traded small-capitalization stocks usually
benefit the most from the surge in trading volume that is created by the
positive flow of funds into the stock market. If the Bush administration and the
new Congress increase pension contribution limits for 401k plans and other
pensions funds, as many anticipate, the inflows into the stock market might be
more impressive than anticipated.
By the time the fourth quarter earnings announcements commence in mid-January,
we expect that the stock market may re-focus on those stocks that will likely
post strong sales and earnings gains, regardless of their industries.
Fundamentally, the portfolio has never been stronger, so we believe that the
strong earnings results should benefit the portfolio.
5/6/94 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
ING VP Growth + Value Portfolio $ 10,000 $ 10,347 $ 12,911 $ 15,879 $ 18,206
Russell 2000 Index $ 10,000 $ 10,026 $ 12,877 $ 15,001 $ 18,356
Russell 3000 Index $ 10,000 $ 10,299 $ 14,090 $ 17,164 $ 22,619
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- --------
ING VP Growth + Value Portfolio $ 21,725 $ 42,358 $ 38,214 $ 26,372 $ 16,527
Russell 2000 Index $ 17,888 $ 21,691 $ 21,036 $ 21,559 $ 17,143
Russell 3000 Index $ 28,078 $ 33,947 $ 31,415 $ 27,815 $ 21,824
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 2002
------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEAR 5/6/94
------ ------ ------
Class R -37.33% -1.92% 5.97%
Russell 2000 Index -20.48% -1.36% 6.42%(1)
Russell 3000 Index -21.54% -0.71% 9.42%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP Growth + Value Portfolio against the Russell 2000 Index
and Russell 3000 Index. The Indices are unmanaged and have an inherent
performance advantage over the Portfolio since they have no cash in their
portfolios, impose no sales charges and incur no operating expenses. An investor
cannot invest directly in an index. The Portfolio's performance is shown without
the imposition of any expenses or charges which are, or may be, imposed under
your annuity contract or life insurance policy. Total returns would have been
lower if such expenses or charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/94.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. The Portfolio invests in smaller companies which may be
more susceptible to price volatility and are less liquid than larger companies.
Investing in funds that are concentrated in a smaller number of holdings poses
greater risk than those funds with a larger number of holdings because each
investment has a greater effect on the fund's performance.
See accompanying index descriptions on page 18.
3
ING VP GROWTH OPPORTUNITIES PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Mary Lisanti, Executive Vice-President and Chief
Investment Officer; Jeffrey Bernstein, Senior Vice President and Senior
Portfolio Manager, ING Investments, LLC.
GOALS: The ING VP Growth Opportunities Portfolio (the "Portfolio") seeks
long-term growth of capital by investing primarily in the common stock of U.S.
companies that the Portfolio Managers feel have above average prospects for
growth.
MARKET OVERVIEW: The U.S. stock market finished its third consecutive down year
on December 31, 2002 as financial markets continued to exhibit substantial
volatility. While the economy resumed a growth trajectory during the first
quarter of the year, the rate of growth was less than many had hoped, and
corporate profit growth remained elusive. However, this year saw a further
complication to the market picture, as a rash of corporate and accounting
scandals rattled investor confidence, and the world's geopolitical tensions took
a turn for the worse on a number of fronts. The Federal Reserve moved to
alleviate the situation by continuing its accommodative stance, sending
short-term interest rates to their lowest levels in over forty years.
Technology stocks were once again the worst performers, although significant
declines also occurred in the telecommunication, utility, and industrial
sectors. There were no sectors in the S&P 500 Index (S&P 500) that even turned
in a positive performance in 2002. Small and mid capitalization stocks
outperformed large cap equities, and value benchmarks declined less than growth
indices. All of the major equity benchmarks declined to levels last seen in
1998. However, the equity markets did begin to show signs of life at the end of
2002, turning in strong performance in the fourth quarter.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, provided a total return of -31.57% compared to
the S&P 500, which returned -22.10%.
PORTFOLIO SPECIFICS: The Portfolio is managed in a growth style: the portfolio
management team seeks companies with above average earnings growth potential
relative to companies in its benchmark. These stocks can often be more expensive
on a Price to Earnings (P/E) basis than the average stock, but look attractive
relative to their growth rates. Historically, this strategy has rewarded
investors over the long term; the "bet" the investor is making is that growth
companies will be able to deliver on the earnings promise and therefore justify
the existing P/E or perhaps even see an expansion of the P/E multiple over time.
This strategy is to some extent dependent on a stable to growing economy; it has
its greatest difficulty in periods of global recession, when companies have
difficulty meeting earnings estimates and multiples collapse. This describes the
period we have just been through in the market.
The Portfolio's underperformance can primarily be attributed to the exposure to
more cyclically sensitive technology stocks, such as semiconductors. These
stocks underperformed as the economic recovery was pushed further out into the
future. However, the Portfolio did benefit from good stock selection in the
energy and telecommunications sectors, as stocks such as XTO Energy, Valero, and
Nextel Communications all outperformed substantially. During the year, we cut
back on our exposure to consumer-related and technology stocks, which began the
year as the sectors with the biggest exposure in the Portfolio. In their place,
we increased our holdings in healthcare and telecommunications.
MARKET OUTLOOK: As in 1990-1991, current economic recovery appears fragile,
corporate profit growth is anemic, and the stock market is beset over concerns
about credit risk, balance sheets, consumer spending, and corporate capital
spending. Although the Federal Reserve continues to pump liquidity into the
market, we expect it may take some time for this stimulus to work its way
through the economy.
We do believe that corporate profits have bottomed and should improve in 2003.
We are significantly overweight the technology and healthcare sectors, which we
expect may be poised for faster than average growth. Also, we have increased our
exposure to the energy sector, as ongoing disruptions to supply are likely to
keep prices higher for longer. Consistent with our long-term view, we are
focused on companies (i) that have strong new product cycles and can generate
earnings growth regardless of the economy, (ii) that have restructured their
businesses to improve profitability, and (iii) whose managements are focused on
improving shareholder value.
4
Portfolio Managers' Report ING VP GROWTH OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
5/3/00 12/31/00 12/31/01 12/31/02
-------- -------- -------- --------
ING VP Growth Opportunites Portfolio $ 10,000 $ 8,938 $ 5,491 $ 3,758
S&P 500 Index $ 10,000 $ 9,161 $ 8,073 $ 6,288
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
-----------------------------
SINCE INCEPTION
1 YEAR 5/3/00
------ ------
Class R -31.57% -30.79%
S&P 500 Index -22.10% -15.97%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP Growth Opportunities Portfolio against the S&P 500 Index.
The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/00.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. The Portfolio invests in small and medium-sized
companies which may be more susceptible to price swings and less liquid than
larger companies.
See accompanying index descriptions on page 18.
5
ING VP MIDCAP OPPORTUNITIES PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Mary Lisanti, Executive Vice President and Chief
Investment Officer; Jeffrey Bernstein, Senior Vice President and Senior
Portfolio Manager, ING Investments, LLC.
GOAL: The ING VP MidCap Opportunities Portfolio (the "Portfolio") seeks
long-term capital appreciation by investing primarily in the common stock of
mid-sized U.S. companies that the Portfolio Managers feel have above average
prospects for growth.
MARKET OVERVIEW: The U.S. stock market finished its third consecutive down year
on December 31, 2002 as financial markets continued to exhibit substantial
volatility. While the economy resumed a growth trajectory during the first
quarter of the year, the rate of growth was less than many had hoped, and
corporate profit growth remained elusive. However, this year saw a further
complication to the market picture, as a rash of corporate and accounting
scandals rattled investor confidence, and the world's geopolitical tensions took
a turn for the worse on a number of fronts. The Federal Reserve moved to
alleviate the situation by continuing its accommodative stance, sending
short-term interest rates to their lowest levels in over forty years.
Technology stocks were once again the worst performers, although significant
declines also occurred in the telecommunications, utility, and industrial
sectors. There were no sectors in the S&P 500 Index that even turned in a
positive performance in 2002. Small and mid capitalization stocks outperformed
large cap equities, and value benchmarks declined less than growth indices. All
of the major equity benchmarks declined to levels last seen in 1998. However,
the equity markets did begin to show signs of life at the end of 2002, turning
in strong performance in the fourth quarter.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, provided a total return of -25.86% compared to
the S&P Midcap 400 Index, which returned -14.51%.
PORTFOLIO SPECIFICS: The Portfolio is managed in a growth style: the portfolio
management team seeks companies with above average earnings growth potential
relative to companies in its benchmark. These stocks can often be more expensive
on a Price to Earnings (P/E) basis than the average stock, but look attractive
relative to their growth rates. Historically, this strategy has rewarded
investors over the long term; the "bet" the investor is making is that growth
companies will be able to deliver on the earnings promise and therefore justify
the existing P/E or perhaps even see an expansion of the P/E multiple over time.
This strategy is to some extent dependent on a stable to growing economy; it has
its greatest difficulty in periods of global recession, when companies have
difficulty meeting earnings estimates and multiples collapse. This describes the
period we have just been through in the market.
The Portfolio's underperformance can primarily be attributed to the exposure to
more cyclically sensitive technology stocks, such as semiconductors. These
stocks underperformed as the economic recovery was pushed further out into the
future. However, the Portfolio did benefit from good stock selection in the
energy and telecommunications sectors, as stocks such as XTO Energy, Valero, and
Nextel Communications all outperformed substantially. During the year, we cut
back on our exposure to consumer related and technology stocks, which began the
year as the sectors with the biggest exposure in the Portfolio. In their place,
we increased our holdings in healthcare and telecommunications.
MARKET OUTLOOK: As in 1990-1991, current economic recovery appears fragile,
corporate profit growth is anemic, and the stock market is beset over concerns
about credit risk, balance sheets, consumer spending, and corporate capital
spending. Although the Federal Reserve continues to pump liquidity into the
market, we expect it may take some time for this stimulus to work its way
through the economy.
Nevertheless, we do believe that corporate profits have bottomed and should
improve in 2003. We are significantly overweight the technology and healthcare
sectors, which we expect may be poised for faster than average growth. Also, we
have increased our exposure to the energy sector, as ongoing disruptions to
supply are likely to keep prices higher for longer. Consistent with our
long-term view, we are focused on companies (i) that have strong new product
cycles and can generate earnings growth regardless of the economy, (ii) that
have restructured their businesses to improve profitability, and (iii) whose
managements are focused on improving shareholder value.
6
Portfolio Managers' Report ING VP MIDCAP OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
5/5/00 12/31/00 12/31/01 12/31/02
-------- -------- -------- --------
ING VP MidCap Opportunites Portfolio $ 10,000 $ 9,062 $ 6,079 $ 4,507
S&P MidCap 400 Index $ 10,000 $ 10,805 $ 10,739 $ 9,181
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
-----------------------------
SINCE INCEPTION
1 YEAR 5/5/00
------ ------
Class R -25.86% -25.89%
S&P MidCap 400 Index -14.51% -3.15%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP MidCap Opportunities Portfolio against the S&P MidCap 400
Index. The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total returns would have
been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/00.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller medium-sized companies may entail greater price variability
than investing in stocks of larger companies. Investing in funds that are
concentrated in a smaller number of holdings poses greater risk than those funds
with a larger number of holdings because each investment has a greater effect on
the fund's performance.
See accompanying index descriptions on page 18.
7
ING VP SMALLCAP OPPORTUNITIES PORTFOLIO Portfolio Manager's Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: Mary Lisanti, Executive Vice-President and Chief
Investment Officer, ING Investments, LLC.
GOAL: The ING VP SmallCap Opportunities Portfolio (the "Portfolio") seeks
long-term capital appreciation by investing at least 80% of its total assets in
the common stock of smaller U.S. companies that the Portfolio Manager feels have
above average prospects for growth.
MARKET OVERVIEW: The U.S. stock market finished its third consecutive down year
on December 31, 2002 as financial markets continued to exhibit substantial
volatility. While the economy resumed a growth trajectory during the first
quarter of the year, the rate of growth was less than many had hoped, and
corporate profit growth remained elusive. However, this year saw a further
complication to the market picture, as a rash of corporate and accounting
scandals rattled investor confidence, and the world's geopolitical tensions took
a turn for the worse on a number of fronts. The Federal Reserve moved to
alleviate the situation by continuing its accommodative stance, sending
short-term interest rates to their lowest levels in over forty years.
Technology stocks were once again the worst performers, although significant
declines also occurred in the telecommunications, utility, and industrial
sectors. There were no sectors in the S&P 500 Index that even turned in a
positive performance in 2002. Small and mid capitalization stocks outperformed
large cap equities, and value benchmarks declined less than growth indices. All
of the major equity benchmarks declined to levels last seen in 1998. However,
the equity markets did begin to show signs of life at the end of 2002, turning
in strong performance in the fourth quarter.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, provided a total return of -43.64% compared to
the Russell 2000 Index, which returned -20.48%.
PORTFOLIO SPECIFICS: The Portfolio is managed in a growth style: the portfolio
management team seeks companies with above average earnings growth potential
relative to companies in its benchmark. These stocks can often be more expensive
on a Price to Earnings (P/E) basis than the average stock, but look attractive
relative to their growth rates. Historically, this strategy has rewarded
investors over the long term; the "bet" the investor is making is that growth
companies will be able to deliver on the earnings promise and therefore justify
the existing P/E or perhaps even see an expansion of the P/E multiple over time.
This strategy is to some extent dependent on a stable to growing economy; it has
its greatest difficulty in periods of global recession, when companies have
difficulty meeting earnings estimates and multiples collapse. This describes the
period we have just been through in the market.
The Portfolio's underperformance can primarily be attributed to the exposure to
more cyclically sensitive technology stocks, such as semiconductors. These
stocks underperformed as the economic recovery was pushed further out into the
future. However, the Portfolio did benefit from selective stock picking in the
healthcare and technology sectors, as stocks such as Taro Pharmaceuticals,
Cognizant Technology Solutions, and Avid Technology all outperformed
substantially. During the year, we cut back on our exposure to financial stocks,
and we increased our holdings in healthcare and information technology.
MARKET OUTLOOK: As in 1990-1991, current economic recovery appears fragile,
corporate profit growth is anemic, and the stock market is beset over concerns
about credit risk, balance sheets, consumer spending, and corporate capital
spending. Although the Federal Reserve continues to pump liquidity into the
market, we expect it may take some time for this stimulus to work its way
through the economy.
Nevertheless, we do believe that corporate profits have bottomed and will likely
improve in 2003. We are significantly overweight the technology and healthcare
sectors, which we expect may be poised for faster than average growth. Also, we
have increased our exposure to the energy sector, as ongoing disruptions to
supply are likely to keep prices higher for longer. Consistent with our
long-term view, we are focused on companies (i) that have strong new product
cycles and can generate earnings growth regardless of the economy, (ii) that
have restructured their businesses to improve profitability, and (iii) whose
managements are focused on improving shareholder value.
8
Portfolio Manager's Report ING VP SMALLCAP OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
5/6/94 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
ING VP SmallCap Opportunities Portfolio $ 10,000 $ 10,192 $ 12,372 $ 14,055 $ 16,278
Russell 2000 Index $ 10,000 $ 10,026 $ 12,877 $ 15,001 $ 18,356
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- --------
ING VP SmallCap Opportunities Portfolio $ 19,094 $ 46,024 $ 46,523 $ 32,960 $ 18,575
Russell 2000 Index $ 17,888 $ 21,691 $ 21,036 $ 21,559 $ 17,143
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 2002
------------------------------------------
SINCE INCEPTION
1 YEAR 5 YEAR 5/6/94
------ ------ ------
Class R -43.64% 2.69% 7.42%
Russell 2000 Index -20.48% -1.36% 6.42%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP SmallCap Opportunities Portfolio against the Russell 2000
Index. The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/94.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investment in equities. The Portfolio invests in smaller companies which may be
more susceptible to price volatility and are less liquid than larger companies.
See accompanying index descriptions on page 18.
9
ING VP RESEARCH ENHANCED INDEX PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Hugh T.M. Whelan, Portfolio Manager, Douglas Cote,
Portfolio Manager, Aeltus Investment Management, Inc.
GOAL: The ING VP Research Enhanced Index Portfolio (the "Portfolio") seeks
capital appreciation by investing primarily in large companies contained in the
Standard & Poor's 500 Index (S&P 500).
MARKET OVERVIEW: The S&P 500 posted a loss of 22.10% in 2002, its worst calendar
year performance since 1974. Concerns regarding the integrity of corporate
accounting, the strength of the U.S. economic rebound, and international
hostilities consistently weighed on the market throughout the year.
The year ended with a rally in the fourth quarter, which was sustained by the
Federal Reserve's surprise 50 basis point rate cut on November 6th. Evidencing a
significant change in investor sentiment, the rally occurred primarily in
sectors like telecommunication services and information technology, which had
suffered the worst performance in the first nine months of the year.
In terms of market capitalization, the smallest stocks within the S&P 500
outperformed the largest stocks. We believe, this was because investors'
accounting and valuation fears were primarily related to larger cap stocks.
PERFORMANCE: For the year ended December 31, 2002, the Fund's Class R shares,
excluding any charges, provided a total return of -22.29% compared the S&P 500,
which returned -22.10%.
PORTFOLIO SPECIFICS: Performance benefited from successful individual security
selection and was primarily helped by our underweight positions in stocks that
ranked poorly based on the quantitative model we use to manage the Portfolio.
Security selection was most successful in the industrials and information
technology sectors. Some of the largest contributors to performance during the
year were our underweights in WorldCom and Electronic Data Systems, paired with,
our overweights in Philip Morris and Dell. Negative contributors to relative
performance included our overweight in Home Depot and our underweights in Exxon
Mobil, Royal Dutch Petroleum and Pharmacia.
Effective individual security selection was partially offset by the adverse
impact of the sector allocation. This was due to our underweights in energy and
healthcare, which performed relatively well during the year.
MARKET OUTLOOK: The cumulative losses of the recent three-year bear market in
U.S. large cap equities has only been exceeded by the four-year bear market from
1929-32. The 1929-32 bear market was accompanied by a 50% decline in nominal GDP
and double-digit unemployment -- neither of these traits exists today. Each of
the prior multi-year bear markets in 1929-32, 1939-41, and 1973-74 were followed
by a period of abnormally high equity returns. Based on the historical
relationship between expected earnings and current interest rates, the U.S.
large cap market may be significantly undervalued now. While expected earnings
may not materialize and there is the ever-present risk of terrorism and war,
valuations and the length of the recent bear market suggest the outlook for U.S.
equity returns may be positive.
Over the recent period our quantitative research -- which focuses on business
momentum and earnings quality, market recognition and valuation -- is pointing
the Portfolio towards greater weightings in the consumer staples sector, and,
towards lower weightings in the consumer discretionary sector. Currently, our
largest overweight is in the consumer staples sector and our largest underweight
is in the consumer discretionary sector.
The focus of our Portfolio continues to be adding return via good individual
stock selection. By design, the quantitative factors our approach is based on
are not highly correlated. Historically, this has benefited relative performance
in a variety of market environments.
10
Portfolio Managers' Report ING VP RESEARCH ENHANCED INDEX PORTFOLIO
- --------------------------------------------------------------------------------
5/6/94 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
ING VP Research Enhanced Index Portfolio $ 10,000 $ 10,141 $ 11,659 $ 13,120 $ 13,927
S&P 500 Index $ 10,000 $ 10,398 $ 14,306 $ 17,590 $ 23,459
Lehman Brothers Government/Corporate Bond Index $ 10,000 $ 10,044 $ 11,977 $ 12,325 $ 13,527
Combined Index $ 10,000 $ 10,044 $ 11,976 $ 12,324 $ 13,527
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- --------
ING VP Research Enhanced Index Portfolio $ 14,069 $ 14,884 $ 13,153 $ 11,574 $ 8,995
S&P 500 Index $ 30,162 $ 36,508 $ 33,184 $ 29,240 $ 22,777
Lehman Brothers Government/Corporate Bond Index $ 14,668
Combined Index $ 14,808 $ 16,294 $ 14,810 $ 13,050 $ 10,166
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 2002
---------------------------------------
SINCE INCEPTION
1 YEAR 5 YEAR 5/6/94
------ ------ ------
Class R -22.29% -8.37% -1.22%
S&P 500 Index -22.10% -0.59% 9.96%(1)
Lehman Brothers Government/Corporate
Bond Index 11.04% 7.62% 8.03%(1)
Combined Index(2) -22.10% -2.89% 1.72%(1)
The Portfolio commenced operations on May 6, 1994 as the Northstar Multi-Sector
Bond Fund with the investment objective of maximizing current income consistent
with the preservation of capital. Effective April 30, 1999, the Portfolio
changed its name to the ING VP Research Enhanced Index Portfolio and changed its
investment objective and strategies to invest primarily in equity securities of
large companies that make up the S&P 500 Index. Accordingly, beginning April 30,
1999, the benchmark index for the Portfolio has been changed from the Lehman
Government/Corporate Bond Index to the S&P 500 Index.
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of the ING VP Research Enhanced Index Portfolio against both the
S&P 500 Index and the Lehman Government/Corporate Bond Index as discussed above.
The Indices are unmanaged and have an inherent performance advantage over the
Portfolio since they have no cash in their portfolios, impose no sales charges
and incur no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/94.
(2) The combined index reflects the Lehman Brothers Government/Corporate Bond
Index for the period May 6, 1994 (inception of the Portfolio) to April 30,
1999 and the S&P 500 Index for the period May 1, 1999 to December 31, 2002.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities.
See accompanying index descriptions on page 18.
11
ING VP MAGNACAP PORTFOLIO Portfolio Manager's Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Thomas Jackson, Senior Vice President and Senior
Portfolio Manager, ING Investments, LLC.
GOAL: The ING VP MagnaCap Portfolio (the "Portfolio") seeks growth of capital
with dividend income as secondary consideration.
MARKET OVERVIEW: The U.S. stock market declined significantly in the year ended
December 31, 2002 with the S&P 500 Index (S&P 500) down 22.10% and the S&P/Barra
Value Index down 20.86%. The period exhibited substantial volatility as the
stock market declined dramatically into early October 2002 and then rallied in
the fourth quarter of the year. The stock market was buffeted by a number of
concerns: 1) The fear of a double dip recession as an already slow economic
rebound began to falter; 2) A below average rebound in corporate profits; 3) An
absolute aversion to risk in the corporate debt markets resulting in quality
spreads continuing to widen compared to Treasury bond yields; and 4) Investor
concerns regarding possible military action in Iraq. The rebound from the
October lows was accompanied initially by some better than expected signs of
economic growth, by a further cut in interest rates by the Federal Reserve, and
by narrowing quality spreads in the debt markets.
For the year, the stocks of smaller and mid-sized companies outperformed those
of larger companies. Looking at the S&P/Barra style based indices, value stocks
out performed growth stocks across the capitalization spectrum for the third
year in a row.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, provided a total return of -22.76%, compared to
the S&P 500, which returned -22.10%.
PORTFOLIO SPECIFICS: The Portfolio is being managed in a value investment style,
which concentrates on companies that sell at significant valuation discounts to
the stock market and which also sell at significant valuation discounts to their
own history. There is a large degree of contrary opinion embodied in this
approach. Studies of the past indicate that this may be a good way to manage
money over the long run. However, it is worthwhile to point out that the stock
market is not ignorant. Generally, companies that sell at large valuation
discounts to the market are experiencing some, hopefully temporary, problems.
The value investor is accepting the risk of the problems and the attendant time
risk until they are (if ever) solved. In return, the investor receives the
"benefit" of buying investments on sale.
This description of value investing serves as a good introduction to the
analysis of the performance results for the period and to illustrate the risks
of the value approach. The under-performance of the Portfolio for the last year
relative to the S&P 500 and the S&P/Barra Value Index is more than attributable
to the Portfolio's large and unsuccessful investments in the electric utility
industry. This position was established after the Enron debacle as the stocks in
the industry declined substantially and were selling at both very high dividend
yields and low valuations compared to the past. However, the confluence of
events afflicting them turned out to be akin to the Perfect Storm. They included
questionable accounting and business practices, debt heavy balance sheets, the
California energy crisis, regional over capacity, lower demand for electricity
due to the recession, a collapse in energy trading, declining profit margins,
and rapidly declining credit ratings. These problems combined to depress not
only current profits, but ultimately the longer-term outlook for company profits
as well. In short, while the stocks appeared "cheap" on the numbers, the
problems proved to be much worse than expected, resulting in significant further
declines in the stocks. The declines in the long-term profit outlook made the
initial valuation judgment incorrect. We eventually reduced the utility
investment substantially, but not before it negatively impacted the results of
the Portfolio. There is a general lesson in this with regard to value investing:
If the problem that is making the stock "cheap" turns out to be intractable, the
original "discount price" is likely to be insufficient to justify the
investment. If you buy what turns out to be shoddy merchandise, even on sale,
you are unlikely to have a happy result.
Much did go relatively right over the last year. The Portfolio's underweight in
technology, financial, and energy stocks combined with relatively good
selectivity in these groups partially offset the poor performance of the
utilities.
MARKET OUTLOOK: While the length and depth of the market decline over the last
several years has been painful, the good news is that stocks appear now more
reasonably priced than they have been in a long time. In fact, at the October
lows, the market was selling below its long term average price to earnings ratio
based on consensus 2003 earnings estimates. Given the substantial decline in
interest rates (which compete with stocks for investor attention and serve as
the underpinning for stock valuation), stocks are at more attractive valuation
levels than has been the case for the last quarter of a century. In fact, the
dividend yield on the market is now higher than short-term interest rates, a
situation that has not been experienced for any extended period since the early
1950's. Meanwhile, the economy and corporate profits continue to grow, albeit at
modest rates, inflation is under control, and the Federal Reserve is
accommodating.
The market continues to deal with a number of issues including accounting
integrity and corporate governance, record levels of corporate and consumer
debt, the intermediate term trajectory of the economy, the long-term growth of
corporate profits, and the impact of the potential war in Iraq and the war
against terrorism in general. While each of these issues has the potential to
significantly impact short-term market returns, current valuation levels would
seem to be attractive enough to justify the belief that the worst of this long
and deep bear market may be behind us. With that said, it is also reasonable to
expect that future returns from stocks may be significantly below what we became
accustomed to in the `80's and `90's. In fact, stocks may well provide returns
12
Portfolio Manager's Report ING VP MAGNACAP PORTFOLIO
- --------------------------------------------------------------------------------
below their long-term average. However, compared to current low interest rates,
they may still be the best deal in town.
Our strategy is to continue to seek out companies that have depressed current
valuations where we believe that their long-term prospects are not adequately
reflected in their stock price. Technology and healthcare companies are
overweighted compared to the value indices (about in line with the S&P 500). As
an offset, we are underweighted in financial services (particularly banks) and
consumer cyclical companies compared to most value benchmarks. While the
portfolio has been constructed stock by stock, there are a couple of broad
themes that run through the portfolio: 1) To the degree possible, we own
companies with pricing power. In the current low inflation environment, pricing
power is a valuable asset. Property and casualty insurance, healthcare, tobacco,
and perhaps energy companies all currently have the ability to raise prices on
their products. 2) Dividends are a more certain component of equity return than
capital gains. All things equal, we would prefer to own dividend payers rather
than non-dividend payers.
5/8/00 12/31/00 12/31/01 12/31/02
-------- -------- -------- --------
ING VP MagnaCap Portfolio $ 10,000 $ 10,161 $ 9,100 $ 7,029
S&P 500 Index $ 10,000 $ 9,161 $ 8,073 $ 6,288
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
-----------------------------
SINCE INCEPTION
1 YEAR 5/8/00
------ ------
Class R -22.76% -12.46%
S&P 500 Index -22.10% -15.97%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP MagnaCap Portfolio against the S&P 500 Index. The Index
is unmanaged and has an inherent performance advantage over the Portfolio since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/00.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. International investing does pose special risks
including currency fluctuation, economical and political risks not found in
domestic investments. Investing in funds that are concentrated in a smaller
number of holdings poses greater risk than those funds with a larger number of
holdings because each investment has a greater effect on the fund's performance.
See accompanying index descriptions on page 18.
13
ING VP INTERNATIONAL VALUE PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Brandes' LargeCap Investment Committee, Brandes
Investment Partners, L.P.
GOAL: The ING VP International Value Portfolio (the "Portfolio") seeks long-term
capital appreciation by investing primarily in non-U.S. companies with market
capitalizations greater than $1 billion. The Portfolio may hold up to 25% of its
assets in companies with smaller market capitalizations.
MARKET OVERVIEW: 2002 was a year in which an expected global recovery failed to
take hold and the only meaningful source of demand benefiting international
companies was the U.S. consumer! Ultimately confidence was depressed by
corporate scandals and the threat of war. After an August rally fizzled, major
markets fell to multi-year lows at the beginning of October, before rebounding
in the last quarter. For the year, based on the relevant MSCI indices expressed
in U.S. dollars, European markets (ex the U.K.) fell 20.3%, the U.K. market fell
15.2%, Japan fell 10.3% and emerging markets fell an average of 6.2%.
Practically all of the losses were incurred in the second half. The U.S. dollar
fell nearly 12% on average against foreign currencies, (using stock market
capitalization as weights).
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares returned -15.46% compared to the Morgan Stanley Capital International
(MSCI) EAFE index, which returned -15.66%.
The current management took over in the middle of the year. For the six-month
period ended December 31, 2002, excluding any charges, the Portfolio returned
- -13.35% compared to the MSCI EAFE Index, which returned -14.55%.
PORTFOLIO SPECIFICS: Since the change in management, the Portfolio has gained in
asset allocation from its cash holdings and by being underweight technology as
the managers were skeptical about the pace of global recovery in capital
spending. Stock selection gains were made for the half-year among financial
stocks and materials. However, this was diminished by significant stock
selection losses in the consumer discretionary sector.
Since mid year, the stock that contributed most to performance was U.K. mobile
telecommunications giant Vodaphone, which rose 34%. The stock that contributed
least was German insurer Allianz, which fell 53%.
Since the initial re-positioning of the Portfolio, sector weightings have not
changed dramatically and were driven by changes in relative value, often at the
stock level. The underweighting in technology was reduced by the end of the year
as prices became more reasonable. On the other hand, the underweighting in
financials was increased as the continued failure of the world's economies to
gain traction dampened their prospects. The underweighting in utilities was also
increased and the overweighting in consumer staples reduced to neutral, as
stocks in these sectors seemed to offer less and less value.
Changes in regional weights during this time were again driven by the sector and
stock decisions of the type referred to above. The most noteworthy net results
were the reduction of the underweight in Japan and the increase in our emerging
markets weighting largely at the expense of developed Europe ex the U.K.
MARKET OUTLOOK: As welcomed as the rally in the last quarter of 2002 was, half
of the gains were given back in December as the old nagging economic fears
resurfaced: the one and only material source of demand in the world to keep
business activity going was U.S. consumers, and they were starting to tire.
There is still no sign of a rebound in capital spending after the excesses of
the late 1990s. Add to this geopolitical foreboding, as armed conflict in the
Middle East edged ever closer and a new crisis gathered over the Korean
Peninsula.
Investment strategy in our broadly based international Portfolios, therefore,
assumes a continued state of weak global demand. An underweight in financials,
principally banks, by about 6% and in utilities by about 5%, are our biggest
sector bets. Regionally we are underweight in developed markets against the MSCI
EAFE benchmark but we hold between 5% and 6% in emerging markets plus a few
names in Canada. It must be stressed, however, that these sector and regional
weighting decisions arise primarily at the stock level. Cash remains relatively
high because of the need to be deliberate before investing in these markets,
where there are no safe havens.
14
Portfolio Managers' Report ING VP INTERNATIONAL VALUE PORTFLIO
- --------------------------------------------------------------------------------
8/8/97 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- -------- -------- --------
ING VP International Value Portfolio $ 10,000 $ 10,130 $ 11,844 $ 17,787 $ 18,353 $ 16,227 $ 13,719
MSCI EAFE Index $ 10,000 $ 9,017 $ 10,850 $ 13,812 $ 11,884 $ 9,364 $ 7,898
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 2002
----------------------------------------
SINCE INCEPTION
1 YEAR 5 YEAR 8/8/97
Class R -15.46% 6.26% 6.03%
MSCI EAFE Index -15.66% -2.61% -4.26%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP International Value Portfolio against the MSCI EAFE
Index. The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 8/1/97.
PRINCIPAL RISK FACTOR(S): International investing does pose special risks,
including currency fluctuation and political risks not found in investments that
are solely domestic. Risks of foreign investing are generally intensified for
investments in emerging markets. The Portfolio invests in smaller companies
which may be more susceptible to price volatility and are less liquid than
larger companies. Investing in funds that are concentrated in a smaller number
of holdings poses greater risk than those funds with a larger number of holdings
because each investment has a greater effect on the fund's performance.
See accompanying index descriptions on page 18.
15
ING VP HIGH YIELD BOND PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Edwin Schriver, Senior Vice President and Senior
Portfolio Manager; Andy Mitchell, Vice President and Portfolio Manager; Russ
Stiver, Vice President and Portfolio Manager, ING Investments, LLC.
GOAL: The ING VP High Yield Bond Portfolio (the "Portfolio") seeks high income
and capital appreciation by investing primarily in higher-yielding, lower-rated
bonds.
MARKET OVERVIEW: 2002 was a disappointing year in the high yield market. The
first half of the year was dominated by accounting scandals in the cable,
utilities and telecom sectors, resulting in the downgrade of several high
profile investment-grade companies into the high yield market. By mid-year the
economic recovery was losing steam and a double-dip recession had become a real
possibility. A late-year rally in anticipation of better times in 2003 was not
enough to avert negative full-year market returns. The Merrill Lynch High Yield
Master Index returned -1.14% for the year.
Despite the negative returns, high yield still provided a safe haven relative to
the double-digit declines experienced by equity investors in 2002. As might be
expected in a year of uncertainty, high quality bond investors earned the best
returns, in excess of 10% for the year.
Despite the bearish market conditions, a high quality strategy was not the key
to performance within the high yield market. The Merrill Lynch BB-rated
sub-index returned -3.20% for the year, compared to +0.94% for the B-rated
sub-index and -6.20% for the CCC-rated sub-index. This was because some very
large issuers (Calpine, Qwest, Worldcom, Northern Telecom) became distressed so
quickly that the rating agencies still had them rated BB.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class R
shares, excluding any charges, provided a total return of 0.46% compared to
- -1.41% for the Lehman Brothers High Yield Bond Index.
PORTFOLIO SPECIFICS: Exposures to the cable, telecom and utilities sectors were
key to performance in 2002. Combined, these sectors make up approximately 25% of
the high yield market and declined by more than 25% based on Merrill Lynch
indices. The Portfolio was even weight in cable, modestly underweight in telecom
and significantly underweight in utilities. Within telecom, the Portfolio also
benefited from being primarily involved in the better performing wireless
sub-sector while avoiding the wireline sub-sector.
Unfortunately, our lone holding in the utilities sector declined by over 50%,
offsetting much of the benefit of the low sector weight.
Outside of these sectors, the fund benefited from favorable credit selection in
the technology, steel, aerospace, and paper sectors, as well as from an
overweight position in gaming. Offsetting these factors were unfavorable credit
selection in capital goods, containers and airlines. An overweight position in
equipment rentals and an underweight in healthcare also hurt returns.
The downgrade of investment grade companies into the high yield market also
played a significant role in performance. The Portfolio did not buy, benefiting
as the securities of virtually all these issuers continued to fall for several
months following the downgrade under heavy selling pressure.
MARKET OUTLOOK: While economic growth remains constrained, many market
forecasters are predicting stronger growth by mid-2003. The most recent
manufacturing capacity utilization statistics showed improvement, but one month
does not establish a trend. We believe that increased business investment
remains a key obstacle to sustained economic growth, and that companies are more
committed to improving their balance sheets than they are to investing in future
growth. Default rates appear to have peaked and have begun to decline, but
further declines are contingent upon continued economic recovery. Despite our
cautious view of the economy, we believe that many high yield issuers will
improve their balance sheets even in a slow-growth environment. The securities
of many of these companies remain undervalued, not only relative to the overall
high yield market but also relative to both equities and investment grade bonds.
Equity multiples are still fairly high despite two years of terrible returns,
reflective of the sheer size of the speculative bubble that developed in the
late 1990's. On the other side, single-A rated investment-grade bonds now yield
less than 5%, providing little potential for double-digit returns.
16
Portfolio Managers' Report ING VP HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
High yield securities currently offer the best combination of downside
protection and upside potential for these uncertain times. The past couple of
years have demonstrated the downside protection of a diversified high yield
portfolio, while current market yields of close to 12% offer substantial total
return potential.
5/6/94 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
ING VP High Yield Bond Portfolio $ 10,000 $ 9,905 $ 11,742 $ 13,592 $ 14,815
Lehman Brothers High Yield Bond Index $ 10,000 $ 10,165 $ 12,114 $ 13,488 $ 15,211
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- --------
ING VP High Yield Bond Portfolio $ 14,797 $ 14,355 $ 12,752 $ 12,618 $ 12,676
Lehman Brothers High Yield Bond Index $ 15,494 $ 15,865 $ 14,935 $ 15,724 $ 15,503
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 2002
------------------------------------
SINCE INCEPTION
1 YEAR 5 YEAR 5/6/94
------ ------ ------
Class R 0.46% -3.07% 2.78%
Lehman Brothers High Yield Bond
Index -1.41% 0.38% 5.19%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP High Yield Bond Portfolio against the Lehman Brothers
High Yield Bond Index. The Index is unmanaged and has an inherent performance
advantage over the Portfolio since it has no cash in its portfolio, imposes no
sales charges and incurs no operating expenses. An investor cannot invest
directly in an index. The Portfolio's performance is shown without the
imposition of any expenses or charges which are, or may be, imposed under your
annuity contract or life insurance policy. Total returns would have been lower
if such expenses or charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/94.
PRINCIPAL RISK FACTOR(S): Exposure to financial, market and interest rate risks.
High Yields reflect the higher credit risks associated with certain lower rated
securities in the portfolio and in some cases, the lower market price for those
instruments. International investing does pose special risks, including currency
fluctuation and political risks not found in investments that are solely
domestic. Risks of foreign investing are generally intensified for investments
in emerging markets.
See accompanying index descriptions on page 18.
17
INDEX DESCRIPTIONS
- --------------------------------------------------------------------------------
The STANDARD & POORS (S&P) 500 INDEX is a widely recognized, unmanaged index of
500 common stocks.
The LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an unmanaged index of
government bonds and corporate bonds rated Baa3 or better.
The RUSSELL 2000 INDEX is an unmanaged index that measures the performance of
2,000 small companies.
The NASDAQ COMPOSITE INDEX is an unmanaged index that measures all domestic and
non-U.S. based common stocks listed on the NASDAQ stock market. The index is
market-value weighted.
The S&P MIDCAP 400 INDEX is an unmanaged index which measures performance of the
mid-size company segment of the U.S. market.
The MSCI EAFE INDEX is an unmanaged index consisting of more than 1,400
securities in the U.S., Europe, Canada, Australia, New Zealand, and the Far
East. It is a generally accepted index for major overseas markets.
The LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprised of
non-investment grade bonds with maturities between seven to ten years.
The RUSSELL 2000 GROWTH INDEX is an unmanaged index that measures the
performance of those Russell 2000 Index companies with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 3000 INDEX measures the performance of the 3,000 largest U.S.
companies based on total market capitalization. This portfolio of securities
represents approximately 98% of the investable U.S. equity market.
The MERRILL LYNCH HIGH YIELD MASTER INDEX is an unmanaged market value-weighted
index of all domestic and yankee high yield bonds. Issues included in the index
have maturities of one year or more and have a credit rating lower than
BBB-/Baa3, but are not in default.
The S&P BARRA VALUE INDEX is a capitalization-weighted index of all the stocks
in the S&P 500 Index that has low price-to-book ratios.
All indices are unmanaged.
An investor cannot invest directly in an index.
18
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
ING Variable Products Trust:
We have audited the accompanying statements of assets and liabilities, of ING VP
Growth Plus Value Portfolio, ING VP Growth Opportunities Portfolio, ING VP
MidCap Opportunities Portfolio, ING VP SmallCap Opportunities Portfolio, ING VP
Research Enhanced Index Portfolio, ING VP MagnaCap Portfolio, ING VP
International Value Portfolio and ING VP High Yield Bond Portfolio (formerly,
Pilgrim VP Growth Plus Value Portfolio, Pilgrim VP Growth Opportunities
Portfolio, Pilgrim VP MidCap Opportunities Portfolio, Pilgrim VP SmallCap
Opportunities Portfolio, Pilgrim VP Research Enhanced Index Portfolio, Pilgrim
VP MagnaCap Portfolio, Pilgrim VP International Value Portfolio and Pilgrim VP
High Yield Bond Portfolio, respectively), eight Portfolios within the ING
Variable Products Trust (formerly, Pilgrim Variable Products Trust) (the
"Trust"), including the portfolios of investments, as of December 31, 2002, and
the related statements of operations for the year then ended, and statements of
changes in net assets for each of the years or periods in the two-year period
then ended and financial highlights for each of the years or periods in the
three-year period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. For all periods ending prior to January 1, 2000 the
financial highlights were audited by other auditors whose report thereon dated
February 15, 2000 expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002 by correspondence with the custodians
and other appropriate audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above, except those identified as having been audited by other auditors, present
fairly, in all material respects the financial position of the ING VP Growth
Plus Value Portfolio, ING VP Growth Opportunities Portfolio, ING VP MidCap
Opportunities Portfolio, ING VP SmallCap Opportunities Portfolio, ING VP
Research Enhanced Index Portfolio, ING VP MagnaCap Portfolio, ING VP
International Value Portfolio and ING VP High Yield Bond Portfolio as of
December 31, 2002, the results of their operations, changes in their net assets
and financial highlights for the years or periods specified in the first
paragraph above, in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
Boston, Massachusetts
February 7, 2003
19
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING VP ING VP
ING VP GROWTH MIDCAP SMALLCAP
GROWTH + VALUE OPPORTUNITIES OPPORTUNITIES OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- -------------
ASSETS:
Investments in securities at value* $ 46,946,977 $ 14,343,977 $ 6,790,952 $ 91,353,820
Short-term investments at amortized cost 6,069,000 574,000 435,000 4,360,000
Cash 140 630 815 484
Receivables:
Investment securities sold 2,070,354 192,179 101,741 1,567,381
Fund shares sold -- 39,045 86,883 380,040
Dividends and interest 23,011 1,181 608 1,411
Prepaid expenses 1,785 108 2 2,508
Reimbursement due from manager 17,446 5,216 118 14,565
------------- ------------- ------------- -------------
Total assets 55,128,713 15,156,336 7,416,119 97,680,209
------------- ------------- ------------- -------------
LIABILITIES:
Payable for investment securities purchased 733,491 259,524 62,731 802,178
Payable for fund shares redeemed 1,650 5 46,631 42,419
Payable to affiliates (Note 6) 40,910 12,756 5,673 78,468
Other accrued expenses and liabilities 57,602 18,480 23,590 76,233
------------- ------------- ------------- -------------
Total liabilities 833,653 290,765 138,625 999,298
------------- ------------- ------------- -------------
NET ASSETS $ 54,295,060 $ 14,865,571 $ 7,277,494 $ 96,680,911
============= ============= ============= =============
NET ASSETS WERE COMPRISED OF:
Paid-in Capital 143,178,638 24,274,652 10,140,114 184,482,950
Accumulated net realized loss on investments (89,583,559) (9,474,889) (2,884,366) (92,355,367)
Net unrealized appreciation of investments 699,981 65,808 21,746 4,553,328
------------- ------------- ------------- -------------
NET ASSETS $ 54,295,060 $ 14,865,571 $ 7,277,494 $ 96,680,911
============= ============= ============= =============
* Cost of securities $ 46,246,996 $ 14,278,169 $ 6,769,206 $ 86,800,492
CLASS R:
Net assets $ 54,295,060 $ 4,808,144 $ 4,682,989 $ 64,766,869
Shares authorized unlimited unlimited unlimited unlimited
Par value $ 0.01 $ 0.01 $ 0.01 $ 0.01
Shares outstanding 5,502,091 1,280,499 1,040,991 6,084,636
Net asset value and redemption price per share $ 9.87 $ 3.75 $ 4.50 $ 10.64
CLASS S:
Net assets n/a $ 10,057,427 $ 2,594,505 $ 31,914,042
Shares authorized n/a unlimited unlimited unlimited
Par value n/a $ 0.01 $ 0.01 $ 0.01
Shares outstanding n/a 2,675,633 580,646 3,008,213
Net asset value and redemption price per share n/a $ 3.76 $ 4.47 $ 10.61
See Accompanying Notes to Financial Statements
20
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING ING VP ING VP
RESEARCH VP INTERNATIONAL HIGH YIELD
ENHANCED MAGNACAP VALUE BOND
INDEX PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- ------------- -------------
ASSETS:
Investments in securities at value* $ 7,380,836 $ 16,986,136 $ 58,164,142 $ 8,932,717
Short-term investments at amortized cost 66,000 711,000 -- 644,000
Cash 782 633 6,501,919 149
Receivables:
Investment securities sold 213,296 -- 909,405 --
Fund shares sold -- 1,692 269,043 --
Dividends and interest 10,871 40,537 66,918 249,439
Other assets (Note 2) -- -- 1,428,715 --
Prepaid expenses 5 105 24,344 20
Reimbursement due from manager 7,520 5,209 84,053 10,049
------------- ------------- ------------- -------------
Total assets 7,679,310 17,745,312 67,448,539 9,836,374
------------- ------------- ------------- -------------
LIABILITIES:
Payable for investment securities purchased 280,064 -- 1,810,358 --
Payable for fund shares redeemed 14,026 7,821 -- 3,433
Payable for securities loaned -- -- 1,428,715 --
Income distribution payable -- -- -- 30,968
Payable to affiliates (Note 6) 5,489 14,961 59,513 6,977
Other accrued expenses and liabilities 57,129 10,987 66,075 33,845
------------- ------------- ------------- -------------
Total liabilities 356,708 33,769 3,364,661 75,223
------------- ------------- ------------- -------------
NET ASSETS $ 7,322,602 $ 17,711,543 $ 64,083,878 $ 9,761,151
============= ============= ============= =============
NET ASSETS WERE COMPRISED OF:
Paid-in Capital 15,902,736 21,683,696 75,107,726 17,793,269
Accumulated net investment income -- -- -- 5,380
Accumulated net realized loss on investments
and foreign currencies (8,046,845) (897,632) (7,952,816) (7,372,305)
Net unrealized depreciation of investments and
foreign currencies (533,289) (3,074,521) (3,071,032) (665,193)
------------- ------------- ------------- -------------
NET ASSETS $ 7,322,602 $ 17,711,543 $ 64,083,878 $ 9,761,151
============= ============= ============= =============
* Cost of securities $ 7,914,125 $ 20,060,657 $ 61,242,782 $ 9,597,896
CLASS R:
Net assets $ 7,322,602 $ 4,868,494 $ 64,042,061 $ 9,761,151
Shares authorized unlimited unlimited unlimited unlimited
Par value $ 0.01 $ 0.01 $ 0.01 $ 0.01
Shares outstanding 2,494,541 714,226 7,450,020 3,446,141
Net asset value and redemption price per share $ 2.94 $ 6.82 $ 8.60 $ 2.83
CLASS S:
Net assets n/a $ 12,843,049 $ 41,817 n/a
Shares authorized n/a unlimited unlimited n/a
Par value n/a $ 0.01 $ 0.01 n/a
Shares outstanding n/a 1,875,537 4,817 n/a
Net asset value and redemption price per share n/a $ 6.85 $ 8.68 n/a
See Accompanying Notes to Financial Statements
21
STATEMENTS OF OPERATIONS for the year ended December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING VP ING VP
ING VP GROWTH MIDCAP SMALLCAP
GROWTH + VALUE OPPORTUNITIES OPPORTUNITIES OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- -------------
INVESTMENT INCOME:
Dividends (net of foreign taxes)* $ 399,349 $ 36,843 $ 18,083 $ 58,263
Interest 75,904 17,782 9,157 93,425
------------- ------------- ------------- -------------
Total investment income 475,253 54,625 27,240 151,688
------------- ------------- ------------- -------------
EXPENSES:
Investment advisory fees 567,285 104,703 44,465 807,368
Distribution and service fees:
Class S -- 20,670 4,419 63,213
Transfer agent fees
Class R 10,962 6,941 11,223 24,480
Class S -- 9,285 4,451 9,072
Administrative and service fees 75,638 13,960 5,929 107,649
Custody and accounting fees 24,076 26,161 14,700 68,579
Shareholder reporting expense 53,056 6,544 1,853 84,438
Registration fees 95 12 5 114
Professional fees 149,784 16,699 6,300 211,830
Trustee fees 9,225 598 459 10,818
Insurance expense 944 305 163 1,430
Miscellaneous expense 4,984 648 700 4,949
------------- ------------- ------------- -------------
Total expenses 896,049 206,526 94,667 1,393,940
------------- ------------- ------------- -------------
Less:
Net waived and reimbursed fees 289,303 65,358 38,270 376,990
------------- ------------- ------------- -------------
Net expenses 606,746 141,168 56,397 1,016,950
------------- ------------- ------------- -------------
Net investment loss (131,493) (86,543) (29,157) (865,262)
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net realized loss on investments (23,424,828) (4,318,716) (1,362,217) (53,973,850)
Net change in unrealized depreciation of
investments (11,472,047) (983,883) (443,368) (8,612,173)
------------- ------------- ------------- -------------
Net realized and unrealized loss on
investments (34,896,875) (5,302,599) (1,805,585) (62,586,023)
------------- ------------- ------------- -------------
DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (35,028,368) $ (5,389,142) $ (1,834,742) $ (63,451,285)
============= ============= ============= =============
* Foreign taxes $ -- $ 40 $ 164 $ --
See Accompanying Notes to Financial Statements
22
STATEMENTS OF OPERATIONS for the year ended December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING VP ING VP
RESEARCH ING VP INTERNATIONAL HIGH YIELD
ENHANCED MAGNACAP VALUE BOND
INDEX PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- ------------- -------------
INVESTMENT INCOME:
Dividends (net of foreign taxes)* $ 171,596 $ 261,758 $ 811,292 $ --
Interest 9,229 26,330 69,204 1,049,486
Securities lending income -- -- 13,253 --
------------- ------------- ------------- -------------
Total investment income 180,825 288,088 893,749 1,049,486
------------- ------------- ------------- -------------
EXPENSES:
Investment advisory fees 86,271 102,228 499,493 75,915
Distribution and service fees:
Class S -- 25,425 75 --
Transfer agent fees
Class R 8,852 3,591 27,950 7,524
Class S -- 10,432 18 --
Administrative and service fees 11,503 13,630 49,949 10,122
Custodian and fund accounting fees 33,455 14,244 104,074 17,815
Shareholder reporting expense 20,982 5,628 37,437 5,543
Registration fees 17 9 1,033 13
Professional fees 25,662 11,991 46,995 29,127
Trustee fees 2,063 541 11,221 930
Insurance expense 245 246 7,310 207
Miscellaneous expense 1,399 582 2,925 631
------------- ------------- ------------- -------------
Total expenses 190,449 188,547 788,480 147,827
------------- ------------- ------------- -------------
Less:
Net waived and reimbursed fees 86,601 45,577 287,805 66,634
------------- ------------- ------------- -------------
Net expenses 103,848 142,970 500,675 81,193
------------- ------------- ------------- -------------
Net investment income 76,977 145,118 393,074 968,293
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized loss on investments (2,707,264) (726,298) (7,709,041) (1,137,796)
Net realized loss on foreign currencies -- -- (22,000) (6)
Net change in unrealized appreciation
(depreciation) of investments and foreign
currencies (278,679) (3,062,141) (930,382) 62,289
------------- ------------- ------------- -------------
Net realized and unrealized loss on
investments and foreign currencies (2,985,943) (3,788,439) (8,661,423) (1,075,513)
------------- ------------- ------------- -------------
DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (2,908,966) $ (3,643,321) $ (8,268,349) $ (107,220)
============= ============= ============= =============
* Foreign taxes $ 845 $ -- $ 104,257 $ --
See Accompanying Notes to Financial Statements
23
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ING VP ING VP
GROWTH + VALUE GROWTH OPPORTUNITIES
PORTFOLIO PORTFOLIO
------------------------------ ------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
------------- ------------- ------------- -------------
DECREASE IN NET ASSETS FROM
OPERATIONS:
Net investment loss $ (131,493) $ (279,027) $ (86,543) $ (29,783)
Net realized loss on investments (23,424,828) (55,186,884) (4,318,716) (4,003,897)
Net change in unrealized appreciation
(depreciation) of investments (11,472,047) 12,755,373 (983,883) 987,091
------------- ------------- ------------- -------------
Net decrease in net assets resulting from
operations (35,028,368) (42,710,538) (5,389,142) (3,046,589)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gains from investments:
Class R -- (296,420) -- --
------------- ------------- ------------- -------------
Total distributions -- (296,420) -- --
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 16,499,812 43,823,461 14,682,749 13,711,812
Shares resulting from dividend reinvestments -- 296,420 -- --
Cost of shares redeemed (26,629,292) (34,110,493) (6,801,716) (4,428,344)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from capital share
transactions (10,129,480) 10,009,388 7,881,033 9,283,468
------------- ------------- ------------- -------------
Net increase (decrease) in net assets (45,157,848) (32,997,570) 2,491,891 6,236,879
------------- ------------- ------------- -------------
NET ASSETS:
Beginning of year 99,452,908 132,450,478 12,373,680 6,136,801
------------- ------------- ------------- -------------
End of year $ 54,295,060 $ 99,452,908 $ 14,865,571 $ 12,373,680
============= ============= ============= =============
Accumulated net investment income at end
of year $ -- $ -- $ -- $ --
============= ============= ============= =============
See Accompanying Notes to Financial Statements
24
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
ING VP ING VP
MIDCAP OPPORTUNITIES SMALLCAP OPPORTUNITIES
PORTFOLIO PORTFOLIO
------------------------------ ------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
------------- ------------- ------------- -------------
DECREASE IN NET ASSETS FROM
OPERATIONS:
Net investment loss $ (29,157) $ (10,166) $ (865,262) $ (655,228)
Net realized loss on investments (1,362,217) (1,256,157) (53,973,850) (29,337,014)
Net change in unrealized appreciation
(depreciation) of investments (443,368) 393,412 (8,612,173) (9,567,139)
------------- ------------- ------------- -------------
Net decrease in net assets resulting from
operations (1,834,742) (872,911) (63,451,285) (39,559,381)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class R -- (381) -- --
Net realized gains from investments:
Class R -- -- -- (248,319)
Class S -- -- -- (16,454)
------------- ------------- ------------- -------------
Total distributions -- (381) -- (264,773)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 9,201,732 5,574,063 72,144,579 71,921,597
Shares resulting from dividend reinvestments -- 381 -- 264,773
Cost of shares redeemed (4,570,452) (2,215,396) (31,028,615) (44,860,295)
------------- ------------- ------------- -------------
Net increase in net assets resulting from
capital share transactions 4,631,280 3,359,048 41,115,964 27,326,075
------------- ------------- ------------- -------------
Net increase (decrease) in net assets 2,796,538 2,485,756 (22,335,321) (12,498,079)
------------- ------------- ------------- -------------
NET ASSETS:
Beginning of year 4,480,956 1,995,200 119,016,232 131,514,311
------------- ------------- ------------- -------------
End of year $ 7,277,494 $ 4,480,956 $ 96,680,911 $ 119,016,232
============= ============= ============= =============
Accumulated net investment income at end
of year $ -- $ -- $ -- $ --
============= ============= ============= =============
See Accompanying Notes to Financial Statements
25
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
ING VP
RESEARCH ENHANCED ING VP
INDEX PORTFOLIO MAGNACAP PORTFOLIO
------------------------------ ------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
------------- ------------- ------------- -------------
DECREASE IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 76,977 $ 99,324 $ 145,118 $ 41,621
Net realized loss on investments and futures
contracts (2,707,264) (3,312,765) (726,298) (143,502)
Net change in unrealized appreciation
(depreciation) of investments and futures
contracts (278,679) 379,081 (3,062,141) (29,820)
------------- ------------- ------------- -------------
Net decrease in net assets resulting from
operations (2,908,966) (2,834,360) (3,643,321) (131,701)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class R (124,792) (105,915) (43,315) (24,178)
Class S -- -- (103,242) (25,423)
------------- ------------- ------------- -------------
Total distributions (124,792) (105,915) (146,557) (49,601)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 2,290,223 2,736,105 18,749,038 7,882,757
Shares resulting from dividend reinvestments 124,792 105,915 146,557 49,601
Cost of shares redeemed (9,591,806) (6,690,271) (5,548,976) (713,772)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from capital share
transactions (7,176,791) (3,848,251) 13,346,619 7,218,586
------------- ------------- ------------- -------------
Net increase (decrease) in net assets (10,210,549) (6,788,526) 9,556,741 7,037,284
------------- ------------- ------------- -------------
NET ASSETS:
Beginning of year 17,533,151 24,321,677 8,154,802 1,117,518
------------- ------------- ------------- -------------
End of year $ 7,322,602 $ 17,533,151 $ 17,711,543 $ 8,154,802
============= ============= ============= =============
Accumulated net investment income at end
of year $ -- $ -- $ -- $ --
============= ============= ============= =============
See Accompanying Notes to Financial Statements
26
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
ING VP ING VP
INTERNATIONAL VALUE PORTFOLIO HIGH YIELD BOND PORTFOLIO
------------------------------ ------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 393,074 $ 447,076 $ 968,293 $ 1,089,932
Net realized gain (loss) on investments and
foreign currencies (7,731,041) 911,291 (1,137,802) (2,075,679)
Net change in unrealized appreciation
(depreciation) of investments and foreign
currencies (930,382) (4,385,459) 62,289 1,145,110
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations (8,268,349) (3,027,092) (107,220) 159,363
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class R (465,254) (448,174) (968,220) (1,085,284)
Class S (260) -- -- --
Net realized gains from investments:
Class R -- (953,059) -- --
------------- ------------- ------------- -------------
Total distributions (465,514) (1,401,233) (968,220) (1,085,284)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 187,989,450 76,172,846 5,355,390 13,771,454
Shares resulting from dividend reinvestments 465,585 1,401,233 1,180,409 854,920
Cost of shares redeemed (148,859,996) (66,738,442) (6,160,592) (13,881,222)
------------- ------------- ------------- -------------
Net increase in net assets resulting from
capital share transactions 39,595,039 10,835,637 375,207 745,152
------------- ------------- ------------- -------------
Net increase (decrease) in net assets 30,861,176 6,407,312 (700,233) (180,769)
------------- ------------- ------------- -------------
NET ASSETS:
Beginning of year 33,222,702 26,815,390 10,461,384 10,642,153
------------- ------------- ------------- -------------
End of year $ 64,083,878 $ 33,222,702 $ 9,761,151 $ 10,461,384
============= ============= ============= =============
Undistributed net investment income at end
of year $ -- $ 17,565 $ 5,380 $ 5,313
============= ============= ============= =============
See Accompanying Notes to Financial Statements
27
ING VP GROWTH + VALUE PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 15.75 22.90 30.04 18.76 15.85
Income from investment operations:
Net investment income (loss) $ (0.02) (0.04) (0.11) (0.08) (0.03)
Net realized and unrealized gain (loss) on
investments $ (5.86) (7.06) (2.29) 17.74 3.09
Total from investment operations $ (5.88) (7.10) (2.40) 17.66 3.06
Less distributions from:
Net investment income $ -- -- -- -- 0.01
Net realized gain on investments $ -- 0.05 4.74 6.38 0.14
Total distributions $ -- 0.05 4.74 6.38 0.15
Net asset value, end of year $ 9.87 15.75 22.90 30.04 18.76
TOTAL RETURN(1) % (37.33) (30.99) (9.78) 94.98 19.32
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 54,295 99,453 132,450 89,911 41,593
Ratio of expenses to average net assets after
expense reimbursement(2) % 0.80 0.80 0.80 0.80 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 1.18 1.17 0.93 0.97 1.02
Ratio of net investment income (loss) to
average net assets after expense
reimbursement(2) % (0.17) (0.27) (0.46) (0.44) (0.17)
Portfolio turnover rate % 323 192 151 179 216
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(2) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
28
ING VP GROWTH OPPORTUNITIES PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
----------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000(1)
------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 5.48 8.92 10.00
Income from investment operations:
Net investment income (loss) $ (0.02) (0.02) 0.02
Net realized and unrealized loss on investments $ (1.71) (3.42) (1.08)
Total from investment operations $ (1.73) (3.44) (1.06)
Less distributions from:
Net investment income $ -- -- 0.02
Total distributions $ -- -- 0.02
Net asset value, end of period $ 3.75 5.48 8.92
TOTAL RETURN(2) % (31.57) (38.57) (10.62)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 4,808 6,987 6,137
Ratio of expenses to average net assets after
expense reimbursement(3)(4) % 0.90 0.90 0.90
Ratio of expenses to average net assets
prior to expense reimbursement(3) % 1.34 1.82 2.19
Ratio of net investment income (loss) to average
net assets after expense reimbursement(3)(4) % (0.50) (0.32) 0.52
Portfolio turnover rate % 407 471 157
- ----------
(1) The Portfolio commenced operations on May 3, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
29
ING VP MIDCAP OPPORTUNITIES PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
----------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000(1)
------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 6.07 9.05 10.00
Income from investment operations:
Net investment income (loss) $ (0.02) (0.01) 0.01
Net realized and unrealized loss on investments $ (1.55) (2.97) (0.95)
Total from investment operations $ (1.57) (2.98) (0.94)
Less distributions from:
Net investment income $ -- -- 0.01
Total distributions $ -- -- 0.01
Net asset value, end of period $ 4.50 6.07 9.05
TOTAL RETURN(2) % (25.86) (32.92) (9.38)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 4,683 3,616 1,995
Ratio of expenses to average net assets after
expense reimbursement(3)(4) % 0.88 0.90 0.90
Ratio of expenses to average net assets
prior to expense reimbursement(3) % 1.53 2.66 5.76
Ratio of net investment income (loss) to average
net assets after expense reimbursement(3)(4) % (0.42) (0.32) 0.40
Portfolio turnover rate % 387 429 103
- ----------
(1) The Portfolio commenced operations on May 5, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
30
ING VP SMALLCAP OPPORTUNITIES PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 18.88 26.73 29.24 14.12 13.00
Income from investment operations:
Net investment income (loss) $ (0.10) (0.11) (0.01) (0.09) 0.39
Net realized and unrealized gain (loss)
on investments $ (8.14) (7.69) 0.49 19.83 1.76
Total from investment operations $ (8.24) (7.80) 0.48 19.74 2.15
Less distributions from:
Net investment income $ -- -- -- -- 0.39
Net realized gain on investments $ -- 0.05 2.99 4.62 0.64
Total distributions $ -- 0.05 2.99 4.62 1.03
Net asset value, end of year $ 10.64 18.88 26.73 29.24 14.12
TOTAL RETURN(1) % (43.64) (29.15) 1.09 141.03 17.30
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 64,767 103,273 131,514 71,532 24,053
Ratio of expenses to average net assets
after expense reimbursement(2)(3) % 0.90 0.90 0.90 0.90 0.82
Ratio of expenses to average net assets
prior to expense reimbursement % 1.23 1.15 0.98 1.09 1.14
Ratio of net investment income (loss) to
average net assets after expense
reimbursement(3) % (0.75) (0.59) (0.06) (0.64) 3.00
Portfolio turnover rate % 414 304 148 236 161
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(2) Effective November 9, 1998, the expense limit increased from 0.80% to
0.90%.
(3) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
31
ING VP RESEARCH ENHANCED INDEX PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2002 2001 2000 1999(2) 1998
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 3.84 4.39 4.99 4.83 5.14
Income from investment operations:
Net investment income $ 0.03 0.02 0.02 0.11 0.36
Net realized and unrealized gain (loss)
on investments $ (0.88) (0.55) (0.60) 0.16 (0.31)
Total from investment operations $ (0.85) (0.53) (0.58) 0.27 0.05
Less distributions from:
Net investment income $ 0.05 0.02 0.02 0.11 0.36
Total distributions $ 0.05 0.02 0.02 0.11 0.36
Net asset value, end of year $ 2.94 3.84 4.39 4.99 4.83
TOTAL RETURN(1) % (22.29) (12.00) (11.63) 5.79 1.02
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 7,323 17,533 24,322 29,739 14,437
Ratio of expenses to average net assets
after expense reimbursement(3)(4) % 0.90 0.90 0.90 0.89 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 1.66 1.62 1.18 1.26 1.29
Ratio of net investment income to
average net assets after expense
reimbursement(4) % 0.67 0.49 0.42 1.89 7.53
Portfolio turnover rate % 167 98 49 123 93
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(2) Portfolio commenced operations as Northstar Multi-Sector Bond Portfolio.
Effective April 30, 1999 the Portfolio changed its name to Research
Enhanced Index Portfolio and changed its investment objective.
(3) Effective April 30, 1999, the expense limit increased from 0.80% to 0.90%.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
32
ING VP MAGNACAP PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
-----------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000(1)
------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.93 10.11 10.00
Income from investment operations:
Net investment income $ 0.08 0.11 0.05
Net realized and unrealized gain (loss) on investments $ (2.11) (1.17) 0.11
Total from investment operations $ (2.03) (1.06) 0.16
Less distributions from:
Net investment income $ 0.08 0.12 0.05
Total distributions $ 0.08 0.12 0.05
Net asset value, end of period $ 6.82 8.93 10.11
TOTAL RETURN(2) % (22.76) (10.44) 1.61
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 4,868 2,301 1,118
Ratio of expenses to average net assets after expense
reimbursement(3)(4) % 0.90 0.90 0.90
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 1.20 2.22 7.90
Ratio of net investment income to average net assets
after expense reimbursement(3)(4) % 1.22 1.27 1.45
Portfolio turnover rate % 47 72 28
- ----------
(1) The Portfolio commenced operations on May 8, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
33
ING VP INTERNATIONAL VALUE PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
----------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 10.27 12.19 14.77 11.08 10.10
Income from investment operations:
Net investment income $ 0.08 0.17 0.24 0.22 0.21
Net realized and unrealized gain (loss)
on investments $ (1.66) (1.58) 0.12 5.23 1.49
Total from investment operations $ (1.58) (1.41) 0.36 5.45 1.70
Less distributions from:
Net investment income $ 0.09 0.18 0.27 0.24 0.22
Net realized gain on investments $ -- 0.33 2.67 1.52 0.50
Total distributions $ 0.09 0.51 2.94 1.76 0.72
Net asset value, end of year $ 8.60 10.27 12.19 14.77 11.08
TOTAL RETURN(1) % (15.46) (11.58) 3.18 50.18 16.93
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 64,042 33,223 26,815 24,051 13,764
Ratio of expenses to average net assets
after expense reimbursement(2)(3) % 1.00 1.00 1.00 1.00 0.84
Ratio of expenses to average net assets
prior to expense reimbursement % 1.58 1.53 1.44 1.52 1.68
Ratio of net investment income to
average net assets after expense
reimbursement(3) % 0.79 1.57 1.83 1.69 1.90
Portfolio turnover rate % 164 24 69 84 30
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(2) Effective November 9, 1998, the expense limit increased from 0.80% to
1.00%.
(3) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
34
ING VP HIGH YIELD BOND PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS R
----------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 3.16 3.45 4.30 4.87 5.30
Income from investment operations:
Net investment income $ 0.35 0.26 0.40 0.44 0.42
Net realized and unrealized gain (loss)
on investments $ (0.33) (0.29) (0.85) (0.57) (0.42)
Total from investment operations $ 0.02 (0.03) (0.45) (0.13) --
Less distributions from:
Net investment income $ 0.35 0.26 0.40 0.44 0.42
Net realized gain on investments $ -- -- -- -- 0.01
Total distributions $ 0.35 0.26 0.40 0.44 0.43
Net asset value, end of year $ 2.83 3.16 3.45 4.30 4.87
TOTAL RETURN(1) % 0.46 (1.05) (11.17) (2.98) (0.12)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000's) $ 9,761 10,461 10,642 16,442 21,320
Ratio of expenses to average net assets
after expense reimbursement(2) % 0.80 0.80 0.80 0.80 0.80
Ratio of expenses to average net assets
prior to expense reimbursement % 1.46 1.28 1.13 1.11 1.23
Ratio of net investment income to
average net assets after expense
reimbursement(2) % 9.57 9.76 9.53 9.19 8.92
Portfolio turnover rate % 77 109 140 85 135
- ----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(2) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
35
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
ORGANIZATION. The ING Variable Products Trust is a business trust organized
under the laws of the Commonwealth of Massachusetts on December 17, 1993 and
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. There are eleven investment series which comprise
the Trust. The names of the eight Portfolios in this report, which offer Class R
shares along with their respective investment objectives, are set forth below.
ING VP GROWTH + VALUE PORTFOLIO ("GROWTH + VALUE PORTFOLIO") is a diversified
portfolio with an investment objective of long-term growth of capital through
investments in common stocks and convertible securities that are believed to
provide above average potential for capital appreciation.
ING VP GROWTH OPPORTUNITIES PORTFOLIO ("GROWTH OPPORTUNITIES PORTFOLIO") is a
diversified portfolio which seeks long-term growth of capital through
investments in common stock of U.S. companies that the portfolio manager feels
have above average prospects for growth.
ING VP MIDCAP OPPORTUNITIES PORTFOLIO ("MIDCAP OPPORTUNITIES PORTFOLIO") is a
diversified portfolio which seeks long-term capital appreciation through
investments in common stock of mid-sized U.S. companies that the portfolio
managers feel have above average prospects for growth.
ING VP SMALLCAP OPPORTUNITIES PORTFOLIO ("SMALLCAP OPPORTUNITIES PORTFOLIO") is
a diversified portfolio with the investment objective of long-term capital
appreciation by investing primarily in small to mid-sized companies that are
believed to have above average prospects for growth.
ING VP RESEARCH ENHANCED INDEX PORTFOLIO ("RESEARCH ENHANCED INDEX PORTFOLIO")
is a diversified portfolio whose investment objective is capital appreciation by
investing primarily in large companies that make up the S&P 500 Index.
ING VP MAGNACAP PORTFOLIO ("MAGNACAP PORTFOLIO") is a diversified portfolio
whose investment objective is growth of capital through investments in common
stock of companies that have paid increasing dividends or have had the
capability to pay rising dividends from their operations, with dividend income
as a second consideration.
ING VP INTERNATIONAL VALUE PORTFOLIO ("INTERNATIONAL VALUE PORTFOLIO") is a
diversified portfolio with the investment objective of long-term capital
appreciation by investing primarily in foreign companies with a market valuation
greater than $1 billion, but may hold up to 25% of its assets in companies with
smaller market capitalization.
ING VP HIGH YIELD BOND PORTFOLIO ("HIGH YIELD BOND PORTFOLIO") is a diversified
portfolio whose investment objective is to seek high income consistent with the
preservation of capital by investing primarily in a diversified group of high
yield-high risk fixed income securities, convertible securities, securities
issued by U.S.companies in foreign currencies, and securities issued by foreign
governments and companies.
Each Portfolio offers Class R shares. Growth Opportunities Portfolio, MidCap
Opportunities Portfolio, SmallCap Opportunities Portfolio, MagnaCap Portfolio
and International Value Portfolio also offer Class S shares. The two classes
differ principally in the applicable shareholder service fees. Shareholders of
each class also bear certain expenses that pertain to that particular class. All
shareholders bear the common expenses of the Portfolio and earn income from the
portfolio pro rata based on the average daily net assets of each class, without
distinction between share classes. Dividends are determined separately for each
class based on income and expenses allocable to each class. Realized gains are
allocated to each class pro rata based on the net assets of each class on the
date of distribution. No class has preferential dividend rights. Differences in
per share dividend rates generally result from the relative weighting of pro
rata income and realized gain allocations and from differences in separate class
expenses, including shareholder servicing fees.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the
Portfolios in the preparation of their financial statements, and such policies
are in conformity with accounting principles generally accepted in the United
States of America for investment companies.
A. SECURITY VALUATION. Investments in equity securities traded on a national
securities exchange or included on the NASDAQ National
36
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Market System are valued at the last reported sale price. Securities traded
on an exchange or NASDAQ for which there has been no sale and securities
traded in the over-the-counter-market are valued at the mean between the
last reported bid and ask prices. All investments quoted in foreign
currencies will be valued daily in U.S. dollars on the basis of the foreign
currency exchange rates prevailing at that time. Debt securities are valued
at bid prices obtained from independent services or from one or more
dealers making markets in the securities. U.S. Government obligations are
valued by using market quotations or independent pricing services which
uses prices provided by market-makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Securities for which market quotations are not readily
available are valued at their respective fair values as determined in good
faith and in accordance with policies set by the Board of Directors.
Investments in securities maturing in less than 60 days from the date of
acquisition are valued at amortized cost, which, when combined with accrued
interest, approximates market value.
B. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Securities transactions are
accounted for on the trade date. Realized gains and losses are reported on
the basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis. Dividend income is recorded on the
ex-dividend date, or for certain foreign securities, when the information
becomes available to the Portfolios. Premium amortization and discount
accretion are determined by the effective yield method.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Portfolios are
maintained in U.S. dollars. Any foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and liabilities-
at the exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and expenses-at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market values are presented at the foreign
exchange rates at the end of the day, the Portfolios do not isolate the
portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the
net realized and unrealized gains or losses from investments. For
securities, which are subject to foreign withholding tax upon disposition,
liabilities are recorded on the statement of assets and liabilities for the
estimated tax withholding based on the securities current market value.
Upon disposition, realized gains or losses on such securities are recorded
net of foreign withholding tax. Reported net realized foreign exchange
gains or losses arise from sales and maturities of short-term securities,
sales of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Portfolios' books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities other
than investments in securities at fiscal year end, resulting from changes
in the exchange rate. Foreign security and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and the U.S. Government. These risks include
but are not limited to re-evaluation of currencies and future adverse
political and economic developments which could cause securities and their
markets to be less liquid and prices more volatile than those of comparable
U.S. companies and the U.S. Government.
D. FOREIGN CURRENCY TRANSACTIONS AND FUTURES CONTRACTS. Certain portfolios may
enter into foreign currency exchange transactions to convert to and from
different foreign currencies and to and from the U.S. dollar in connection
with the planned purchases or sales of securities. The Portfolios either
enter into these transactions on a spot basis at the spot rate prevailing
in the foreign currency exchange market or use forward foreign currency
contracts
37
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
to purchase or sell foreign currencies. When the contract is fulfilled or
closed, gains or losses are realized. Until then, the gain or loss is
included in unrealized appreciation or depreciation. Risks may arise upon
entering into forward contracts from the potential inability of
counterparties to meet the terms of their forward contracts and from the
potential inability of counterparties to meet the terms of their forward
contracts and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar.
Each Portfolio may enter into futures contracts involving foreign currency,
interest rates, securities and securities indices, for hedging purposes
only. A futures contract obligates the seller of the contract to deliver
and the purchaser of the contract to take delivery of the type of foreign
currency, financial instrument or security called for in the contract at a
specified future time for a specified price. Upon entering into such a
contract, a Portfolio is required to deposit and maintain as collateral
such initial margin as required by the exchange on which the contract is
traded. Pursuant to the contract, a Portfolio agrees to receive from or pay
to the broker an amount equal to the daily fluctuations in the value of the
contract. Such receipts or payments are known as variation margins and are
recorded as unrealized gains or losses by the Portfolios. When the contract
is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
E. DISTRIBUTIONS TO SHAREHOLDERS. The Portfolios record distributions to their
shareholders on ex-date. Dividends from net investment income are declared
and paid quarterly by the Growth + Value Portfolio, Growth Opportunities
Portfolio, MidCap Opportunities Portfolio, SmallCap Opportunities
Portfolio, Research Enhanced Index Portfolio, MagnaCap Portfolio and the
International Value Portfolio; and declared daily and paid quarterly by the
High Yield Bond Portfolio. Each portfolio pays dividends and capital gains,
if any, annually.
F. FEDERAL INCOME TAXES. It is the policy of the Portfolios, to comply with
the requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute substantially all of their
net investment income and any net realized capital gains to their
shareholders. Therefore, a federal income tax or excise tax provision is
not required. The Board of Directors intends to offset any net capital
gains with any available capital loss carryforward until each carryforward
has been fully utilized or expires. In addition, no capital gain
distribution shall be made until the capital loss carryforward has been
fully utilized or expires.
G. USE OF ESTIMATES. Management of the Portfolios has made certain estimates
and assumptions relating to the reporting of assets, liabilities, income,
and expenses to prepare these financial statements in conformity with
accounting principles generally accepted in the United States of America.
Actual results could differ from these estimates.
H. REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements
only with government securities dealers recognized by the Board of
Governors of the Federal Reserve System or with member banks of the Federal
Reserve System. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The resale price is
in excess of the purchase price and reflects an agreed upon interest rate
for the period of time the agreement is outstanding. The period of the
repurchase agreements is usually short, from overnight to one week, while
the underlying securities generally have longer maturities. Each Portfolio
will always receive as collateral securities acceptable to it whose market
value is equal to at least 100% of the amount being invested by the
Portfolio. The underlying collateral is valued daily on a mark to market
basis to assure that the value, including accrued interest is at least
equal to the repurchase price. If the seller defaults, a Portfolio might
incur a loss or delay in the realization of proceeds if the value of the
collateral securing the repurchase agreement declines, and it might incur
disposition costs in liquidating the collateral.
I. SECURITIES LENDING. Under an agreement with Brown Brothers Harriman
("BBH"), the Portfolio can lend its securities to approved brokers, dealers
and other financial institutions. It has the
38
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
option to temporarily loan up to 33 1/3% of its total assets in exchange
for a negotiated lenders fee. The borrower is required to fully
collateralize the loans with cash, letters of credit or U.S. Government
securities. Loans are collateralized by cash, U.S. Government securities or
irrevocable performance letters of credit issued by banks approved by the
Portfolio. The collateral must be in an amount equal to at least 105% of
the market value of non-U.S. securities loaned and 102% of the market value
of U.S. securities loaned. The cash collateral received is reflected on the
Statement of Assets and Liabilities as Other Assets. The cash collateral
received as of December 31, 2002 is $1,428,715. The cash collateral
received is invested in Brown Brothers Investment Trust. BBH is investing
cash collateral, on behalf of the ING Funds participating in the BBH
Securities Lending Program, in the Securities Lending Investment Fund
("SLIF") which is a series of the Brown Brothers Investment Trust ("BBIT").
The BBIT is a Delaware business trust whose units are not offered for sale
to the public, and whose purchasers are qualified purchasers such as
registered investment companies ("RICs") in accordance with the provisions
of Section 3(C) of the Investment Company Act of 1940. The standard
investment guidelines are modeled after SEC Rule 2a-7. A portion of the
income generated by the investment of the collateral, net of any rebates
paid by BBH to borrowers, is remitted to BBH as lending agent and the
remainder is paid to the Portfolio. Generally, in the event of counterparty
default, the Portfolio has the right to use the collateral to offset losses
incurred. There would be a potential loss to the Portfolio in the event the
Portfolio is delayed or prevented from exercising its right to dispose of
the collateral. The Portfolio bears the risk of loss with respect to the
investment of collateral. At December 31, 2002, the International Value
Portfolio had securities on loan with a total market value of $1,366,209.
J. ILLIQUID AND RESTRICTED SECURITIES. Illiquid securities are not readily
marketable. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for
the Portfolio to sell them promptly at an acceptable price. Restricted
securities are those sold under Rule 144A of the Securities Act of 1933
(1933 Act) or are securities offered pursuant to Section 4(2) of the 1933
Act, and are subject to legal or contractual restrictions on resale and may
not be publicly sold without registration under the 1933 Act. Each
Portfolio may invest up to 15% of its net assets in illiquid securities.
Illiquid and restricted securities are valued using market quotations when
readily available. In the absence of market quotations, the securities are
valued based upon their fair value determined under procedures approved by
the Board. The Portfolio will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any.
K. DELAYED DELIVERY TRANSACTIONS. A Portfolio may purchase or sell securities
on a when-issued or forward commitment basis. The price of the underlying
securities and date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated. The market value of such
is identified in the Portfolios' Portfolio of Investments. Losses may arise
due to changes in the market value of the securities or from the inability
of counterparties to meet the terms of the contract. In connection with
such purchases, the Portfolios are required to hold liquid assets as
collateral with the Portfolios' custodian sufficient to cover the purchase
price.
NOTE 3 -- INVESTMENT TRANSACTIONS
For the year ended December 31, 2002, the cost of purchases and sales of
securities, excluding short-term and U.S. government securities, were as
follows:
PURCHASES SALES
------------ ------------
Growth + Value Portfolio $227,738,989 $237,773,148
Growth Opportunities Portfolio 61,168,918 52,394,758
MidCap Opportunities Portfolio 25,544,992 21,390,957
SmallCap Opportunities Portfolio 470,488,964 429,474,151
Research Enhanced Index Portfolio 17,602,260 25,119,954
MagnaCap Portfolio 19,203,738 5,728,364
International Value Portfolio 110,534,319 73,420,342
High Yield Bond Portfolio 6,937,735 7,364,684
39
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
U.S. Government Securities not included above were as follows:
PURCHASES SALES
---------- ----------
Growth + Value Portfolio $ -- $ --
Growth Opportunities Portfolio -- --
MidCap Opportunities Portfolio -- --
SmallCap Opportunities Portfolio -- --
Research Enhanced Index Portfolio 1,201,453 1,225,669
MagnaCap Portfolio -- --
International Value Portfolio -- --
High Yield Bond Portfolio -- --
NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
Each of the Portfolios has entered into an Investment Management Agreement with
ING Investments, LLC. ("the Manager", formerly ING Pilgrim Investments, LLC), a
wholly-owned subsidiary of ING Groep N.V. The investment management agreements
compensate the Manager with a fee, computed daily and payable monthly, based on
the average daily net assets of each Portfolio. The Manager receives an
investment advisory fee calculated at an annual rate of 0.75% of average daily
net assets from the Growth + Value Portfolio, Growth Opportunities Portfolio,
MidCap Opportunities Portfolio, SmallCap Opportunities Portfolio, Research
Enhanced Index Portfolio, MagnaCap Portfolio and High Yield Bond Portfolio. The
Manager receives an investment advisory fee calculated at an annual rate of
1.00% of average daily net assets from the International Value Portfolio.
The Manager has engaged Navellier Fund Management, Inc. ("Navellier"), a
registered investment adviser, to serve as subadviser to the Growth + Value
Portfolio.
The Manager has engaged Brandes Investment Partners, L.P. ("Brandes"), a
registered investment adviser, to serve as subadviser to the International Value
Portfolio.
The Manager has engaged Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of ING Groep N.V., to serve as subadviser to the Research
Enhanced Index Portfolio.
Pursuant to the Administrative Services Agreement ING Funds Services, LLC
("IFS", formerly ING Pilgrim Group, LLC) acts as administrator and provides
certain administrative and shareholder services necessary for Portfolios
operations and is responsible for the supervision of other service providers.
IFS is entitled to receive from each Portfolio a fee at an annual rate of 0.10%
of its average daily net assets.
NOTE 5 -- DISTRIBUTION AND SERVICE FEES
Class S shares of each Portfolio has adopted a Plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"), whereby ING Funds Distributor, LLC. (the
"Distributor") is reimbursed or compensated (depending on the class of shares)
by the Portfolios for expenses incurred in the distribution of each Portfolios'
shares ("Distribution Fees"). Pursuant to the 12b-1 Plan, the Distributor is
entitled to a payment each month for actual expenses incurred in the
distribution and promotion of each Portfolios' shares, including expenses
incurred in printing prospectuses and reports used for sales purposes, expenses
incurred in preparing and printing sales literature and other such distribution
related expenses, including any distribution or shareholder servicing fees
("Service Fees") paid to securities dealers who have executed a distribution
agreement with the Distributor. Under the 12b-1 Plan, each Portfolio pays the
Distributor a Distribution Fee of 0.25% of average daily net assets attributable
to its Class S shares.
40
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 6 -- OTHER TRANSACTIONS WITH AFFILIATED AND RELATED PARTIES
At December 31, 2002 the Portfolios had the following amounts recorded in
payable to affiliates on the accompanying Statements of Assets and Liabilities
(see Notes 4 and 5):
ACCRUED
ACCRUED SHAREHOLDER
INVESTMENT ACCRUED SERVICES AND
MANAGEMENT ADMINISTRATIVE DISTRIBUTION
FEES FEES FEES TOTAL
-------- -------- -------- --------
Growth + Value Portfolio $ 36,097 $ 4,813 $ -- $ 40,910
Growth Opportunities Portfolio 9,698 1,293 1,765 12,756
MidCap Opportunities Portfolio 4,635 618 420 5,673
SmallCap Opportunities Portfolio 63,811 9,155 5,502 78,468
Research Enhanced Index Portfolio 4,843 646 -- 5,489
MagnaCap Portfolio 11,290 1,505 2,166 14,961
International Value Portfolio 54,097 5,410 6 59,513
High Yield Bond Portfolio 6,156 821 -- 6,977
Each Portfolio has adopted a Retirement Policy covering all independent trustees
of the Portfolio who will have served as an independent trustee for at least
five years at the time of retirement. Benefits under this plan are based on an
annual rate as defined in the plan agreement, as amended May 24, 2002.
NOTE 7 -- EXPENSE LIMITATIONS
For all Portfolios, the Investment Manager has voluntarily agreed to limit
expenses, excluding interest, taxes, brokerage and extraordinary expenses.
For Class R shares, the Manager has voluntarily agreed to limit the expenses of
the Growth + Value Portfolio and High Yield Bond Portfolio to 0.80% of the
average daily net assets and to limit the expenses of the Growth Opportunities
Portfolio, MidCap Opportunities Portfolio, SmallCap Opportunities Portfolio,
Research Enhanced Index Portfolio and MagnaCap Portfolio to 0.90% and
International Value Portfolio to 1.00% of the average daily net assets.
For Class S shares, the Manager has voluntarily agreed to limit the expenses of
the Growth Opportunities Portfolio, MidCap Opportunities Portfolio, SmallCap
Opportunities Portfolio and MagnaCap Portfolio to 1.10% and International Value
Portfolio to 1.20% of the average daily net assets.
The Investment Manager will at a later date, recoup from each Portfolio,
expenses waived during the previous 36 months, but only if, after such
recoupment, the Portfolios expense ratio does not exceed the percentage
described above. Waived and reimbursed fees and any recoupment by the Investment
Manager of such waived and reimbursed fees are reflected on the accompanying
Statements of Operations for each Portfolio.
As of December 31, 2002, the cumulative amounts of reimbursed fees that are
subject to possible recoupment by the Manager are as follows:
Growth + Value Portfolio $847,476
Growth Opportunities Portfolio 171,363
MidCap Opportunities Portfolio 123,207
SmallCap Opportunities Portfolio 757,923
Research Enhanced Index Portfolio 306,109
MagnaCap Portfolio 99,626
International Value Portfolio 551,627
High Yield Bond Portfolio 164,526
NOTE 8 -- LINE OF CREDIT
All of the Portfolios included in this report, in addition to certain other
funds managed by the Adviser, have entered into an unsecured committed revolving
line of credit agreement (the "Credit Agreement") with State Street Bank and
Trust Company for an aggregate amount of $125,000,000. The proceeds may be used
only to: (1) temporarily finance the purchase and sale of securities; (2)
finance the redemption of shares of an investor in the Portfolios; and (3)
enable the Portfolios to meet other emergency expenses as defined in the Credit
agreement. The Portfolios to which the line of credit is available pay a
commitment fee equal to 0.10% per annum on the daily unused portion of the
committed line amount payable quarterly in arrears. At December 31, 2002 the
Portfolios did not have any loans outstanding.
41
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares and dollars were as follows:
CLASS R
----------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
GROWTH + VALUE PORTFOLIO
(NUMBER OF SHARES)
Shares sold 1,229,421 2,552,220
Shares issued as reinvestment of dividends -- 21,158
Shares redeemed (2,041,652) (2,043,527)
------------ ------------
Net increase (decrease) in shares outstanding (812,231) 529,851
============ ============
GROWTH + VALUE PORTFOLIO ($)
Shares sold $ 16,499,812 $ 43,823,461
Shares issued as reinvestment of dividends -- 296,420
Shares redeemed (26,629,292) (34,110,493)
------------ ------------
Net increase (decrease) $(10,129,480) $ 10,009,388
============ ============
CLASS R CLASS S
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
GROWTH OPPORTUNITIES PORTFOLIO
(NUMBER OF SHARES)
Shares sold 977,706 993,011 2,263,413 1,265,321
Shares redeemed (972,913) (404,985) (568,100) (285,001)
------------ ------------ ------------ ------------
Net increase in shares outstanding 4,793 588,026 1,695,313 980,320
============ ============ ============ ============
GROWTH OPPORTUNITIES PORTFOLIO ($)
Shares sold $ 4,398,150 $ 6,419,382 $ 10,284,599 $ 7,292,430
Shares redeemed (4,345,599) (2,709,308) (2,456,117) (1,719,036)
------------ ------------ ------------ ------------
Net increase $ 52,551 $ 3,710,074 $ 7,828,482 $ 5,573,394
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 3, 2001.
CLASS R CLASS S
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
MIDCAP OPPORTUNITIES PORTFOLIO
(NUMBER OF SHARES)
Shares sold 1,222,684 561,336 543,064 311,365
Shares issued as reinvestment of dividends -- 59 -- --
Shares redeemed (777,906) (185,530) (105,581) (168,202)
------------ ------------ ------------ ------------
Net increase in shares outstanding 444,778 375,865 437,483 143,163
============ ============ ============ ============
MIDCAP OPPORTUNITIES PORTFOLIO ($)
Shares sold $ 6,387,138 $ 3,711,327 $ 2,814,594 $ 1,862,736
Shares issued as reinvestment of dividends -- 381 -- --
Shares redeemed (4,046,935) (1,218,251) (523,517) (997,145)
------------ ------------ ------------ ------------
Net increase $ 2,340,203 $ 2,493,457 $ 2,291,077 $ 865,591
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 7, 2001.
42
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARE TRANSACTIONS (CONTINUED)
CLASS R CLASS S
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
SMALLCAP OPPORTUNITIES PORTFOLIO
(NUMBER OF SHARES)
Shares sold 2,706,339 2,451,404 2,373,133 1,149,053
Shares issued as reinvestment of dividends -- 15,338 -- 1,017
Shares redeemed (2,091,191) (1,916,552) (199,602) (315,388)
------------ ------------ ------------ ------------
Net increase in shares outstanding 615,148 550,190 2,173,531 834,682
============ ============ ============ ============
SMALLCAP OPPORTUNITIES PORTFOLIO ($)
Shares sold $ 38,988,490 $ 49,377,479 $ 33,156,089 $ 22,544,118
Shares issued as reinvestment of dividends -- 248,319 -- 16,454
Shares redeemed (28,480,974) (38,757,211) (2,547,641) (6,103,084)
------------ ------------ ------------ ------------
Net increase $ 10,507,516 $ 10,868,587 $ 30,608,448 $ 16,457,488
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 3, 2001.
CLASS R
----------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
------------ ------------
RESEARCH ENHANCED INDEX PORTFOLIO
(NUMBER OF SHARES)
Shares sold 640,958 694,444
Shares issued as reinvestment of dividends 40,334 27,866
Shares redeemed (2,752,910) (1,697,251)
------------ ------------
Net decrease in shares outstanding (2,071,618) (974,941)
============ ============
RESEARCH ENHANCED INDEX PORTFOLIO ($)
Shares sold $ 2,290,223 $ 2,736,105
Shares issued as reinvestment of dividends 124,792 105,915
Shares redeemed (9,591,806) (6,690,271)
------------ ------------
Net decrease $ (7,176,791) $ (3,848,251)
============ ============
CLASS R CLASS S
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER, 31 DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
MAGNACAP PORTFOLIO
(NUMBER OF SHARES)
Shares sold 638,924 206,930 1,710,812 667,086
Shares issued as reinvestment of dividends 5,974 2,776 14,128 2,964
Shares redeemed (188,337) (62,576) (501,591) (17,862)
------------ ------------ ------------ ------------
Net increase in shares outstanding 456,561 147,130 1,223,349 652,188
============ ============ ============ ============
MAGNACAP PORTFOLIO ($)
Shares sold $ 5,037,591 $ 1,906,554 $ 13,711,447 $ 5,976,203
Shares issued as reinvestment of dividends 43,315 24,179 103,242 25,422
Shares redeemed (1,521,013) (553,215) (4,027,963) (160,557)
------------ ------------ ------------ ------------
Net increase $ 3,559,893 $ 1,377,518 $ 9,786,726 $ 5,841,068
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 7, 2001.
43
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARE TRANSACTIONS (CONTINUED)
CLASS R CLASS S
------------------------------ -------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002(1)
------------- ------------- -------------
INTERNATIONAL VALUE PORTFOLIO
(NUMBER OF SHARES)
Shares sold 19,907,274 7,134,980 4,895
Shares issued as reinvestment of dividends 47,712 135,154 27
Shares redeemed (15,740,348) (6,234,793) (105)
------------- ------------- -------------
Net increase in shares outstanding 4,214,638 1,035,341 4,817
============= ============= =============
INTERNATIONAL VALUE PORTFOLIO ($)
Shares sold $ 187,936,843 $ 76,172,846 $ 52,607
Shares issued as reinvestment of dividends 465,325 1,401,233 260
Shares redeemed (148,859,082) (66,738,442) (914)
------------- ------------- -------------
Net increase $ 39,543,086 $ 10,835,637 $ 51,953
============= ============= =============
- ----------
(1) Class S commenced offering shares on March 19, 2002.
CLASS R
------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
------------- -------------
HIGH YIELD BOND PORTFOLIO
(NUMBER OF SHARES)
Shares sold 1,819,421 4,032,831
Shares issued as reinvestment of dividends 397,211 261,724
Shares redeemed (2,085,589) (4,065,660)
------------- -------------
Net increase in shares outstanding 131,043 228,895
============= =============
HIGH YIELD BOND PORTFOLIO ($)
Shares sold $ 5,355,390 $ 13,771,454
Shares issued as reinvestment of dividends 1,180,409 854,920
Shares redeemed (6,160,592) (13,881,222)
------------- -------------
Net increase $ 375,207 $ 745,152
============= =============
NOTE 10 -- CREDIT RISK AND DEFAULTED SECURITIES
Although the Portfolios each have a diversified portfolio, the High Yield Bond
Portfolio had 16% of its portfolio invested in lower rated and comparable
quality unrated high yield securities at December 31, 2002. Investments in
higher yielding securities are accompanied by a greater degree of credit risk
and such lower rated securities tend to be more sensitive to economic conditions
than higher rated securities. The risk of loss due to default by the issuer may
be significantly greater for the holders of high yielding securities, because
such securities are generally unsecured and are often subordinated to other
creditors of the issuer. At December 31, 2002, the High Yield Bond Portfolio
held two securities in default, SA Telecommunications, Inc. and Adelphia
Communications. It is each Portfolio's accounting practice to discontinue
accrual of income and provide an estimate for probable losses due to unpaid
interest income on defaulted securities for the current reporting period.
NOTE 11 -- FEDERAL INCOME TAXES
During the year ended December 31, 2002, the foreign taxes paid were $845 and
$104,257 by Research Enhanced Index Portfolio and International Value Portfolio,
respectively.
Foreign taxes paid or withheld should be included in taxable income with an
offsetting deduction from gross income or as a credit for taxes paid to foreign
governments. You should consult your tax advisor regarding the appropriate
treatment of foreign taxes paid.
44
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Dividends paid by the Portfolios from net investment income and distributions of
net realized short-term capital gains are, for federal income tax purposes,
taxable as ordinary income to shareholders. The tax composition of dividends and
distributions to shareholders for year ended December 31, 2002 were as follow:
ORDINARY LONG-TERM TAX RETURN
INCOME CAPITAL GAINS OF CAPITAL
-------- ------------- ----------
Growth + Value Portfolio $ -- $ -- $ --
Growth Opportunities Portfolio -- -- --
MidCap Opportunities Portfolio -- -- --
SmallCap Opportunities Portfolio -- -- --
Research Enhanced Index Portfolio 124,792 -- --
MagnaCap Portfolio 146,557 -- --
International Value Portfolio 465,514 -- --
High Yield Bond Portfolio 968,220 -- --
The amount of distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains, foreign currency
transactions, organization costs and other temporary differences. To the extent
that these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassifications. To the extent
distributions exceed net investment income and/or net realized capital gains for
tax purposes, they are reported as distributions of paid-in capital.
Accordingly, the following amounts represent current year permanent tax
differences that have been reclassified as of December 31, 2002:
ACCUMULATED NET
PAID-IN UNDISTRIBUTED NET REALIZED GAINS
CAPITAL INVESTMENT INCOME (LOSS) ON INVESTMENTS
--------- ------------------------ --------------
Growth + Value Portfolio $(131,948) $ 131,493 $ 455
Growth Opportunities Portfolio (86,543) 86,543 --
MidCap Opportunities Portfolio (29,157) 29,157 --
SmallCap Opportunities Portfolio (865,262) 865,262 --
Research Enhanced Index Portfolio (48,023) 47,815 208
MagnaCap Portfolio (1,439) 1,439 --
International Value Portfolio (105,111) 54,875 50,236
High Yield Bond Portfolio -- (6) 6
Capital loss carryforwards, which may be used to offset future realized capital
gains for federal income tax purposes were as follows at December 31, 2002:
EXPIRATION
AMOUNT DATES
----------- ---------
Growth + Value Portfolio $89,583,559 2009-2011
Growth Opportunities Portfolio 9,235,672 2009-2010
MidCap Opportunities Portfolio 2,768,100 2009-2010
SmallCap Opportunities Portfolio 89,425,663 2009-2011
Research Enhanced Index Portfolio 6,877,647 2006-2011
MagnaCap Portfolio 896,162 2009-2010
International Value Portfolio 7,693,903 2009-2011
High Yield Bond Portfolio 7,370,107 2006-2010
45
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
The following represents the tax-basis components of distributable earnings as
of December 31, 2002:
UNDISTRIBUTED CAPITAL
UNDISTRIBUTED LONG-TERM UNREALIZED LOSS
ORDINARY INCOME CAPITAL GAINS APPRECIATION/DEPRECIATION CARRYFORWARDS
--------------- ------------- ------------------------- -------------
Growth + Value Portfolio $ -- $ -- $ 699,981 $(89,583,559)
Growth Opportunities Portfolio -- -- (173,409) (9,235,672)
MidCap Opportunities Portfolio -- -- (94,519) (2,768,100)
SmallCap Opportunities Portfolio -- -- 1,623,624 (89,425,663)
Research Enhanced Index Portfolio -- -- (1,702,488) (6,877,647)
MagnaCap Portfolio -- -- (3,075,990) (896,162)
International Value Portfolio 2,566 -- (3,329,945) (7,693,903)
High Yield Bond Portfolio 36,348 -- (667,390) (7,370,107)
46
ING VP
Growth + Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 86.46%
APPAREL: 4.32%
30,300 @ Coach, Inc. $ 997,476
30,400 @ Columbia Sportswear Co. 1,350,368
-----------
2,347,844
-----------
BANKS: 2.54%
32,500 UCBH Holdings, Inc. 1,379,625
-----------
1,379,625
-----------
COMMERCIAL SERVICES: 5.78%
21,200 @ Apollo Group, Inc. 932,800
22,500 @ Corinthian Colleges, Inc. 851,850
33,700 @ FTI Consulting, Inc. 1,353,055
-----------
3,137,705
-----------
COMPUTERS: 9.48%
25,400 @ Cognizant Technology Solutions Corp. 1,834,642
17,800 @ Imation Corp. 624,424
50,300 @ Intergraph Corp. 893,328
120,300 @ Neoware Systems, Inc. 1,793,673
-----------
5,146,067
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 2.21%
43,000 @ Energizer Holdings, Inc. 1,199,700
-----------
1,199,700
-----------
ELECTRONICS: 2.10%
38,300 @ Dionex Corp. 1,137,893
-----------
1,137,893
-----------
HEALTHCARE-PRODUCTS: 1.51%
33,900 @ Steris Corp. 822,075
-----------
822,075
-----------
HOME FURNISHINGS: 3.45%
31,500 Harman Intl. Industries, Inc. 1,874,250
-----------
1,874,250
-----------
HOUSEHOLD PRODUCTS/WARES: 1.35%
33,200 Wallace Computer Services, Inc. 733,491
-----------
733,491
-----------
INTERNET: 12.09%
78,500 @ Amazon.Com, Inc. 1,482,865
64,800 @ eSpeed, Inc. 1,097,777
41,300 @ j2 Global Communications, Inc. 786,352
28,700 @ Symantec Corp. 1,162,637
127,600 @ United Online, Inc. 2,034,071
-----------
6,563,702
-----------
LEISURE TIME: 4.75%
22,400 @ Hotels.com 1,223,712
39,300 Thor Industries, Inc. 1,353,099
-----------
2,576,811
-----------
MACHINERY-DIVERSIFIED: 1.72%
16,300 @ Zebra Technologies Corp. 933,990
-----------
933,990
-----------
MEDIA: 5.55%
89,900 Belo Corp. 1,916,668
26,700 Meredith Corp. 1,097,637
-----------
3,014,305
-----------
METAL FABRICATE/HARDWARE: 2.64%
94,000 Worthington Industries 1,432,560
-----------
1,432,560
-----------
OIL & GAS: 6.30%
25,700 @ Patterson-UTI Energy, Inc. 775,369
42,900 Pogo Producing Co. 1,598,025
42,400 XTO Energy, Inc. 1,047,280
-----------
3,420,674
-----------
PHARMACEUTICALS: 1.06%
36,100 @ Medicines Co. 578,322
-----------
578,322
-----------
REITS: 1.03%
29,800 Annaly Mortgage
Management, Inc. 560,240
-----------
560,240
-----------
RETAIL: 2.56%
81,100 @ Petsmart, Inc. 1,389,243
-----------
1,389,243
-----------
SEMICONDUCTORS: 2.68%
79,800 @ Integrated Circuit Systems, Inc. 1,456,350
-----------
1,456,350
-----------
SOFTWARE: 11.69%
49,500 @ IDX Systems Corp. 842,985
36,900 @ Intuit, Inc. 1,731,348
117,800 @ Pinnacle Systems, Inc. 1,603,258
26,200 @ Pixar, Inc. 1,388,338
33,300 @ Take-Two Interactive Softwar 782,217
-----------
6,348,146
-----------
TELECOMMUNICATIONS: 1.65%
61,400 @ Interdigital Communications Corp. 893,984
-----------
893,984
-----------
Total Common Stock (Cost $46,246,996) 46,946,977
-----------
See Accompanying Notes to Financial Statements
47
ING VP
Growth + Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 11.18%
REPURCHASE AGREEMENT: 11.18%
$6,069,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $6,069,270 to be received
upon repurchase (Collateralized by $3,960,000
U.S. Treasury Bonds, 9.875% Market Value
$6,192,450 due 11/15/15) $ 6,069,000
-----------
Total Short-Term Investments
(Cost $6,069,000) 6,069,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $52,315,996)* 97.64% $53,015,977
OTHER ASSETS AND LIABILITIES-NET 2.36% 1,279,083
------ -----------
NET ASSETS 100.00% $54,295,060
====== ===========
@ Non-income producing security
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 2,843,521
Gross Unrealized Depreciation (2,143,540)
-----------
Net Unrealized Appreciation $ 699,981
===========
See Accompanying Notes to Financial Statements
48
ING VP
Growth
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 95.63%
AIRLINES: 1.71%
6,500 @,@@ Ryanair Holdings PLC ADR $ 254,540
-----------
254,540
-----------
APPAREL: 4.25%
9,900 @ Coach, Inc. 325,908
12,300 @ Gymboree Corp. 195,078
5,100 @ Polo Ralph Lauren Corp. 110,976
-----------
631,962
-----------
BIOTECHNOLOGY: 2.63%
12,500 @ Exact Sciences Corp. 135,375
5,900 @ Genzyme Corp.-Genl Division 174,463
7,000 @ Telik, Inc. 81,620
-----------
391,458
-----------
CHEMICALS: 0.89%
2,800 @ Cabot Microelectronics Corp. 132,160
-----------
132,160
-----------
COMMERCIAL SERVICES: 2.13%
6,400 @ University of Phoenix Online 229,376
1,900 @ Weight Watchers Intl., Inc. 87,343
-----------
316,719
-----------
COMPUTERS: 6.92%
1,400 @ Affiliated Computer Services, Inc. 73,710
1,200 @ Cognizant Technology Solutions Corp. 86,676
3,900 Electronic Data Systems Corp. 71,877
9,200 Hewlett-Packard Co. 159,712
3,300 @ Imation Corp. 115,764
2,100 International Business Machines Corp. 162,750
2,500 @ Lexmark Intl., Inc. 151,250
7,400 @ NetScreen Technologies, Inc. 124,616
8,300 @ Network Appliance, Inc. 83,000
-----------
1,029,355
-----------
DIVERSIFIED FINANCIAL SERVICES: 0.96%
2,100 Goldman Sachs Group, Inc. 143,010
-----------
143,010
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 0.75%
3,800 @ Wilson Greatbatch Technologies, Inc. 110,960
-----------
110,960
-----------
ELECTRONICS: 2.99%
4,300 @ Cymer, Inc. 138,675
3,500 Parker Hannifin Corp. 161,455
17,600 Symbol Technologies, Inc. 144,672
-----------
444,802
-----------
ENTERTAINMENT: 1.84%
3,600 @ International Game Technology 273,312
-----------
273,312
-----------
FOOD: 0.78%
2,200 @ Whole Foods Market, Inc. 116,006
-----------
116,006
-----------
HEALTHCARE-PRODUCTS: 3.31%
7,800 @ Boston Scientific Corp. 331,656
2,800 @ St. Jude Medical, Inc. 111,216
1,200 @ Zimmer Holdings, Inc. 49,824
-----------
492,696
-----------
HEALTHCARE-SERVICES: 2.96%
8,100 @ Covance, Inc. 199,179
3,200 @ Coventry Health Care, Inc. 92,896
3,700 @ Pediatrix Medical Group, Inc. 148,222
-----------
440,297
-----------
INSURANCE: 0.99%
1,600 @@ RenaissanceRe Holdings Ltd. 63,360
2,100 WR Berkley Corp. 83,181
-----------
146,541
-----------
INTERNET: 3.75%
2,400 @ eBay, Inc. 162,768
500 @ Expedia, Inc. 33,465
2,800 @ Symantec Corp. 113,428
5,600 @ United Online, Inc. 89,270
9,700 @ Yahoo, Inc. 158,595
-----------
557,526
-----------
LEISURE TIME: 0.92%
2,500 @ Hotels.com 136,575
-----------
136,575
-----------
MACHINERY-DIVERSIFIED: 0.46%
1,200 @ Zebra Technologies Corp. 68,760
-----------
68,760
-----------
MEDIA: 4.03%
9,800 @ AOL Time Warner, Inc. 128,380
10,400 @ Cablevision Systems Corp. 174,096
5,300 @ COX Communications, Inc. 150,520
3,900 @ Westwood One, Inc. 145,704
-----------
598,700
-----------
MINING: 0.80%
4,100 Newmont Mining Corp. 119,023
-----------
119,023
-----------
MISCELLANEOUS MANUFACTURING: 2.31%
900 3M Co. 110,970
13,600 @@ Tyco Intl. Ltd. 232,288
-----------
343,258
-----------
OIL & GAS: 5.77%
3,200 @,@@ Nabors Industries Ltd. 112,864
4,400 @,@@ Precision Drilling Corp. 143,176
5,200 @ Pride Intl., Inc. 77,480
8,100 Valero Energy Corp. 299,214
9,100 XTO Energy, Inc. 224,770
-----------
857,504
-----------
See Accompanying Notes to Financial Statements
49
ING VP
Growth
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
OIL & GAS SERVICES: 2.80%
3,000 @ Cooper Cameron Corp. $ 149,460
6,200 Halliburton Co. 116,002
4,600 @ Smith Intl., Inc. 150,052
-----------
415,514
-----------
PHARMACEUTICALS: 10.58%
8,700 @ Amylin Pharmaceuticals, Inc. 140,418
5,200 @,@@ Biovail Corp. 137,332
1,300 @ Cephalon, Inc. 63,268
2,500 Eli Lilly & Co. 158,750
1,200 @ Forest Laboratories, Inc. 117,864
3,200 @ Gilead Sciences, Inc. 108,800
4,300 @ Medimmune, Inc. 116,831
3,300 @ Neurocrine Biosciences, Inc. 150,678
2,800 @ NPS Pharmaceuticals, Inc. 70,476
5,900 @ Scios, Inc. 192,222
3,200 @,@@ Taro Pharmaceuticals Industries 120,320
6,900 @ Watson Pharmaceuticals, Inc. 195,063
-----------
1,572,022
-----------
RETAIL: 9.65%
7,800 @ Chico's FAS, Inc. 147,498
18,600 Gap, Inc. 288,672
3,700 @ Linens 'N Things, Inc. 83,620
3,900 Nordstrom, Inc. 73,983
9,900 @ Pacific Sunwear of California 175,131
6,500 @ Petsmart, Inc. 111,345
17,400 @ Staples, Inc. 318,420
6,200 TJX Cos., Inc. 121,024
4,200 @ Williams-Sonoma, Inc. 114,030
-----------
1,433,723
-----------
SEMICONDUCTORS: 7.17%
25,100 @ Altera Corp. 309,734
4,100 @ Cree, Inc. 67,035
3,200 @ Lam Research Corp. 34,560
5,300 Linear Technology Corp. 136,316
4,900 @,@@ Marvell Technology Group Ltd. 92,414
25,100 @ Skyworks Solutions, Inc. 216,362
16,100 @ Teradyne, Inc. 209,461
-----------
1,065,882
-----------
SOFTWARE: 6.76%
11,900 @ Borland Software Corp. 146,370
5,800 @ Hyperion Solutions Corp. 148,886
2,700 @ Intuit, Inc. 126,684
5,900 @ Mercury Interactive Corp. 174,935
9,600 @ Peoplesoft, Inc. 175,680
7,300 @ Pinnacle Systems, Inc. 99,353
2,500 @ Pixar, Inc. 132,475
-----------
1,004,383
-----------
TELECOMMUNICATIONS: 4.51%
19,700 @ AT&T Wireless Services, Inc. 111,305
12,200 @ CIENA Corp. 62,708
3,300 @ EchoStar Communications Corp. 73,458
24,000 @ Nextel Communications, Inc. 277,200
1,700 @ Utstarcom, Inc. 33,711
2,900 Verizon Communications, Inc. 112,375
-----------
670,757
-----------
TOYS/GAMES/HOBBIES: 0.93%
5,500 @ Leapfrog Enterprises, Inc. 138,325
-----------
138,325
-----------
TRANSPORTATION: 2.08%
3,800 @ Arkansas Best Corp. 98,728
1,900 Roadway Corp. 69,939
5,600 @ Yellow Corp. 141,070
-----------
309,737
-----------
Total Common Stock (Cost $14,114,285) 14,215,507
-----------
MUTUAL FUNDS: 0.86%
EQUITY FUND: 0.86%
5,800 Semiconductor HOLDRs Trust 128,470
-----------
Total Mutual Funds (Cost $163,884) 128,470
-----------
Total Long-Term Investments (Cost $14,278,169) 14,343,977
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 3.86%
REPURCHASE AGREEMENT: 3.86%
$ 574,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $574,026 to be received
upon repurchase (Collateralized by $530,000
U.S. Treasury Notes, 4.875% Market Value
$586,313 due 02/15/12) $ 574,000
-----------
Total Short-Term Investments (Cost $574,000) 574,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $14,852,169)* 100.35% $14,917,977
OTHER ASSETS AND LIABILITIES-NET -0.35% (52,406)
------ -----------
NET ASSETS 100.00% $14,865,571
====== ===========
@ Non-income producing security
@@ Foreign Issuer
ADR American Depository Receipt
* Cost for federal income tax purposes is $15,091,386. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 546,734
Gross Unrealized Depreciation (720,143)
-----------
Net Unrealized Depreciation $ (173,409)
===========
See Accompanying Notes to Financial Statements
50
ING VP
MidCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 93.31%
AEROSPACE/DEFENSE: 1.00%
750 Northrop Grumman Corp. $ 72,750
-----------
72,750
-----------
AIRLINES: 3.75%
9,900 Delta Air Lines, Inc. 119,790
3,900 @,@@ Ryanair Holdings PLC ADR 152,724
-----------
272,514
-----------
APPAREL: 6.03%
6,000 @ Coach, Inc. 197,520
1,200 @ Columbia Sportswear Co. 53,304
2,600 Liz Claiborne, Inc. 77,090
5,100 @ Polo Ralph Lauren Corp. 110,976
-----------
438,890
-----------
BIOTECHNOLOGY: 1.34%
3,300 @ Genzyme Corp.-Genl Division 97,581
-----------
97,581
-----------
CHEMICALS: 0.91%
1,400 @ Cabot Microelectronics Corp. 66,080
-----------
66,080
-----------
COMMERCIAL SERVICES: 3.50%
6,200 @ University of Phoenix Online 222,208
700 @ Weight Watchers Intl., Inc. 32,179
-----------
254,387
-----------
COMPUTERS: 2.93%
700 @ Affiliated Computer Services, Inc. 36,855
1,100 @ Lexmark Intl., Inc. 66,550
11,000 @ Network Appliance, Inc. 110,000
-----------
213,405
-----------
ELECTRONICS: 3.68%
3,600 Parker Hannifin Corp. 166,068
12,400 Symbol Technologies, Inc. 101,928
-----------
267,996
-----------
ENTERTAINMENT: 2.50%
2,400 @ International Game Technology 182,208
-----------
182,208
-----------
ENVIRONMENTAL CONTROL: 1.83%
13,300 @ Allied Waste Industries, Inc. 133,000
-----------
133,000
-----------
FOOD: 1.30%
1,800 @ Whole Foods Market, Inc. 94,914
-----------
94,914
-----------
HEALTHCARE-SERVICES: 0.44%
1,100 @ Coventry Health Care, Inc. 31,933
-----------
31,933
-----------
INSURANCE: 3.40%
1,000 @@ RenaissanceRe Holdings Ltd. 39,600
1,200 Safeco Corp. 41,604
4,200 WR Berkley Corp. 166,362
-----------
247,566
-----------
INTERNET: 4.01%
300 @ Expedia, Inc. 20,079
3,400 @ Symantec Corp. 137,734
8,200 @ Yahoo, Inc. 134,070
-----------
291,883
-----------
LEISURE TIME: 1.20%
1,600 @ Hotels.com 87,408
-----------
87,408
-----------
MACHINERY-DIVERSIFIED: 0.94%
1,200 @ Zebra Technologies Corp. 68,760
-----------
68,760
-----------
MEDIA: 5.95%
9,100 @ Cablevision Systems Corp. 152,334
1,550 Scripps Co. (E.W.) 119,272
4,000 @ Univision Communications, Inc. 98,000
1,700 @ Westwood One, Inc. 63,512
-----------
433,118
-----------
OIL & GAS: 4.33%
1,500 @,@@ Nabors Industries Ltd. 52,905
2,700 @ Pride Intl., Inc. 40,230
4,000 Valero Energy Corp. 147,760
3,000 XTO Energy, Inc. 74,100
-----------
314,995
-----------
OIL & GAS SERVICES: 3.49%
1,500 @ Cooper Cameron Corp. 74,730
3,300 Halliburton Co. 61,743
3,600 @ Smith Intl., Inc. 117,432
-----------
253,905
-----------
PACKAGING & CONTAINERS: 0.97%
4,600 @ Smurfit-Stone Container Corp. 70,799
-----------
70,799
-----------
PHARMACEUTICALS: 11.29%
2,700 @,@@ Biovail Corp. 71,307
5,000 @ Celgene Corp. 107,350
2,200 @ Cephalon, Inc. 107,070
4,200 @ Gilead Sciences, Inc. 142,800
2,000 @ Medimmune, Inc. 54,340
4,600 @@ Teva Pharmaceutical Industries ADR 177,606
5,700 @ Watson Pharmaceuticals, Inc. 161,139
-----------
821,612
-----------
See Accompanying Notes to Financial Statements
51
ING VP
MidCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
RETAIL: 7.02%
5,800 @ Chico's FAS, Inc. $ 109,678
2,100 Nordstrom, Inc. 39,837
5,300 Pier 1 Imports, Inc. 100,329
4,300 @ Saks, Inc. 50,482
8,700 @ Staples, Inc. 159,210
1,900 @ Williams-Sonoma, Inc. 51,585
-----------
511,121
-----------
SEMICONDUCTORS: 7.66%
13,800 @ Altera Corp. 170,292
1,500 @ Lam Research Corp. 16,200
17,300 @ LSI Logic Corp. 99,821
5,400 @,@@ Marvell Technology Group Ltd. 101,844
13,000 @ Teradyne, Inc. 169,130
-----------
557,287
-----------
SOFTWARE: 5.85%
3,600 @ BMC Software, Inc. 61,596
1,400 @ Intuit, Inc. 65,688
2,900 @ Mercury Interactive Corp. 85,985
3,200 @ Peoplesoft, Inc. 58,560
2,900 @ Pixar, Inc. 153,671
-----------
425,500
-----------
TELECOMMUNICATIONS: 5.74%
6,500 @ CIENA Corp. 33,410
7,200 @ Comverse Technology, Inc. 72,144
3,200 @ EchoStar Communications Corp. 71,232
11,600 @ Nextel Communications, Inc. 133,980
5,400 @ Utstarcom, Inc. 107,082
-----------
417,848
-----------
TRANSPORTATION: 2.25%
1,500 @ SCS Transportation, Inc. 14,865
5,900 @ Yellow Corp. 148,627
-----------
163,492
-----------
Total Common Stock (Cost $6,769,206) 6,790,952
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 5.98%
REPURCHASE AGREEMENT: 5.98%
$ 435,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $435,019 to be received
upon repurchase (Collateralized by $405,000
U.S. Treasury Notes, 4.875% Market Value
$448,031 due 02/15/12) $ 435,000
-----------
Total Short-Term Investments (Cost $435,000) 435,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $7,204,206)* 99.29% $ 7,225,952
OTHER ASSETS AND LIABILITIES-NET 0.71% 51,542
------ -----------
NET ASSETS 100.00% $ 7,277,494
====== ===========
@ Non-income producing security
@@ Foreign Issuer
ADR American Depository Receipt
* Cost for federal income tax purposes is $7,320,471. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 188,265
Gross Unrealized Depreciation (282,784)
-----------
Net Unrealized Depreciation $ (94,519)
===========
See Accompanying Notes to Financial Statements
52
ING VP
SmallCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 93.49%
ADVERTISING: 1.37%
43,300 @ Getty Images, Inc. $ 1,322,815
-----------
1,322,815
-----------
AEROSPACE/DEFENSE: 1.02%
27,000 Engineered Support Systems, Inc. 989,820
-----------
989,820
-----------
APPAREL: 4.22%
32,400 @ Columbia Sportswear Co. 1,439,208
101,700 @ Gymboree Corp. 1,612,962
38,600 @ Quiksilver, Inc. 1,029,076
-----------
4,081,246
-----------
BIOTECHNOLOGY: 1.92%
18,600 @ Affymetrix, Inc. 425,754
38,400 @ ICOS Corp. 898,944
45,600 @ Telik, Inc. 531,696
-----------
1,856,394
-----------
COMPUTERS: 8.62%
23,000 @ Cognizant Technology Solutions Corp. 1,661,290
44,200 @ Hutchinson Technology, Inc. 914,940
38,600 @ Imation Corp. 1,354,088
29,400 @ Kronos, Inc. 1,087,506
55,300 @ Manhattan Associates, Inc. 1,308,398
78,000 @ NetScreen Technologies, Inc. 1,313,520
23,100 @ Pec Solutions, Inc. 690,690
-----------
8,330,432
-----------
DIVERSIFIED FINANCIAL SERVICES: 2.17%
11,500 Chicago Mercantile Exchange 502,090
73,800 @ Portfolio Recovery Associates, Inc. 1,346,924
37,900 @ Providian Financial Corp. 245,971
-----------
2,094,985
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 0.82%
27,200 @ Wilson Greatbatch
Technologies, Inc. 794,240
-----------
794,240
-----------
ELECTRONICS: 2.63%
49,100 @ Cymer, Inc. 1,583,475
116,600 Symbol Technologies, Inc. 958,452
-----------
2,541,927
-----------
ENTERTAINMENT: 2.88%
92,700 @ Alliance Gaming Corp. 1,578,681
74,900 @ Macrovision Corp. 1,201,396
-----------
2,780,077
-----------
ENVIRONMENTAL CONTROL: 0.82%
20,600 @ Waste Connections, Inc. 795,366
-----------
795,366
-----------
HEALTHCARE-PRODUCTS: 3.06%
10,900 Advanced Neuromodulation
Systems, Inc. 382,590
86,800 @ Cepheid, Inc. 442,506
27,600 Cooper Cos., Inc. 690,552
5,000 @ Cyberonics 92,000
57,100 @ Immucor, Inc. 1,156,275
27,500 @ Novoste Corp. 198,550
-----------
2,962,473
-----------
HEALTHCARE-SERVICES: 5.45%
29,900 @ Centene Corp. 1,004,341
50,500 @ Covance, Inc. 1,241,795
21,100 @ Coventry Health Care, Inc. 612,533
16,200 @ Pacificare Health Systems 455,220
24,500 @ Pediatrix Medical Group, Inc. 981,470
60,800 @ VistaCare, Inc. 973,408
-----------
5,268,767
-----------
INSURANCE: 1.01%
37,100 @,@@ Platinum Underwriters
Holdings Ltd. 977,585
-----------
977,585
-----------
INTERNET: 4.92%
45,800 @ Checkfree Corp. 732,846
92,900 @ Digital River, Inc. 1,110,155
90,100 @ Macromedia, Inc. 959,565
59,000 @ United Online, Inc. 940,519
47,300 @ Websense, Inc. 1,010,375
-----------
4,753,460
-----------
MACHINERY-DIVERSIFIED: 1.10%
18,600 @ Zebra Technologies Corp. 1,065,780
-----------
1,065,780
-----------
MEDIA: 0.16%
10,200 @ Cumulus Media, Inc. 151,674
-----------
151,674
-----------
MINING: 1.16%
98,500 @@ Glamis Gold Ltd. 1,116,990
-----------
1,116,990
-----------
OIL & GAS: 3.21%
11,400 @ Evergreen Resources, Inc. 511,290
23,400 Patina Oil & Gas Corp. 740,610
33,700 @,@@ Precision Drilling Corp. 1,096,598
34,000 @ Premcor, Inc. 755,820
-----------
3,104,318
-----------
OIL & GAS SERVICES: 1.48%
20,400 @ Hydril Co. 480,828
31,000 @ National-Oilwell, Inc. 677,040
15,700 @ Varco Intl., Inc. 273,180
-----------
1,431,048
-----------
PHARMACEUTICALS: 11.83%
32,500 @ Accredo Health, Inc. 1,145,625
82,900 @ Amylin Pharmaceuticals, Inc. 1,338,006
126,700 @ BioMarin Pharmaceuticals, Inc. 893,235
76,200 @ First Horizon Pharmaceutical Corp. 569,824
66,300 @ Medicines Co. 1,062,126
29,800 @ NBTY, Inc. 523,884
28,500 @ Neurocrine Biosciences, Inc. 1,301,310
44,100 @ NPS Pharmaceuticals, Inc. 1,109,997
61,300 @ Scios, Inc. 1,997,154
39,900 @,@@ Taro Pharmaceuticals Industries 1,500,240
-----------
11,441,401
-----------
See Accompanying Notes to Financial Statements
53
ING VP
SmallCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
RETAIL: 11.12%
17,400 @ California Pizza Kitchen, Inc. $ 438,480
77,000 @ Chico's FAS, Inc. 1,456,070
17,800 @ Coldwater Creek, Inc. 341,760
28,400 @ Cosi, Inc. 157,904
59,900 @ Dick's Sporting Goods, Inc. 1,150,080
41,400 @ HOT Topic, Inc. 947,232
50 @ J Jill Group, Inc. 699
20,400 @ JOS A Bank Clothiers, Inc. 434,928
43,200 @ Kirkland's, Inc. 488,160
47,100 @ Linens 'N Things, Inc. 1,064,460
29,000 @ Men's Wearhouse, Inc. 497,350
93,600 @ Pacific Sunwear of California 1,655,784
38,200 @ Panera Bread Co. 1,329,742
21,800 @ PF Chang's China Bistro, Inc. 791,340
-----------
10,753,989
-----------
SEMICONDUCTORS: 7.69%
56,300 @ Artisan Components, Inc. 868,709
66,300 @ Asyst Technologies, Inc. 487,305
89,300 @ Cree, Inc. 1,460,055
20,500 @ Lam Research Corp. 221,400
77,400 @ Monolithic System Technology, Inc. 934,992
55,200 @,@@ O2Micro Intl. Ltd. 538,145
120,800 @ Omnivision Technologies, Inc. 1,639,256
149,000 Skyworks Solutions, Inc. 1,284,380
-----------
7,434,242
-----------
SOFTWARE: 9.93%
38,300 @ Altiris, Inc. 609,736
53,700 @ Avid Technology, Inc. 1,232,415
76,600 @ Borland Software Corp. 942,180
64,000 @ Documentum, Inc. 1,002,240
54,800 @ EPIQ Systems, Inc. 839,536
61,600 @ Hyperion Solutions Corp. 1,581,272
30,200 @ IMPAC Medical Systems, Inc. 559,304
38,100 @ JD Edwards & Co. 429,768
71,200 @ Packeteer, Inc. 488,432
140,500 @ Pinnacle Systems, Inc. 1,912,205
-----------
9,597,088
-----------
TELECOMMUNICATIONS: 2.19%
25,300 @ Adtran, Inc. 832,370
77,100 @ Boston Communications Group 979,941
12,100 @ SafeNet, Inc. 306,735
-----------
2,119,046
-----------
TOYS/GAMES/HOBBIES: 1.69%
35,400 @ Leapfrog Enterprises, Inc. 890,310
83,200 @ Marvel Enterprises, Inc. 747,136
-----------
1,637,446
-----------
TRANSPORTATION: 1.02%
17,800 @ Old Dominion Freight Line 504,630
13,100 Roadway Corp. 482,211
-----------
986,841
-----------
Total Common Stock (Cost $85,829,837) 90,389,450
-----------
MUTUAL FUNDS: 1.00%
EQUITY FUND: 1.00%
24,200 iShares Russell 2000 Growth Index Fund 964,370
-----------
Total Mutual Funds (Cost $970,655) 964,370
-----------
Total Long-Term Investments (Cost $86,800,492) 91,353,820
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 4.51%
REPURCHASE AGREEMENT: 4.51%
$4,360,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $4,360,194 to be received
upon repurchase (Collateralized by $3,005,000
U.S. Treasury Bonds, 8.500% Market Value
$4,453,972 due 02/15/20) $ 4,360,000
-----------
Total Short-Term Investments (Cost $4,360,000) 4,360,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $91,160,492)* 99.00% $95,713,820
OTHER ASSETS AND LIABILITIES-NET 1.00% 967,091
------ -----------
NET ASSETS 100.00% $96,680,911
====== ===========
@ Non-income producing security
@@ Foreign Issuer
* Cost for federal income tax purposes is $94,090,196. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 4,358,736
Gross Unrealized Depreciation (2,735,112)
-----------
Net Unrealized Appreciation $ 1,623,624
===========
See Accompanying Notes to Financial Statements
54
ING VP
Research
Enhanced Index
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 100.80%
ADVERTISING: 0.08%
430 Interpublic Group Cos., Inc. $ 6,054
-----------
6,054
-----------
AEROSPACE/DEFENSE: 1.97%
910 Boeing Co. 30,021
220 General Dynamics Corp. 17,461
70 Goodrich Corp. 1,282
460 Lockheed Martin Corp. 26,565
182 Northrop Grumman Corp. 17,702
160 Raytheon Co. 4,920
340 Rockwell Collins, Inc. 7,908
620 United Technologies Corp. 38,403
-----------
144,262
-----------
AGRICULTURE: 0.08%
180 UST, Inc. 6,017
-----------
6,017
-----------
APPAREL: 0.48%
240 @ Jones Apparel Group, Inc. 8,506
200 Liz Claiborne, Inc. 5,930
270 Nike, Inc. 12,007
100 @ Reebok Intl. Ltd. 2,940
170 VF Corp. 6,129
-----------
35,512
-----------
AUTO MANUFACTURERS: 0.82%
3,100 Ford Motor Co. 28,830
610 General Motors Corp. 22,485
190 Paccar, Inc. 8,765
-----------
60,080
-----------
AUTO PARTS & EQUIPMENT: 0.23%
120 Cooper Tire & Rubber Co. 1,841
210 Dana Corp. 2,470
570 Delphi Corp. 4,588
160 Goodyear Tire & Rubber Co. 1,090
90 Johnson Controls, Inc. 7,215
-----------
17,204
-----------
BANKS: 7.37%
490 AmSouth BanCorp. 9,408
1,990 Bank of America Corp. 138,444
1,190 Bank One Corp. 43,495
200 BB&T Corp. 7,398
189 Charter One Financial, Inc. 5,430
250 Comerica, Inc. 10,810
150 First Tennessee National Corp. 5,391
1,110 FleetBoston Financial Corp. 26,973
250 Huntington Bancshares, Inc. 4,677
440 KeyCorp. 11,062
240 Marshall & Ilsley Corp. 6,571
170 Mellon Financial Corp. 4,439
590 National City Corp. 16,119
180 North Fork BanCorporation, Inc. 6,073
270 PNC Financial Services Group, Inc. 11,313
310 Regions Financial Corp. 10,342
360 SouthTrust Corp. 8,946
300 State Street Corp. 11,700
290 SunTrust Banks, Inc. 16,507
120 Synovus Financial Corp. 2,328
350 Union Planters Corp. 9,849
1,980 US BanCorp. 42,016
1,380 Wachovia Corp. 50,287
1,660 Wells Fargo & Co. 77,804
60 Zions BanCorporation 2,361
-----------
539,743
-----------
BEVERAGES: 3.26%
830 Anheuser-Busch Cos., Inc. 40,172
60 Brown-Forman Corp. 3,922
2,400 Coca-Cola Co. 105,168
390 Coca-Cola Enterprises, Inc. 8,471
40 Coors (Adolph) 2,450
260 Pepsi Bottling Group, Inc. 6,682
1,710 PepsiCo, Inc. 72,196
-----------
239,061
-----------
BIOTECHNOLOGY: 0.97%
1,301 @ Amgen, Inc. 62,890
60 @ Biogen, Inc. 2,404
160 @ Chiron Corp. 6,016
-----------
71,310
-----------
BUILDING MATERIALS: 0.22%
70 @ American Standard Cos., Inc. 4,980
530 Masco Corp. 11,156
-----------
16,136
-----------
CHEMICALS: 1.51%
240 Air Products & Chemicals, Inc. 10,260
110 Ashland, Inc. 3,138
1,100 Du Pont EI de Nemours & Co. 46,640
70 Eastman Chemical Co. 2,574
130 Ecolab, Inc. 6,435
160 Engelhard Corp. 3,576
90 Great Lakes Chemical Corp. 2,149
90 International Flavors & Fragrances, Inc. 3,159
150 PPG Industries, Inc. 7,523
180 Praxair, Inc. 10,399
230 Rohm & Haas Co. 7,470
130 Sherwin-Williams Co. 3,673
70 Sigma-Aldrich Corp. 3,409
-----------
110,405
-----------
COMMERCIAL SERVICES: 0.87%
160 @ Apollo Group, Inc. 7,040
490 @ Concord EFS, Inc. 7,713
260 @ Convergys Corp. 3,939
80 Deluxe Corp. 3,368
130 Equifax, Inc. 3,008
310 H&R Block, Inc. 12,462
290 McKesson Corp. 7,839
160 Moody's Corp. 6,606
150 Paychex, Inc. 4,185
230 @ Quintiles Transnational Corp. 2,783
310 Robert Half Intl., Inc. 4,994
-----------
63,937
-----------
COMPUTERS: 3.89%
170 Computer Sciences Corp. 5,857
3,530 @ Dell Computer Corp. 94,392
2,920 EMC Corp.-Mass 17,929
See Accompanying Notes to Financial Statements
55
ING VP
Research
Enhanced Index
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
4,173 Hewlett-Packard Co. $ 72,443
660 International Business Machines Corp. 51,150
230 @ Lexmark Intl., Inc. 13,915
2,600 @@ Seagate Technology, Inc. 208
3,530 @ Sun Microsystems, Inc. 10,978
380 @ Sungard Data Systems, Inc. 8,953
360 Unisys Corp. 3,564
360 @ Veritas Software Corp. 5,623
-----------
285,012
-----------
COSMETICS/PERSONAL CARE: 3.89%
70 Alberto-Culver Co. 3,528
90 Avon Products, Inc. 4,848
530 Colgate-Palmolive Co. 27,788
1,320 Gillette Co. 40,075
550 Kimberly-Clark Corp. 26,108
2,120 Procter & Gamble Co. 182,193
-----------
284,540
-----------
DISTRIBUTION/WHOLESALE: 0.09%
130 WW Grainger, Inc. 6,701
-----------
6,701
-----------
DIVERSIFIED FINANCIAL SERVICES: 8.90%
1,360 American Express Co. 48,076
170 Bear Stearns Cos., Inc. 10,098
370 Capital One Financial Corp. 10,996
570 Charles Schwab Corp. 6,185
5,170 Citigroup, Inc. 181,932
180 Countrywide Financial Corp. 9,297
1,350 Fannie Mae 86,845
280 Franklin Resources, Inc. 9,542
1,200 Freddie Mac 70,860
190 Goldman Sachs Group, Inc. 12,939
450 Household Intl., Inc. 12,514
2,060 JP Morgan Chase & Co. 49,440
220 Lehman Brothers Holdings, Inc. 11,724
1,755 MBNA Corp. 33,380
880 Merrill Lynch & Co., Inc. 33,396
1,120 Morgan Stanley 44,710
660 Providian Financial Corp. 4,283
150 SLM Corp. 15,579
-----------
651,796
-----------
ELECTRIC: 2.90%
150 Ameren Corp. 6,235
370 American Electric Power Co., Inc. 10,112
350 Centerpoint Energy, Inc. 2,975
170 Cinergy Corp. 5,732
280 CMS Energy Corp. 2,643
210 Consolidated Edison, Inc. 8,992
140 Constellation Energy Group, Inc. 3,895
310 Dominion Resources, Inc. 17,019
140 DTE Energy Co. 6,496
900 Duke Energy Corp. 17,586
440 Edison Intl. 5,214
230 Entergy Corp. 10,486
430 Exelon Corp. 22,691
300 FirstEnergy Corp. 9,891
180 FPL Group, Inc. 10,823
190 NiSource, Inc. 3,800
550 @ PG&E Corp. 7,645
110 Pinnacle West Capital Corp. 3,750
220 PPL Corp. 7,630
230 Progress Energy, Inc. 9,971
200 Public Service Enterprise Group, Inc. 6,420
680 Southern Co. 19,305
100 TECO Energy, Inc. 1,547
370 TXU Corp. 6,912
400 Xcel Energy, Inc. 4,400
-----------
212,170
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 0.41%
360 @ American Power Conversion 5,454
400 Emerson Electric Co. 20,340
190 Molex, Inc. 4,378
-----------
30,172
-----------
ELECTRONICS: 0.37%
380 @ Agilent Technologies, Inc. 6,825
230 Applera Corp. - Applied Biosystems Group 4,034
240 @ Jabil Circuit, Inc. 4,301
140 Parker Hannifin Corp. 6,458
790 @ Sanmina-SCI Corp. 3,547
80 @ Thermo Electron Corp. 1,610
-----------
26,775
-----------
ENGINEERING & CONSTRUCTION: 0.04%
100 Fluor Corp. 2,800
-----------
2,800
-----------
ENTERTAINMENT: 0.10%
100 @ International Game Technology 7,592
-----------
7,592
-----------
ENVIRONMENTAL CONTROL: 0.21%
150 @ Allied Waste Industries, Inc. 1,500
620 Waste Management, Inc. 14,210
-----------
15,710
-----------
FOOD: 1.67%
430 Albertson's, Inc. 9,572
685 Archer-Daniels-Midland Co. 8,494
360 Campbell Soup Co. 8,449
510 ConAgra Foods, Inc. 12,755
150 General Mills, Inc. 7,043
130 Hershey Foods Corp. 8,767
370 HJ Heinz Co. 12,163
380 Kellogg Co. 13,024
830 @ Kroger Co. 12,824
820 Sara Lee Corp. 18,458
160 Supervalu, Inc. 2,642
220 Winn-Dixie Stores, Inc. 3,362
90 WM Wrigley Jr. Co. 4,939
-----------
122,492
-----------
FOREST PRODUCTS & PAPER: 0.53%
50 Boise Cascade Corp. 1,261
230 Georgia-Pacific Corp. 3,717
520 International Paper Co. 18,184
130 MeadWestvaco Corp. 3,212
200 Plum Creek Timber Co., Inc. 4,720
See Accompanying Notes to Financial Statements
56
ING VP
Research
Enhanced Index
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
70 Temple-Inland, Inc. $ 3,137
90 Weyerhaeuser Co. 4,429
-----------
38,660
-----------
GAS: 0.19%
150 KeySpan Corp. 5,286
50 Nicor, Inc. 1,701
50 Peoples Energy Corp. 1,932
220 Sempra Energy 5,203
-----------
14,122
-----------
HAND/MACHINE TOOLS: 0.15%
100 Black & Decker Corp. 4,289
100 Snap-On, Inc. 2,811
110 Stanley Works 3,804
-----------
10,904
-----------
HEALTHCARE-PRODUCTS: 3.24%
450 Becton Dickinson & Co. 13,810
420 @ Boston Scientific Corp. 17,858
60 CR Bard, Inc. 3,480
610 @ Guidant Corp. 18,818
3,020 Johnson & Johnson 162,204
190 @ St. Jude Medical, Inc. 7,547
200 Stryker Corp. 13,424
-----------
237,141
-----------
HEALTHCARE-SERVICES: 1.70%
310 A Aetna, Inc. 12,747
270 @ Anthem, Inc. 16,983
550 HCA, Inc. 22,825
250 Health Management Associates, Inc. 4,475
190 @ Humana, Inc. 1,900
160 @ Manor Care, Inc. 2,978
110 @ Quest Diagnostics 6,259
485 @ Tenet Healthcare Corp. 7,954
340 UnitedHealth Group, Inc. 28,390
280 @ WellPoint Health Networks 19,925
-----------
124,436
-----------
HOME BUILDERS: 0.16%
120 Centex Corp. 6,024
90 KB Home 3,857
40 Pulte Homes, Inc. 1,915
-----------
11,796
-----------
HOME FURNISHINGS: 0.17%
220 Leggett & Platt, Inc. 4,937
100 Maytag Corp. 2,850
90 Whirlpool Corp. 4,700
-----------
12,487
-----------
HOUSEHOLD PRODUCTS/WARES: 0.44%
160 Avery Dennison Corp. 9,773
360 Clorox Co. 14,850
160 Fortune Brands, Inc. 7,442
-----------
32,065
-----------
HOUSEWARES: 0.11%
260 Newell Rubbermaid, Inc. 7,886
-----------
7,886
-----------
INSURANCE: 4.41%
250 @@ ACE Ltd. 7,335
490 Aflac, Inc. 14,759
710 Allstate Corp. 26,263
110 AMBAC Financial Group, Inc. 6,186
1,020 American Intl. Group 59,007
330 AON Corp. 6,234
70 Chubb Corp. 3,654
250 Cigna Corp. 10,280
150 Cincinnati Financial Corp. 5,632
250 Hartford Financial Services Group, Inc. 11,358
150 Jefferson-Pilot Corp. 5,717
250 John Hancock Financial Services, Inc. 6,975
70 Lincoln National Corp. 2,211
240 Loews Corp. 10,670
550 Marsh & McLennan Cos., Inc. 25,415
130 MBIA, Inc. 5,702
720 Metlife, Inc. 19,469
120 MGIC Investment Corp. 4,956
380 Principal Financial Group 11,449
300 Progressive Corp. 14,889
540 Prudential Financial, Inc. 17,140
100 Safeco Corp. 3,467
90 St. Paul Cos. 3,064
130 Torchmark Corp. 4,749
1,415 @ Travelers Property Casualty Corp. 20,730
230 UnumProvident Corp. 4,034
150 @@ XL Capital Ltd. 11,587
-----------
322,932
-----------
INTERNET: 0.25%
120 @ eBay, Inc. 8,138
630 @ Yahoo, Inc. 10,301
-----------
18,439
-----------
IRON/STEEL: 0.05%
90 Nucor Corp. 3,717
-----------
3,717
-----------
LEISURE TIME: 0.22%
70 Brunswick Corp. 1,390
240 Carnival Corp. 5,988
120 Harley-Davidson, Inc. 5,544
160 @ Sabre Holdings Corp. 2,898
-----------
15,820
-----------
LODGING: 0.19%
150 @ Harrah's Entertainment, Inc. 5,940
240 Hilton Hotels Corp. 3,050
210 Starwood Hotels & Resorts Worldwide, Inc. 4,985
-----------
13,975
-----------
MACHINERY-DIVERSIFIED: 0.26%
230 Deere & Co. 10,546
160 Dover Corp. 4,666
190 Rockwell Automation, Inc. 3,935
-----------
19,147
-----------
See Accompanying Notes to Financial Statements
57
ING VP
Research
Enhanced Index
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
MEDIA: 3.15%
1,810 @ AOL Time Warner, Inc. $ 23,711
660 @ Clear Channel Communications, Inc. 24,611
959 @ Comcast Corp. 22,604
260 Gannett Co., Inc. 18,668
90 Knight-Ridder, Inc. 5,693
200 McGraw-Hill Cos., Inc. 12,088
40 Meredith Corp. 1,644
60 New York Times Co. 2,744
300 Tribune Co. 13,638
1,780 @ Viacom, Inc. 72,553
2,000 Walt Disney Co. 32,620
-----------
230,574
-----------
MINING: 0.21%
50 @ Freeport-McMoRan Copper & Gold, Inc. 839
390 Newmont Mining Corp. 11,322
110 @ Phelps Dodge Corp. 3,481
-----------
15,642
-----------
MISCELLANEOUS MANUFACTURING: 5.66%
400 3M Co. 49,320
110 Cooper Industries Ltd. 4,010
100 Crane Co. 1,993
160 Danaher Corp. 10,512
390 Eastman Kodak Co. 13,666
100 Eaton Corp. 7,811
10,000 General Electric Co. 243,500
870 Honeywell Intl., Inc. 20,880
300 Illinois Tool Works, Inc. 19,458
180 @@ Ingersoll-Rand Co. 7,751
140 ITT Industries, Inc. 8,497
140 Pall Corp. 2,335
250 Textron, Inc. 10,747
810 @@ Tyco Intl. Ltd. 13,835
-----------
414,315
-----------
OFFICE/BUSINESS EQUIPMENT: 0.22%
220 Pitney Bowes, Inc. 7,185
1,110 @ Xerox Corp. 8,936
-----------
16,121
-----------
OIL & GAS: 5.52%
120 Amerada Hess Corp. 6,606
260 Anadarko Petroleum Corp. 12,454
200 Apache Corp. 11,398
200 Burlington Resources, Inc. 8,530
430 ChevronTexaco Corp. 28,586
693 ConocoPhillips 33,534
220 Devon Energy Corp. 10,098
6,740 Exxon Mobil Corp. 235,496
380 Marathon Oil Corp. 8,090
190 @,@@ Nabors Industries Ltd. 6,701
200 @ Noble Corp. 7,030
390 Occidental Petroleum Corp. 11,095
120 Rowan Cos., Inc. 2,724
590 Transocean, Inc. 13,688
260 Unocal Corp. 7,951
-----------
403,981
-----------
OIL & GAS SERVICES: 0.20%
210 Baker Hughes, Inc. 6,760
430 Halliburton Co. 8,045
-----------
14,805
-----------
PACKAGING & CONTAINERS: 0.16%
60 Ball Corp. 3,071
70 Bemis Co. 3,474
220 @ Pactiv Corp. 4,809
-----------
11,354
-----------
PHARMACEUTICALS: 7.18%
50 Allergan, Inc. 2,881
90 AmerisourceBergen Corp. 4,888
500 Cardinal Health, Inc. 29,595
190 @ Forest Laboratories, Inc. 18,662
300 @ King Pharmaceuticals, Inc. 5,157
2,280 Merck & Co., Inc. 129,071
6,250 Pfizer, Inc. 191,062
1,310 Pharmacia Corp. 54,758
1,640 Schering-Plough Corp. 36,408
90 @ Watson Pharmaceuticals, Inc. 2,544
1,350 Wyeth 50,490
-----------
525,516
-----------
PIPELINES: 0.08%
130 Kinder Morgan, Inc. 5,495
-----------
5,495
-----------
REITS: 0.21%
410 Equity Office Properties Trust 10,242
150 Simon Property Group, Inc. 5,111
-----------
15,353
-----------
RETAIL: 6.27%
110 @ Autozone, Inc. 7,772
290 @ Bed Bath & Beyond, Inc. 10,014
325 @ Best Buy Co., Inc. 7,849
220 @ Big Lots, Inc. 2,911
410 CVS Corp. 10,238
250 Darden Restaurants, Inc. 5,112
130 Dillard's, Inc. 2,062
330 Dollar General Corp. 3,944
170 Family Dollar Stores 5,306
250 @ Federated Department Stores 7,190
1,460 Gap, Inc. 22,659
2,390 Home Depot, Inc. 57,264
440 JC Penney Co., Inc. 10,124
320 @ Kohl's Corp. 17,904
1,080 Lowe's Cos., Inc. 40,500
720 Ltd. Brands 10,030
240 May Department Stores Co. 5,515
1,220 McDonald's Corp. 19,618
140 Nordstrom, Inc. 2,656
470 @ Office Depot, Inc. 6,937
250 RadioShack Corp. 4,685
860 @ Staples, Inc. 15,738
420 @ Starbucks Corp. 8,560
990 Target Corp. 29,700
140 Tiffany & Co. 3,347
580 TJX Cos, Inc. 11,322
1,000 Walgreen Co. 29,190
See Accompanying Notes to Financial Statements
58
ING VP
Research
Enhanced Index
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
1,800 Wal-Mart Stores, Inc. $ 90,918
100 Wendy's Intl., Inc. 2,707
300 @ Yum! Brands, Inc. 7,266
-----------
459,038
-----------
SAVINGS & LOANS: 0.90%
280 Golden West Financial Corp. 20,107
1,330 Washington Mutual, Inc. 45,925
-----------
66,032
-----------
SEMICONDUCTORS: 2.98%
540 @ Altera Corp. 6,664
150 @ Analog Devices, Inc. 3,581
1,660 @ Applied Materials, Inc. 21,630
6,510 Intel Corp. 101,361
190 @ Kla-Tencor Corp. 6,720
330 Linear Technology Corp. 8,488
140 @ LSI Logic Corp. 808
330 Maxim Integrated Products 10,903
610 @ Micron Technology, Inc. 5,941
180 @ National Semiconductor Corp. 2,702
170 @ Novellus Systems, Inc. 4,774
150 @ Nvidia Corp. 1,726
160 @ QLogic Corp. 5,522
120 @ Teradyne, Inc. 1,561
1,900 Texas Instruments, Inc. 28,519
340 @ Xilinx, Inc. 7,004
-----------
217,904
-----------
SOFTWARE: 6.26%
240 Adobe Systems, Inc. 5,952
200 Autodesk, Inc. 2,860
620 Automatic Data Processing 24,335
320 @ BMC Software, Inc. 5,475
70 @ Citrix Systems, Inc. 862
470 Computer Associates Intl., Inc. 6,345
610 @ Compuware Corp. 2,928
190 @ Electronic Arts, Inc. 9,456
830 First Data Corp. 29,390
190 @ Fiserv, Inc. 6,451
220 @ Intuit, Inc. 10,322
100 @ Mercury Interactive Corp. 2,965
5,380 @ Microsoft Corp. 278,146
5,320 @ Oracle Corp. 57,456
420 @ Peoplesoft, Inc. 7,686
90 @ Rational Software Corp. 935
870 @ Siebel Systems, Inc. 6,508
-----------
458,072
-----------
TELECOMMUNICATIONS: 6.24%
290 Alltel Corp. 14,790
220 @ Andrew Corp. 2,262
748 AT&T Corp. 19,530
1,960 BellSouth Corp. 50,705
130 CenturyTel, Inc. 3,819
620 @ CIENA Corp. 3,187
7,410 @ Cisco Systems, Inc. 97,071
330 @ Citizens Communications Co. 3,481
290 @ Comverse Technology, Inc. 2,906
2,380 Motorola, Inc. 20,587
930 @ Nextel Communications, Inc. 10,742
310 @ Qualcomm, Inc. 11,281
3,250 SBC Communications, Inc. 88,107
300 Scientific-Atlanta, Inc. 3,558
1,130 Sprint Corp.-FON Group 16,362
200 @ Tellabs, Inc. 1,454
2,760 Verizon Communications, Inc. 106,950
-----------
456,792
-----------
TEXTILES: 0.09%
140 Cintas Corp. 6,405
-----------
6,405
-----------
TOBACCO: 1.19%
2,040 Philip Morris Cos., Inc. 82,681
100 RJ Reynolds Tobacco Holdings, Inc. 4,211
-----------
86,892
-----------
TOYS/GAMES/HOBBIES: 0.18%
160 Hasbro, Inc. 1,848
610 Mattel, Inc. 11,681
-----------
13,529
-----------
TRANSPORTATION: 1.66%
410 Burlington Northern Santa Fe Corp. 10,664
310 FedEx Corp. 16,808
380 @ Norfolk Southern Corp. 7,596
250 Union Pacific Corp. 14,967
1,130 United Parcel Service, Inc. 71,280
-----------
121,315
-----------
TRUCKING & LEASING: 0.04%
120 Ryder System, Inc. 2,693
-----------
2,693
-----------
Total Common Stock (Cost $7,914,125) 7,380,836
-----------
See Accompanying Notes to Financial Statements
59
ING VP
Research
Enhanced Index
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 0.90%
REPURCHASE AGREEMENT: 0.90%
$ 66,000 State Street Repurchase Agreement dated 12/31/02,
1.200% due 01/02/03, $66,004 to be received
upon repurchase (Collateralized by $70,000
FNMA, 3.250% Market Value $71,078 due
01/23/04) $ 66,000
-----------
Total Short-Term Investments (Cost $66,000) 66,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $7,980,125)* 101.70% $ 7,446,836
OTHER ASSETS AND LIABILITIES-NET -1.70% (124,234)
------ -----------
NET ASSETS 100.00% $ 7,322,602
====== ===========
@ Non-income producing security
@@ Foreign Issuer
A Related Party
* Cost for federal income tax purposes is $9,149,323. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 178,790
Gross Unrealized Depreciation (1,881,277)
-----------
Net Unrealized Depreciation $(1,702,487)
===========
See Accompanying Notes to Financial Statements
60
ING VP
MagnaCap
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 95.91%
AGRICULTURE: 0.15%
1,387 Monsanto Co. $ 26,700
-----------
26,700
-----------
COMMERCIAL SERVICES: 3.25%
54,900 @ Cendant Corp. 575,352
-----------
575,352
-----------
COMPUTERS: 4.81%
69,500 @ EMC Corp.-Mass. 426,730
24,506 Hewlett-Packard Co. 425,424
-----------
852,154
-----------
COSMETICS/PERSONAL CARE: 1.05%
3,900 Kimberly-Clark Corp. 185,133
-----------
185,133
-----------
DIVERSIFIED FINANCIAL SERVICES: 7.08%
10,900 Alliance Capital Management Holding LP 337,900
14,900 Citigroup, Inc. 524,331
9,800 Morgan Stanley 391,216
-----------
1,253,447
-----------
ELECTRIC: 0.68%
37,800 @ Reliant Resources, Inc. 120,960
-----------
120,960
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 1.58%
5,500 Emerson Electric Co. 279,675
-----------
279,675
-----------
FOOD: 1.25%
9,800 Sara Lee Corp. 220,598
-----------
220,598
-----------
FOREST PRODUCTS & PAPER: 3.15%
4,300 Bowater, Inc. 180,385
6,900 MeadWestvaco Corp. 170,499
4,600 Temple-Inland, Inc. 206,126
-----------
557,010
-----------
HEALTHCARE-SERVICES: 2.53%
5,600 @ Tenet Healthcare Corp. 91,840
5,000 @ WellPoint Health Networks 355,800
-----------
447,640
-----------
INSURANCE: 16.88%
9,300 Allstate Corp. 344,007
3,200 American Intl. Group 185,120
5,500 Chubb Corp. 287,100
14,900 Cigna Corp. 612,688
9,400 Hartford Financial Services Group, Inc. 427,042
8,200 Loews Corp. 364,572
10,800 St. Paul Cos. 367,740
27,436 @ Travelers Property Casualty Corp. 401,937
-----------
2,990,206
-----------
MACHINERY-CONSTRUCTION & MINING: 1.26%
4,900 Caterpillar, Inc. 224,028
-----------
224,028
-----------
MEDIA: 1.10%
14,900 @ AOL Time Warner, Inc. 195,190
-----------
195,190
-----------
MINING: 2.71%
14,850 Alcoa, Inc. 338,283
8,400 @ Freeport-McMoRan Copper & Gold, Inc. 140,952
-----------
479,235
-----------
MISCELLANEOUS MANUFACTURING: 5.56%
21,200 Honeywell Intl., Inc. 508,800
27,910 @@ Tyco Intl. Ltd. 476,703
-----------
985,503
-----------
OIL & GAS: 11.97%
5,500 Amerada Hess Corp. 302,775
10,400 Anadarko Petroleum Corp. 498,160
6,560 Apache Corp. 373,854
3,800 ChevronTexaco Corp. 252,624
7,530 ConocoPhillips 364,377
3,300 GlobalSantaFe Corp. 80,256
5,600 Kerr-McGee Corp. 248,080
-----------
2,120,126
-----------
OIL & GAS SERVICES: 0.72%
6,850 Halliburton Co. 128,163
-----------
128,163
-----------
PHARMACEUTICALS: 6.98%
18,000 Bristol-Myers Squibb Co. 416,700
8,800 @ IVAX Corp. 106,744
11,200 @ King Pharmaceuticals, Inc. 192,528
6,500 Pfizer, Inc. 198,705
7,700 Pharmacia Corp. 321,860
-----------
1,236,537
-----------
PIPELINES: 0.78%
19,900 EL Paso Corp. 138,504
-----------
138,504
-----------
RETAIL: 7.02%
9,200 CVS Corp. 229,724
9,200 @ Federated Department Stores 264,592
11,900 May Department Stores Co. 273,462
18,200 McDonald's Corp. 292,656
9,800 RadioShack Corp. 183,652
-----------
1,244,086
-----------
SAVINGS & LOANS: 1.60%
8,200 Washington Mutual, Inc. 283,146
-----------
283,146
-----------
SEMICONDUCTORS: 1.48%
40,500 @ Advanced Micro Devices, Inc. 261,630
-----------
261,630
-----------
See Accompanying Notes to Financial Statements
61
ING VP
MagnaCap
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS: 9.88%
18,900 @ 3Com Corp. $ 87,507
49,400 @ ADC Telecommunications, Inc. 103,246
47,300 @ AT&T Wireless Services, Inc. 267,245
97,500 @ JDS Uniphase Corp. 240,825
59,200 @ Lucent Technologies, Inc. 74,592
63,900 @ Tellabs, Inc. 464,553
13,200 Verizon Communications, Inc. 511,500
-----------
1,749,468
-----------
TOBACCO: 2.44%
10,650 Philip Morris Cos., Inc. 431,645
-----------
431,645
-----------
Total Common Stock (Cost $20,060,657) 16,986,136
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 4.01%
REPURCHASE AGREEMENT: 4.01%
$ 711,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $711,032 to be received
upon repurchase (Collateralized by $660,000
U.S. Treasury Notes, 4.875% Market Value
$730,125 due 02/15/02) $ 711,000
-----------
Total Short-Term Investments (Cost $711,000) 711,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $20,771,657)* 99.92% $17,697,136
OTHER ASSETS AND LIABILITIES-NET 0.08% 14,407
------ -----------
NET ASSETS 100.00% $17,711,543
====== ===========
@ Non-income producing security
@@ Foreign Issuer
* Cost for federal income tax purposes is $20,773,126. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 165,002
Gross Unrealized Depreciation (3,240,992)
-----------
Net Unrealized Depreciation $(3,075,990)
===========
See Accompanying Notes to Financial Statements
62
ING VP
International
Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 90.76%
AUSTRALIA: 1.40%
195,100 QBE Insurance Group Ltd. $ 894,809
-----------
TOTAL AUSTRALIA 894,809
-----------
CANADA: 2.01%
87,900 Bombardier, Inc. 296,173
32,000 EnCana Corp 990,914
-----------
TOTAL CANADA 1,287,087
-----------
DENMARK: 1.20%
5,500 Novo-Nordisk A/S ADR 158,950
5,750 Novo-Nordisk A/S 165,986
18,400 TDC A/S 446,741
-----------
TOTAL DENMARK 771,677
-----------
FINLAND: 2.17%
31,200 Nokia OYJ 495,652
6,300 Nokia OYJ ADR 97,650
24,900 UPM-Kymmene OYJ 798,970
-----------
TOTAL FINLAND 1,392,272
-----------
FRANCE: 9.58%
9,750 Aventis SA 529,595
16,250 Carrefour SA 722,996
22,550 Pechiney SA 790,720
15,200 Schneider Electric SA 718,677
12,250 Societe Generale 712,917
8,050 Total Fina Elf SA 1,148,851
13,300 Total Fina Elf SA ADR 950,950
17,911 Valeo SA 561,566
-----------
TOTAL FRANCE 6,136,272
-----------
GERMANY: 2.22%
15,200 Deutsche Bank AG 699,710
18,100 Deutsche Boerse AG 724,264
-----------
TOTAL GERMANY 1,423,974
-----------
GREECE: 0.78%
47,700 Greek Organization of Football Prognostics SA 502,183
-----------
TOTAL GREECE 502,183
-----------
IRELAND: 0.79%
46,700 Irish Life & Permanent PLC 504,387
-----------
TOTAL IRELAND 504,387
-----------
ISRAEL: 1.39%
23,100 Teva Pharmaceutical
Industries ADR 891,891
-----------
TOTAL ISRAEL 891,891
-----------
ITALY: 2.04%
141,750 Banca Fideuram S.p.A. 665,903
269,400 A Parmalat Finanziaria S.p.A. 641,259
-----------
TOTAL ITALY 1,307,162
-----------
JAPAN: 15.35%
8,100 Advantest Corp. 362,880
18,900 FamilyMart 370,042
30,000 Fanuc Ltd. 1,326,316
28,000 Ito-Yokado Co. Ltd. 825,263
41,000 Kao Corp 899,411
2,400 Mabuchi Motor Co. Ltd. 220,699
31,000 A Mitsui Fudosan Co. Ltd. 201,011
116,000 A Nikko Cordial Corp 390,737
46,000 Nomura Holdings, Inc. 516,749
417 NTT DoCoMo, Inc. 769,036
10,200 Otsuka Kagu Ltd. 160,623
37,200 Sekisui House Ltd. 263,141
45,100 Shimano, Inc. 683,621
21,500 Sony Corp. 898,021
8,000 Sony Corp. ADR 330,480
14,500 A Tokyo Electron Ltd. 655,705
35,900 Toyota Motor Corp. 964,387
-----------
TOTAL JAPAN 9,838,122
-----------
MEXICO: 1.43%
28,700 Telefonos de Mexico SA de CV ADR 917,826
-----------
TOTAL MEXICO 917,826
-----------
NETHERLANDS: 6.04%
88,400 Aegon NV 1,136,456
45,700 Koninklijke Philips Electronics NV 800,281
18,750 Royal Dutch Petroleum Co. 824,789
25,200 Royal Dutch Petroleum Co. ADR 1,109,304
-----------
TOTAL NETHERLANDS 3,870,830
-----------
NEW ZEALAND: 1.04%
280,900 Telecom Corp. of New Zealand Ltd. 666,651
-----------
TOTAL NEW ZEALAND 666,651
-----------
NORWAY: 0.83%
37,500 Norske Skogindustrier ASA 529,730
-----------
TOTAL NORWAY 529,730
-----------
RUSSIA: 0.60%
2,750 YUKOS ADR 384,313
-----------
TOTAL RUSSIA 384,313
-----------
SOUTH AFRICA: 1.27%
58,350 Gold Fields Ltd. ADR 814,566
-----------
TOTAL SOUTH AFRICA 814,566
-----------
SWEDEN: 1.16%
39,800 ForeningsSparbanken AB 471,466
34,400 Swedish Match AB 271,006
-----------
TOTAL SWEDEN 742,472
-----------
See Accompanying Notes to Financial Statements
63
ING VP
International
Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SWITZERLAND: 9.29%
16,500 Converium Holding AG $ 799,234
837 Givaudan 375,173
1,150 Julius Baer Holding AG 249,422
5,513 Nestle SA 1,167,806
20,200 Novartis AG ADR 741,946
15,783 Novartis AG 575,660
20,750 Roche Holding AG 1,445,389
12,300 @ UBS AG 597,571
-----------
TOTAL SWITZERLAND 5,952,201
-----------
TAIWAN: 1.15%
104,800 @ Taiwan Semiconductor Manufacturing Co. Ltd. ADR 738,840
-----------
TOTAL TAIWAN 738,840
-----------
UNITED KINGDOM: 19.11%
1,900 A Amvescap PLC ADR 23,940
196,850 Amvescap PLC 1,261,062
211,200 BP PLC 1,451,576
139,100 @ British Sky Broadcasting PLC 1,430,691
185,300 Cadbury Schweppes PLC 1,154,262
25,500 GlaxoSmithKline PLC 489,254
5,800 GlaxoSmithKline PLC ADR 217,268
10,700 A HSBC Holdings PLC ADR 588,286
42,550 Imperial Tobacco Group PLC 722,553
97,000 London Stock Exchange PLC 492,984
636,700 @ mmO2 PLC 453,488
1,700 @ mmO2 PLC ADR 12,155
123,850 Pearson PLC 1,145,260
43,600 Provident Financial PLC 416,861
38,850 Rio Tinto PLC 775,409
5,250 Rio Tinto PLC ADR 417,533
38,250 United Business Media PLC 178,545
556,650 Vodafone Group PLC 1,014,702
-----------
TOTAL UNITED KINGDOM 12,245,829
-----------
UNITED STATES: 9.91%
23,100 iShares MSCI EAFE Index Fund $2,287,131
140,000 iShares MSCI Japan Index Fund 973,000
52,600 iShares S&P Europe 350 Index Fund 2,497,448
14,100 Schlumberger Ltd. 593,469
-----------
TOTAL UNITED STATES 6,351,048
-----------
Total Common Stock (Cost $61,242,782) 58,164,142
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $61,242,782)* 90.76% $58,164,142
OTHER ASSETS AND LIABILITIES-NET 9.24% 5,919,736
------ -----------
NET ASSETS 100.00% $64,083,878
====== ===========
@ Non-income producing security
ADR American Depository Receipt
A Loaned security, a portion or all of the security is on loan at December
31, 2002
* Cost for federal income tax purposes is $61,501,695. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 1,185,067
Gross Unrealized Depreciation (4,522,620)
-----------
Net Unrealized Depreciation $(3,337,553)
===========
Percentage of
Industry/Group Net Assets
- -------------- ----------
Agriculture 1.55%
Auto Manufacturers 1.50%
Auto Parts & Equipment 0.88%
Banks 5.18%
Chemicals 0.59%
Cosmetics/Personal Care 1.40%
Diversified Financial Services 7.80%
Electronics 4.23%
Entertainment 0.78%
Equity Fund 8.98%
Food 5.75%
Forest Products & Paper 2.06%
Hand/Machine Tools 1.12%
Home Builders 0.41%
Home Furnishings 1.92%
Insurance 4.41%
Leisure Time 1.07%
Media 4.30%
Mining 4.37%
Miscellaneous Manufacturing 0.46%
Oil & Gas 10.71%
Oil & Gas Services 0.93%
Pharmaceuticals 8.14%
Real Estate 0.31%
Retail 2.12%
Semiconductors 2.18%
Telecommunications 7.61%
Other Assets and Liabilities, Net 9.24%
------
NET ASSETS 100.00%
======
See Accompanying Notes to Financial Statements
64
ING VP
High Yield
Bond
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CORPORATE BONDS: 91.19%
AEROSPACE/DEFENSE: 1.97%
$ 200,000 Sequa Corp., 8.875%, due 04/01/08 $ 192,000
-----------
192,000
-----------
AGRICULTURE: 2.05%
200,000 North Atlantic Trading Co., 11.000%,
due 06/15/04 200,250
-----------
200,250
-----------
AIRLINES: 0.44%
200,000 Atlas Air, Inc., 9.375%, due 11/15/06 42,500
-----------
42,500
-----------
APPAREL: 0.59%
100,000 Cluett American Corp., 10.125%, due 05/15/08 57,625
-----------
57,625
-----------
AUTO PARTS & EQUIPMENT: 2.83%
100,000 American Axle & Manufacturing, Inc., 9.750%,
due 03/01/09 107,750
200,000 Collins & Aikman Products, 11.500%,
due 04/15/06 169,000
-----------
276,750
-----------
BUILDING MATERIALS: 2.13%
50,000 Advanced Lighting Technologies, Inc., 8.000%,
due 03/15/08 18,750
100,000 Dayton Superior Corp., 13.000%, due 06/15/09 86,500
100,000 Nortek Holdings, Inc., 8.875%, due 08/01/08 102,750
-----------
208,000
-----------
CHEMICALS: 1.76%
100,000 Applied Extrusion Technologies, Inc., 10.750%,
due 07/01/11 65,000
100,000 MacDermid, Inc., 9.125%, due 07/15/11 107,250
-----------
172,250
-----------
COMMERCIAL SERVICES: 4.48%
60,000 Mail Well I Corp., 9.625%, due 03/15/12 53,700
100,000 Neff Corp., 10.250%, due 06/01/08 27,000
50,000 @@ Quebecor Media, Inc., 11.125%, due 07/15/11 46,312
100,000 Travelcenters of America, Inc., 12.750%,
due 05/01/09 106,500
100,000 United Rentals, Inc., 9.000%, due 04/01/09 80,250
150,000 United Rentals, Inc., 9.250%, due 01/15/09 123,375
-----------
437,137
-----------
COSMETICS/PERSONAL CARE: 0.94%
100,000 Elizabeth Arden, Inc., 10.375%, due 05/15/07 91,500
-----------
91,500
-----------
DIVERSIFIED FINANCIAL SERVICES: 0.59%
100,000 Madison River Capital LLC / Madison River
Finance Corp., 13.250%, due 03/01/10 57,500
-----------
57,500
-----------
ELECTRIC: 1.04%
220,000 Calpine Corp., 7.625%, due 04/15/06 101,200
-----------
101,200
-----------
ELECTRONICS: 1.64%
50,000 @@ Flextronics Intl. Ltd., 8.750%, due 10/15/07 51,625
100,000 @@ Flextronics Intl. Ltd., 9.875%, due 07/01/10 108,250
-----------
159,875
-----------
ENTERTAINMENT: 1.05%
100,000 @@ Kerzner Intl. Ltd., 8.875%, due 08/15/11 102,500
-----------
102,500
-----------
ENVIRONMENTAL CONTROL: 2.55%
250,000 Allied Waste North America, 10.000%,
due 08/01/09 249,375
-----------
249,375
-----------
FOOD: 1.10%
100,000 Agrilink Foods, Inc., 11.875%, due 11/01/08 107,750
-----------
107,750
-----------
FOREST PRODUCTS & PAPER: 2.95%
50,000 Appleton Papers, Inc., 12.500%, due 12/15/08 54,937
100,000 Buckeye Technologies, Inc., 9.250%,
due 09/15/08 86,500
150,000 @@ Paperboard Industries Intl., 8.375%,
due 09/15/07 146,250
-----------
287,687
-----------
HEALTHCARE-PRODUCTS: 1.06%
100,000 Advanced Medical Optics, Inc., 9.250%,
due 07/15/10 103,500
-----------
103,500
-----------
HOLDING COMPANIES-DIVERSIFIED: 1.00%
170,000 Penhall Intl., Inc., 12.000%, due 08/01/06 97,750
-----------
97,750
-----------
See Accompanying Notes to Financial Statements
65
ING VP
High Yield
Bond
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
HOME BUILDERS: 5.26%
$ 100,000 KB Home, 8.625%, due 12/15/08 $ 104,000
100,000 Ryland Group, Inc., 9.125%, due 06/15/11 106,500
300,000 Toll Corp., 8.125%, due 02/01/09 303,000
-----------
513,500
-----------
HOME FURNISHINGS: 1.80%
100,000 Fedders North America, Inc., 9.375%,
due 08/15/07 76,500
100,000 Salton, Inc., 12.250%, due 04/15/08 99,125
-----------
175,625
-----------
IRON/STEEL: 1.56%
100,000 Armco, Inc., 8.875%, due 12/01/08 101,500
50,000 Armco, Inc., 9.000%, due 09/15/07 51,250
-----------
152,750
-----------
LODGING: 11.86%
200,000 Boyd Gaming Corp., 8.750%, due 04/15/12 209,000
100,000 Extended Stay America, Inc., 9.875%,
due 06/15/11 102,000
200,000 Mandalay Resort Group, 9.250%, due 12/01/05 210,000
100,000 MGM MIRAGE, 9.750%, due 06/01/07 111,000
150,000 Park Place Entertainment Corp., 8.875%,
due 09/15/08 159,762
100,000 Prime Hospitality Corp., 8.375%, due 05/01/12 97,500
150,000 Station Casinos, Inc., 9.875%, due 07/01/10 163,500
100,000 # Venetian Casino Resort LLC, 11.000%,
due 06/15/10 105,000
-----------
1,157,762
-----------
MACHINERY-CONSTRUCTION & MINING: 2.32%
250,000 Terex Corp., 8.875%, due 04/01/08 226,563
-----------
226,563
-----------
MACHINERY-DIVERSIFIED: 1.23%
60,000 Columbus McKinnon Corp., 8.500%, due 04/01/08 43,500
70,000 Flowserve Corp., 12.250%, due 08/15/10 76,650
-----------
120,150
-----------
MEDIA: 9.26%
250,000 Charter Communications Holdings,LLC, 10.000%,
due 04/01/09 112,500
100,000 Clear Channel Communications, Inc., 2.625%,
due 04/01/03 99,750
100,000 @@ Corus Entertainment, Inc., 8.750%, due 03/01/12 106,375
25,000 Gray Television, Inc., 9.250%, due 12/15/11 27,031
100,000 Mediacom Broadband LLC, 11.000%, due 07/15/13 102,000
100,000 Northland Cable Television, Inc., 10.250%,
due 11/15/07 67,625
200,000 Primedia, Inc., 7.625%, due 04/01/08 179,000
100,000 # Sinclair Broadcast Group, Inc., 8.000%,
due 03/15/12 104,750
100,000 Sinclair Broadcast Group, Inc., 8.750%,
due 12/15/07 104,625
-----------
903,656
-----------
MINING: 1.05%
100,000 Earle M Jorgensen Co., 9.750%, due 06/01/12 102,250
-----------
102,250
-----------
MISCELLANEOUS MANUFACTURING: 0.87%
100,000 Hexcel Corp., 9.750%, due 01/15/09 85,000
-----------
85,000
-----------
OIL & GAS: 3.09%
100,000 Energy Corp. of America, 9.500%, due 05/15/07 62,500
135,000 Ocean Energy, Inc., 8.375%, due 07/01/08 142,763
100,000 Premcor Refining Group, Inc., 8.375%,
due 11/15/07 96,000
-----------
301,263
-----------
PACKAGING & CONTAINERS: 5.90%
100,000 AEP Industries, Inc., 9.875%, due 11/15/07 96,500
100,000 @@ Norampac, Inc., 9.375%, due 02/01/08 66,066
100,000 Owens-Illinois, Inc., 7.850%, due 05/15/04 99,250
100,000 Plastipak Holdings, Inc., 10.750%, due 09/01/11 105,625
100,000 Riverwood Intl. Corp., 10.875%, due 04/01/08 101,000
100,000 Stone Container Corp., 9.750%, due 02/01/11 107,500
-----------
575,941
-----------
REITS: 1.95%
100,000 Felcor Lodging LP, 9.500%, due 09/15/08 102,500
100,000 Meristar Hospitality Corp., 9.125%,
due 01/15/11 87,500
-----------
190,000
-----------
RETAIL: 2.11%
100,000 Big 5 Corp., 10.875%, due 11/15/07 104,500
100,000 Tuesday Morning Corp., 11.000%, due 12/15/07 101,500
-----------
206,000
-----------
SEMICONDUCTORS: 2.16%
200,000 Fairchild Semiconductor Intl., Inc., 10.375%,
due 10/01/07 211,000
-----------
211,000
-----------
See Accompanying Notes to Financial Statements
66
ING VP
High Yield
Bond
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS: 8.47%
$ 200,000 Alamosa Delaware, Inc., 12.500%, due 02/01/11 $ 61,000
100,000 Crown Castle Intl. Corp., 10.750%, due 08/01/11 88,000
100,000 Dobson/Sygnet Communications Co., 12.250%,
due 12/15/08 77,000
75,000 Echostar DBS Corp., 9.250%, due 02/01/06 78,750
75,000 Echostar DBS Corp., 9.375%, due 02/01/09 79,688
100,000 Iwo Holdings, Inc., 14.000%, due 01/15/11 17,500
250,000 Nextel Communications, Inc., 10.650%,
due 09/15/07 240,000
100,000 Nextel Partners, Inc., 12.500%, due 11/15/09 90,500
100,000 @@ Rogers Cantel, Inc., 9.375%, due 06/01/08 94,500
125,000 #,++,X SA Telecommunications, Inc., 10.000%,
due 08/15/06 0
-----------
826,938
-----------
TEXTILES: 1.09%
100,000 Simmons Co., 10.250%, due 03/15/09 106,500
-----------
106,500
-----------
TRANSPORTATION: 1.04%
100,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 101,500
-----------
101,500
-----------
Total Corporate Bonds (Cost $9,495,736) 8,901,547
-----------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 0.28%
CONGLOMERATES: 0.06%
150 @,X Jordan Telecomm 6,096
-----------
6,096
-----------
ENERGY: 0.00%
84 @,XX Orion Refining Corp. 1
-----------
1
-----------
SEMICONDUCTORS: 0.22%
7,500 @ Zilog, Inc. 21,375
-----------
21,375
-----------
TELECOMMUNICATIONS: 0.00%
908 @,++ Adelphia Business Solutions 22
-----------
22
-----------
Total Common Stock (Cost $86,035) 27,494
-----------
WARRANTS: 0.03%
BUILDING MATERIALS: 0.00%
150 @ Dayton Superior Corp. 90
-----------
90
-----------
FOOD/BEVERAGE: 0.03%
295 @,XX Packaged Ice, Inc. 2,950
-----------
2,950
-----------
Total Warrants (Cost $16,125) 3,040
-----------
PREFERRED STOCK: 0.01%
SEMICONDUCTORS: 0.01%
7 @,X Zilog-MOD III, Inc. 636
-----------
Total Preferred Stock (Cost $0) 636
-----------
Total Long-Term Investments (Cost $9,597,896) 8,932,717
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 6.60%
REPURCHASE AGREEMENT: 6.60%
$ 644,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $644,029 to be received
upon repurchase (Collateralized by $595,000
U.S. Treasury Notes, 4.875% Market Value
$658,219 due 02/15/12) $ 644,000
-----------
Total Short-Term Investments (Cost $644,000) 644,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $10,241,896)* 98.11% $ 9,576,717
OTHER ASSETS AND LIABILITIES-NET 1.89% 184,434
------ -----------
NET ASSETS 100.00% $ 9,761,151
====== ===========
@ Non-income producing security
@@ 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 Portfolio's Board of Directors.
++ Defaulted Security
X Market Value determined by ING Valuation Committee appointed by the
Portfolio's Board of Directors/Trustees.
XX Value of securities obtained from one or more dealers making markets in the
securities which have been adjusted based on the Portfolio's valuation
procedures.
* Cost for federal income tax purposes is $10,244,094. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 305,992
Gross Unrealized Depreciation (973,369)
-----------
Net Unrealized Depreciation $ (667,377)
===========
See Accompanying Notes to Financial Statements
67
TAX INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
Dividends paid during the fiscal year ended December 31, 2002 were as follows:
PORTFOLIO NAME TYPE PER SHARE AMOUNT
-------------- ---- ----------------
Research Enhanced Index Portfolio
Class R NII $0.0458
MagnaCap Portfolio
Class R NII $0.0843
Class S NII $0.0704
International Value Portfolio
Class R NII $0.0948
Class S NII $0.0726
High Yield Bond Portfolio
Class R NII $0.3453
NII-Net investment income
Of the ordinary distributions made during the fiscal period ended December 31,
2002, the following percentages qualify for the dividend received deduction
available to corporate shareholders; 100%, 100% and 0.03% for the MagnaCap
Portfolio, Research Enhanced Portfolio and High Yield Bond Portfolio,
respectively.
The foreign taxes paid or withheld of $104,257 in total and $0.01 per share for
the International Value Portfolio represents taxes incurred by the portfolio
from foreign sources. Foreign taxes paid or withheld should be included in
taxable income with an offsetting deduction from gross income or as a credit for
taxes paid to foreign governments.
The above figure may differ from those cited elsewhere in this report due to
differences in the calculation of income and gains for Securities and Exchange
Commission (book) purposes and Internal Revenue Service (tax) purposes.
Shareholder are strongly advised to consult their own tax advisers with respect
to the tax consequences of their Investments in the Portfolios. In January,
shareholders, excluding corporate shareholders, receive an IRS 1099 DIV
regarding the federal tax status of the dividends and distributions received by
them in the calendar year.
See Accompanying Notes to Financial Statements
68
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees. Information pertaining to the Trustees and Officers
of the Portfolio is set forth below:
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
Independent Trustees:
Paul S. Doherty Trustee October Mr. Doherty is President 104 Mr. Doherty is a Trustee of
7337 E. Doubletree Ranch Rd. 1999 to and Partner, Doherty, the GCG Trust (February
Scottsdale, AZ 85258 Present Wallace, Pillsbury and 2002 to present).
Born: 1934 Murphy, P.C., Attorneys
(1996 to present); a
Director of Tambrands,
Inc. (1993 to 1998); and a
Trustee of each of the
funds managed by
Northstar Investment
Management
Corporation (1993 to
1999).
J. Michael Earley Trustee February President and Chief 104 Mr. Earley is a Trustee of the
7337 E. Doubletree Ranch Rd. 2002 to Executive Officer of GCG Trust (1997 to present).
Scottsdale, AZ 85258 Present Bankers Trust Company,
Born: 1945 N.A. (1992 to present).
R. Barbara Gitenstein Trustee February President of the College 104 Dr. Gitenstein is a Trustee of
7337 E. Doubletree Ranch Rd. 2002 to of New Jersey (1999 to the GCG Trust (1997 to
Scottsdale, AZ 85258 Present present); Executive Vice present).
Born: 1948 President and Provost at
Drake University (1992 to
1998).
Walter H. May Trustee October Retired. Mr. May was 104 Mr. May is a Trustee for the
7337 E. Doubletree Ranch Rd. 1999 to formerly Managing Best Prep Charity (1991 to
Scottsdale, AZ 85258 Present Director and Director of present) and the GCG Trust
Born: 1936 Marketing for Piper (February 2002 to present).
Jaffray, Inc. (an
investment
banking/underwriting
firm). Mr. May was
formerly a Trustee of
each of the funds
managed by Northstar
Investment Management
Corporation (1996 to
1999).
Jock Patton Trustee August Private Investor. Mr. 104 Mr. Patton is a Trustee of
7337 E. Doubletree Ranch Rd. 1995 to Patton was formerly the GCG Trust (February
Scottsdale, AZ 85258 Present Director and Chief 2002 to present); He is also
Born: 1945 Executive Officer of Director of Hypercom, Inc.
Rainbow Multimedia and JDA Software Group,
Group, Inc. (January 1999 Inc. (January 1999 to
to December 2001); present); National Airlines
Director of Stuart Inc.; and BG Associates, Inc.
Entertainment, Inc.;
Directory of Artisoft, Inc.
(1994 to 1998); President
and co-owner of
StockVal, Inc. (November
1992 to June 1997) and a
Partner and Director of
the law firm of Streich
Lang, P.A. (1972 to 1993).
69
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
David W.C. Putnam Trustee 10-29-99 President and Director of 104 Mr. Putnam is a Trustee of
7337 E. Doubletree Ranch Rd. to Present F.L. Putnam Securities GCG Trust (February 2002 to
Scottsdale, AZ 85258 Company, Inc. and its present); Director of F.L.
Born: 1939 affiliates. Mr. Putnam is Putnam Securities Company,
also President, Secretary Inc. (June 1978 to present);
and Trustee of The F.L. Putnam Investment
Principled Equity Market Management Company
Fund. Mr. Putnam was (December 2001 to present);
formerly a Asian American Bank and
Director/Trustee of Trust Trust Company (June 1992
Realty Corp., Anchor to present); and Notre
Investment Trust, Bow Dame Health Care Center
Ridge Mining Co., and (1991 to present). He is also
each of the funds a Trustee of The Principled
managed by Northstar Equity Market Fund
Investment Management (November 1996 to present);
Corporation (1994 to Progressive Capital
1999). Accumulation Trust (August
1998 to present); Anchor
International Bond Trust
(December 2000 to present);
F.L. Putnam Foundation
(December 2000 to present);
Mercy Endowment
Foundation (1995 to
present); and an Honorary
Trustee of Mercy Hospital
(1973 to present).
Blaine E. Rieke Trustee 2-26-01 to General Partner of 104 Mr. Rieke is a
7337 E. Doubletree Ranch Rd. Present Huntington Partners, an Director/Trustee of the
Scottsdale, AZ 85258 investment partnership Morgan Chase Trust Co.
Born: 1933 (1997 to present). Mr. (January 1998 to present)
Rieke was formerly and the GCG Trust (February
Chairman and Chief 2002 to present).
Executive Officer of
Firstar Trust Company
(1973 to 1996). Mr. Rieke
was formerly the
Chairman of the Board
and a Trustee of each of
the funds managed by
ING Investment
Management Co. LLC.
(1998 to 2001).
Roger B. Vincent Trustee 2-22-02 to President of Springwell 104 Mr. Vincent is a Trustee of
7337 E. Doubletree Ranch Rd. Present Corporation, a corporate the GCG Trust (1994 to
Scottsdale, AZ 85258 advisory firm (1989 to present) and a Director of
Born: 1945 present). Mr. Vincent was AmeriGas Propane, Inc.
formerly a Director of (1998 to present).
Tatham Offshore, Inc.
(1996 to 2000) and
Petrolane, Inc. (1993 to
1995).
70
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
Richard A. Wedemeyer Trustee 2-26-01 to Vice President -- Finance 104 Mr. Wedemeyer is a Trustee
7337 E. Doubletree Ranch Rd. Present and Administration -- of of Touchstone Consulting
Scottsdale, AZ 85258 the Channel Corporation, Group (1997 to present) and
Born: 1936 an importer of specialty the GCG Trust (February
alloy aluminum products 2002 to present).
(1996 to present). Mr.
Wedemeyer was
formerly Vice President
-- Finance and
Administration -- of
Performance Advantage,
Inc., a provider of
training and consultation
services (1992 to 1996),
and Vice President --
Operations and
Administration of Jim
Henson Productions
(1979 to 1997). Mr.
Wedemeyer was a
Trustee of each of the
funds managed by ING
Investment Management
Co. LLC. (1998 to 2001).
Interested Directors:
R. Glenn Hilliard(1) Trustee 2-26-02 to Chairman and CEO of 104 Mr. Hilliard is a Trustee of
ING Americas Present ING Americas and a the GCC Trust (February
5780 Powers Ferry Road, NW member of its Americas 2002 to present). Mr.
Atlanta, GA 30327 Executive Committee Hilliard also serves as a
Born: 1943 (1999 to present). Mr. member of the Board of
Hilliard was formerly Directors of the Clemson
Chairman and CEO of University Foundation, the
ING North America, Board of Councilors for the
encompassing the U.S., Carter Center, a Trustee of
Mexico and Canada the Woodruff Arts Center
regions (1994 to 1999). and also on the Board of
Directors for the High
Museum of Art.
71
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
Thomas J. McInerney(2) Trustee February Chief Executive Officer, 158 Mr. McInerney serves as a
7337 E. Doubletree Ranch Rd. 2001 to ING U.S. Financial Director/Trustee of Aeltus
Scottsdale, AZ 85258 Present Services (October 2001 to Investment Management,
Born: 1956 present); President, Chief Inc. (1997 to present); each
Executive Officer, and of the Aetna Funds (April
Director of Northern Life 2002 to present); Ameribest
Insurance Company Life Insurance Co. (2001 to
(2001 to present); and present); Equitable Life
President and Director of Insurance Co. (2001 to
Aetna Life Insurance and present); First Columbine
Annuity Company (1997 Life Insurance Co. (2001 to
to present), Aetna present); Golden American
Retirement Holdings, Inc. Life Insurance Co. (2001 to
(1997 to present), Aetna present); Life Insurance
Investment Adviser Company of Georgia (2001
Holding Co. (2000 to to present); Midwestern
present), and Aetna United Life Insurance Co.
Retail Holding Company (2001 to present); ReliaStar
(2000 to present). Mr. Life Insurance Co. (2001 to
McInerney was formerly present); Security Life of
General Manager and Denver (2001 to present);
Chief Executive Officer Security Connecticut Life
of ING Worksite Division Insurance Co. (2001 to
(since December 2000 to present); Southland Life
October 2001); President Insurance Co. (2001 to
of Aetna Financial present); USG Annuity and
Services (August 1997 to Life Company (2001 to
December 2000); Head of present); United Life and
National Accounts and Annuity Insurance Co. Inc
Core Sales and (2001 to present); and the
Marketing for Aetna U.S. GCG Trust (February 2002 to
Healthcare (April 1996 to present). Mr. McInerney is a
March 1997). member of the Board of the
National Commission on
Retirement Policy, the
Governor's Council on
Economic Competitiveness
and Technology of
Connecticut, the Board of
Directors of the Connecticut
Business and Industry
Association, the Board of
Trustees of the Bushnell, the
Board for the Connecticut
Forum, and the Board of
the Metro Hartford
Chamber of Commerce, and
is Chairman of Concerned
Citizens for Effective
Government.
72
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
John G. Turner(3) Chairman and October President, Turner 104 Mr. Turner serves as a
7337 E. Doubletree Ranch Rd. Director/ 1999 to Investment Company member of the Board of the
Scottsdale, AZ 85258 Trustee Present (since January 2002). Mr. GCG Trust. Mr. Turner also
Born: 1939 Turner was formerly Vice serves as a Director of the
Chairman of ING Hormel Foods Corporation
Americas (2000 to 2001); (May 2000 to present),
Chairman and Chief Shopko Stores, Inc. (August
Executive Officer of 1999 to present), and M.A.
ReliaStar Financial Corp. Mortenson Co. (March 2002
and ReliaStar Life to present).
Insurance Company
(1993 to 2000); Chairman
of ReliaStar United
Services Life Insurance
Company (1995 to 1998);
Chairman of ReliaStar
Life Insurance Company
of New York (1995 to
2001); Chairman of
Northern Life Insurance
Company (1992 to 2000);
Chairman and
Director/Trustee of the
Northstar affiliated
investment companies
(1993 to 2001) and
Director, Northstar
Investment Management
Corporation and its
affiliates (1993 to 1999).
(1) Mr. Hilliard is an "interested person", as defined by the Investment
Company Act of 1940, as amended (the "1940 Act"), because of his
relationship with ING Americas, an affiliate of ING Investments, LLC.
(2) Mr. McInerney is an "interested person", as defined by the 1940 Act,
because of his affiliation with ING U.S. Worksite Financial Services, an
affiliate of ING Investments, LLC.
(3) Mr. Turner is an "interested person", as defined by the 1940 Act, because
of his former affiliation with ING Americas, an affiliate of ING
Investments, LLC.
73
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Officers:
James M. Hennessy President, Chief March 2002 to President and Chief Executive Officer of
7337 E. Doubletree Ranch Rd. Executive Officer, Present (for the ING Capital Corporation, LLC, ING Funds
Scottsdale, AZ 85258 and Chief Operat- ING Funds) Services, LLC, ING Advisors, Inc., ING In-
Born: 1949 ing Officer vestments, LLC, Lexington Funds Dis-
tributor, Inc., Express America T.C. Inc.
President, Chief February 2001 to and EAMC Liquidation Corp. (since De-
Executive Officer, March 2002 (for cember 2001); Executive Vice President
and Chief Operat- the Pilgrim Funds) and Chief Operating Officer of ING
ing Officer Funds Distributor, LLC (since June 2000).
Formerly, Executive Vice President and
Chief Operating June 2000 to Chief Operating Officer of ING Quantita-
Officer February 2001 (for tive Management, Inc. (October 2001 to
the Pilgrim Funds) September 2002); Senior Executive Vice
President (June 2000 to December 2000)
and Secretary (April 1995 to December
2000) of ING Capital Corporation, LLC,
ING Funds Services, LLC, ING Investments,
LLC, ING Advisors, Inc., Express America
T.C. Inc., and EAMC Liquidation Corp.;
and Executive Vice President, ING Capital
Corporation, LLC and its affiliates (May
1998 to June 2000) and Senior Vice Presi-
dent, ING Capital Corporation, LLC and
its affiliates (April 1995 to April 1998).
Stanley D. Vyner Executive Vice March 2002 to Executive Vice President of ING Advisors,
7337 E. Doubletree Ranch Rd. President Present (for the Inc. and ING Investments, LLC (since July
Scottsdale, Arizona 85258 ING Funds) 2000) and Chief Investment Officer of
Born: 1950 the International Portfolios, ING Invest-
Executive Vice July 1996 to March ments, LLC (since July 1996). Formerly,
President 2002 (for the in- President and Chief Executive Officer of
ternational portfo- ING Investments, LLC (August 1996 to
lios of the Pilgrim August 2000).
Funds)
Mary Lisanti Executive Vice March 2002 to Executive Vice President of ING Invest-
7337 E. Doubletree Ranch Rd. President Present (for the ments, LLC and ING Advisors, Inc. (since
Scottsdale, AZ 85258 ING Funds) November 1999); Chief Investment Of-
Born: 1956 ficer of the Domestic Equity Portfolios,
Executive Vice May 1998 to ING Investments, LLC (since 1999). For-
President March 2002 (for merly, Executive Vice President of ING
the domestic eq- Quantitative Management, Inc. (July
uity portfolios of 2000 to September 2002); Executive Vice
the Pilgrim Funds) President and Chief Investment Officer
for the Domestic Equity Portfolios of
Northstar Investment Management Cor-
poration, whose name changed to Pil-
grim Advisors, Inc. and subsequently
became part of ING Investments, LLC
(May 1998 to October 1999); Portfolio
Manager with Strong Capital Manage-
ment (May 1996 to 1998); a Managing
Director and Head of Small- and Mid-
Capitalization Equity Strategies at Bank-
ers Trust Corp. (1993 to 1996).
74
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Michael J. Roland Executive Vice March 2002 to Executive Vice President, Chief Financial
7337 E. Doubletree Ranch Rd. President, Assis- Present (for Officer and Treasurer of ING Funds Ser-
Scottsdale, AZ 85258 tant Secretary and the ING Funds) vices, LLC, ING Funds Distributor, LLC,
Born: 1958 Principal Financial ING Advisors, Inc., ING Investments, LLC
Officer (December 2001 to present), Lexington
Funds Distributor, Inc., Express America
Chief Financial December 2002 to T.C. Inc. and EAMC Liquidation Corp.
Officer Present (for the (since December 2001). Formerly, Execu-
IPI Funds) tive Vice President, Chief Financial Of-
ficer and Treasurer of ING Quantitative
Senior Vice June 1998 to Management, Inc. (December 2001 to
President and March 2002 (for October 2002); Senior Vice President, ING
Principal Financial the Pilgrim Funds) Funds Services, LLC, ING Investments,
Officer LLC, and ING Funds Distributor, LLC (June
1998 to December 2001) and Chief Fi-
nancial Officer of Endeavor Group (April
1997 to June 1998).
Robert S. Naka Senior Vice March 2002 to Senior Vice President and Assistant Sec-
7337 E. Doubletree Ranch Rd. President and Present (for the retary of ING Funds Services, LLC, ING
Scottsdale, AZ 85258 Assistant Secretary ING Funds) Funds Distributor, LLC, ING Advisors, Inc.,
Born: 1963 ING Investments, LLC (October 2001 to
Senior Vice November 1999 to present) and Lexington Funds Distribu-
President and March 2002 (for tor, Inc. (since December 2001). Formerly,
Assistant Secretary the Pilgrim Funds) Senior Vice President and Assistant Sec-
retary for ING Quantitative Manage-
Assistant Secretary July 1996 to ment, Inc. (October 2001 to October
November 1999 2002); Vice President, ING Investments,
(for the Pilgrim LLC (April 1997 to October 1999), ING
Funds) Funds Services, LLC (February 1997 to
August 1999) and Assistant Vice Presi-
dent, ING Funds Services, LLC (August
1995 to February 1997).
Robyn L. Ichilov Vice President and March 2002 to Vice President of ING Funds Services, LLC
7337 E. Doubletree Ranch Rd. Treasurer Present (for the (since October 2001) and ING Invest-
Scottsdale, AZ 85258 ING Funds) ments, LLC (since August 1997); Account-
Born: 1967 ing Manager, ING Investments, LLC (since
Vice President and May 1998 to November 1995).
Treasurer March 2002 (for
the Pilgrim Funds)
Vice President November 1997 to
May 1998 (for the
Pilgrim Funds)
Kimberly A. Anderson Vice President and March 2002 to Vice President and Assistant Secretary of
7337 E. Doubletree Ranch Rd. Secretary Present (for the ING Funds Services, LLC, ING Funds Dis-
Scottsdale, AZ 85258 ING Funds) tributor, LLC, ING Advisors, Inc., ING In-
Born: 1964 vestments, LLC (since October 2001) and
February 2001 to Lexington Funds Distributor, Inc. (since
March 2002 (for December 2001). Formerly, Vice President
the Pilgrim Funds) for ING Quantitative Management, Inc.
(October 2001 to October 2002); Assis-
tant Vice President of ING Funds Ser-
vices, LLC (November 1999 to January
2001) and has held various other posi-
tions with ING Funds Services, LLC for
more than the last five years.
Todd Modic Assistant Vice April 2002 to Director of Financial Reporting of ING
7337 E. Doubletree Ranch Rd. President Present (for Investments, LLC (since March 2001). For-
Scottsdale, AZ 85258 the ING Funds) merly, Director of Financial Reporting,
Born: 1967 Axient Communications, Inc. (May 2000
March 2002 to to January 2001) and Director of Fi-
Present (for nance, Rural/Metro Corporation (March
certain ING Funds) 1995 to May 2000).
August 2001 to
March 2002 (for
the Pilgrim Funds)
75
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Maria M. Anderson Assistant Vice April 2002 to Assistant Vice President of ING Funds
7337 E. Doubletree Ranch Rd. President Present (for Services, LLC (since October 2001). For-
Scottsdale, AZ 85258 the ING Funds) merly, Manager of Fund Accounting and
Born: 1958 Fund Compliance, ING Investments, LLC
March 2002 to (September 1999 to November 2001);
Present (for Section Manager of Fund Accounting,
certain ING Funds) Stein Roe Mutual Funds (July 1998 to
August 1999); and Financial Reporting
August 2001 to Analyst, Stein Roe Mutual Funds (August
March 2002 (for 1997 to July 1998).
the Pilgrim Funds)
Edwin Schriver Senior Vice March 2002 to Senior Vice President (since November
7337 E. Doubletree Ranch Rd. President and Present (for 1999) and Senior Portfolio Manager
Scottsdale, Arizona 85258 Senior Portfolio certain ING Funds) (since October 2001) for ING Invest-
Born: 1945 Manager ments, LLC. Formerly, Senior High Yield
November 1999 to Analyst, Dreyfus Corporation (April 1998
March 2002 (for to November 1999); and President of
certain Pilgrim Cresent City Research (July 1993 to April
Funds) 1998).
Steven Rayner Vice President March 2002 to Vice President of ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for (since October 2001). Formerly, Assistant
Scottsdale, Arizona 85258 Manager certain ING Funds) Vice President, ING Investments, LLC;
Born: 1966 (February 1998 to January 2001) and has
January 2001 to held various other positions with ING
March 2002 (for Investments, LLC and its predecessors
certain Pilgrim since June 1995.
Funds)
Robert Kloss Vice President March 2002 to Vice President of ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for (since January 2001) and has held various
Scottsdale, Arizona 85258 Manager certain ING Funds) other positions with ING Investments,
Born: 1955 LLC and its predecessors for the last five
January 2001 to years.
March 2002 (for
certain Pilgrim
Funds)
Thomas Jackson Senior Vice March 2002 to Senior Vice President, ING Investments,
7337 E. Doubletree Ranch Rd. President and Present (for LLC (since June 2001) and ING Advisors,
Scottsdale, Arizona 85258 Senior Portfolio certain ING Funds) Inc.(since October 2001); and Senior Port-
Born: 1945 Manager folio Manager for ING Investments, LLC
June 2001 to and ING Advisors, Inc. (since October
March 2002 (for 2001). Formerly Managing Director, Pru-
certain Pilgrim dential Investments (April 1990 to De-
Funds) cember 2000); and prior to April 1990,
Co-Chief Investment Officer and Manag-
ing Director at Century Capital Associ-
ates and Red Oak Advisors.
76
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Jeffrey Bernstein Senior Vice Presi- March 2002 to Senior Vice President (since October
7337 E. Doubletree Ranch Rd. dent and Senior Present (for cer- 1999) of ING Investments, LLC and Senior
Scottsdale, Arizona 85258 Portfolio Manager tain ING Funds) Portfolio Manager (since October 2001)
Born: 1966 for ING Advisors, Inc. and ING Invest-
June 2000 to ments, LLC. Formerly, Portfolio Manager,
March 2002 (for Northstar Investment Management Cor-
certain Pilgrim poration, whose name changed to Pil-
Funds) grim Advisors, Inc.and subsequently
became part of ING Investments, LLC
(May 1998 to October 1999); Portfolio
Manager, Strong Capital Management
(1997 to May 1998); and Portfolio
Manager,Berkeley Capital (1995 to 1997).
Richard T. Saler Senior Vice Presi- March 2002 to Senior Vice President and Director of In-
7337 E. Doubletree Ranch Rd. dent and Senior Present (for cer- ternational Equity Investment Strategy
Scottsdale, AZ 85258 Portfolio Manager tain ING Funds) of ING Investments, LLC and ING Advi-
Born: 1961 sors, Inc.(since October 2001). Formerly,
June 2000 to Senior Vice President and Director of In-
March 2002 (for ternational Equity Strategy, Lexington
certain the Pilgrim Management Corporation (which was
Funds) acquired by ING Investments, LLC 's par-
ent company in July 2000)(1986 to July
2000).
Philip A. Schwartz Senior Vice Presi- March 2002 to Senior Vice President and Director of In-
7337 E. Doubletree Ranch Rd. dent and Senior Present (for cer- ternational Equity Investment Strategy
Scottsdale, AZ 85258 Portfolio Manager tain ING Funds) for ING Investments, LLC and ING Advi-
Born: 1961 sors, Inc.(since October 2001). Formerly,
June 2000 to Senior Vice President and Director of In-
March 2002 (for ternational Equity Strategy, Lexington
certain the Pilgrim Management Corporation (which was
Funds) acquired by ING Investments, LLC's par-
ent company in July 2000); Vice Presi-
dent of European Research Sales,
Cheuvreux de Virieu in Paris and New
York (prior to 1993).
Andy Mitchell Vice President April 2002 to Vice President, ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for cer- (since July 2000). Formerly, Senior Credit
Scottsdale, AZ 85258 Manager tain ING Funds) Analyst, Katonah Capital (March 2000 to
Born: 1963 July 2000); Vice President and Senior
October 2000 to High Yield Analyst, Merrill Lynch Asset
March 2002 (for Management (March 1998 to March
certain the Pilgrim 2000); and Assistant Vice President and
Funds) Senior High Yield Analyst, Schroder Capi-
tal Management (March 1994 to March
1998).
Russ Stiver Vice President March 2002 to Vice President, ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for cer- (since May 2000). Formerly, Acting Vice
Scottsdale, AZ 85258 Manager tain ING Funds) President, ING Investments, LLC (April
Born: 1962 1999 to April 2000) and Portfolio Man-
October 2000 to ager, Manulife Financial (November 1996
March 2002 (for to April 2000).
certain the Pilgrim
Funds)
77
INVESTMENT MANAGER
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
ADMINISTRATOR
ING Funds Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIANS
State Street Bank & Trust
801 Pennsylvania Avenue
Kansas City, Missouri 64105
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
LEGAL COUNSEL
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP 99 High Street
Boston, MA 02110-2371
Prospectus containing more complete information regarding the Portfolios,
including charges and expenses, may be obtained by calling ING Variable Products
Trust at 1-800-992-0180. Please read the prospectus carefully before you invest
or send money.
[LION LOGO]
ING FUNDS VPTRAR 1202-021803
ANNUAL REPORT
December 31, 2002 DOMESTIC EQUITY GROWTH PORTFOLIOS
ING VARIABLE PRODUCTS TRUST ING VP Growth Opportunities Portfolio
CLASS S ING VP LargeCap Growth Portfolio
ING VP MidCap Opportunities Portfolio
ING VP SmallCap Opportunities Portfolio
DOMESTIC EQUITY VALUE PORTFOLIOS
ING VP Large Company Value Portfolio
ING VP MagnaCap Portfolio
DOMESTIC EQUITY AND INCOME PORTFOLIO
ING VP Convertible Portfolio
INTERNATIONAL EQUITY PORTFOLIO
ING VP International Value Portfolio
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ING FUNDS
TABLE OF CONTENTS
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President's Letter ............................... 1
Portfolio Managers' Reports:
Domestic Equity Growth Portfolios .............. 2
Domestic Equity Value Portfolios ............... 10
Domestic Equity and Income Portfolio ........... 14
International Equity Portfolio ................. 16
Index Descriptions ............................... 18
Independent Auditors' Report ..................... 19
Statements of Assets and Liabilities ............. 20
Statements of Operations ......................... 22
Statements of Changes in Net Assets .............. 24
Financial Highlights ............................. 28
Notes to Financial Statements .................... 36
Portfolios of Investments ........................ 46
Tax Information .................................. 63
Director/Trustee and Officer Information ......... 64
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present the December 31, 2002 Annual Report for the Class S
shares of the ING Variable Products Trust.
The year ended December 31, 2002 proved to be a difficult year as a weak economy
and continued accounting scandals in the corporate sector took their toll on the
U.S. equity markets.
Amid the difficulties of the past year, we were successful in integrating the
operations of various mutual fund groups that have been acquired by ING Groep
N.V. over the past two years. The ING Funds family now offers more than 100
open- and closed-end funds and variable products with a wide range of investment
objectives and styles.
At ING Funds, we are dedicated to providing core investments for serious
investors. Our goal is to understand and anticipate your needs and objectives,
and manage our products accordingly. We greatly appreciate your continued
investment in the ING Funds.
Sincerely,
/s/ James Hennessy
James M. Hennessy
President
ING Funds Services, LLC
January 15, 2003
1
ING VP GROWTH OPPORTUNITIES PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Mary Lisanti, Executive Vice-President and Chief
Investment Officer; Jeffrey Bernstein, Senior Vice President and Senior
Portfolio Manager, ING Investments, LLC.
GOALS: The ING VP Growth Opportunities Portfolio (the "Portfolio") seeks
long-term growth of capital by investing primarily in the common stock of U.S.
companies that the Portfolio Managers feel have above average prospects for
growth.
MARKET OVERVIEW: The U.S. stock market finished its third consecutive down year
on December 31, 2002 as financial markets continued to exhibit substantial
volatility. While the economy resumed a growth trajectory during the first
quarter of the year, the rate of growth was less than many had hoped, and
corporate profit growth remained elusive. However, this year saw a further
complication to the market picture, as a rash of corporate and accounting
scandals rattled investor confidence, and the world's geopolitical tensions took
a turn for the worse on a number of fronts. The Federal Reserve moved to
alleviate the situation by continuing its accommodative stance, sending
short-term interest rates to their lowest levels in over forty years.
Technology stocks were once again the worst performers, although significant
declines also occurred in the telecommunication, utility, and industrial
sectors. There were no sectors in the S&P 500 Index (S&P 500) that even turned
in a positive performance in 2002. Small and mid capitalization stocks
outperformed large cap equities, and value benchmarks declined less than growth
indices. All of the major equity benchmarks declined to levels last seen in
1998. However, the equity markets did begin to show signs of life at the end of
2002, turning in strong performance in the fourth quarter.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class S
shares, excluding any charges, provided a total return of -31.51% compared to
the S&P 500, which returned -22.10%.
PORTFOLIO SPECIFICS: The Portfolio is managed in a growth style: the portfolio
management team seeks companies with above average earnings growth potential
relative to companies in its benchmark. These stocks can often be more expensive
on a Price to Earnings (P/E) basis than the average stock, but look attractive
relative to their growth rates. Historically, this strategy has rewarded
investors over the long term; the "bet" the investor is making is that growth
companies will be able to deliver on the earnings promise and therefore justify
the existing P/E or perhaps even see an expansion of the P/E multiple over time.
This strategy is to some extent dependent on a stable to growing economy; it has
its greatest difficulty in periods of global recession, when companies have
difficulty meeting earnings estimates and multiples collapse. This describes the
period we have just been through in the market.
The Portfolio's underperformance can primarily be attributed to the exposure to
more cyclically sensitive technology stocks, such as semiconductors. These
stocks underperformed as the economic recovery was pushed further out into the
future. However, the Portfolio did benefit from strong stock selection in the
energy and telecommunications sectors, as stocks such as XTO Energy, Valero, and
Nextel Communications all outperformed substantially. During the year, we cut
back on our exposure to consumer-related and technology stocks, which began the
year as the sectors with the biggest exposure in the Portfolio. In their place,
we increased our holdings in healthcare and telecommunications.
MARKET OUTLOOK: As in 1990-1991, current economic recovery appears fragile,
corporate profit growth is anemic, and the stock market is beset over concerns
about credit risk, balance sheets, consumer spending, and corporate capital
spending. Although the Federal Reserve continues to pump liquidity into the
market, we expect it will likely take some time for this stimulus to work its
way through the economy.
We do believe that corporate profits have bottomed and should improve in 2003.
We are significantly overweight the technology and healthcare sectors, which we
expect may be poised for faster than average growth. Also, we have increased our
exposure to the energy sector, as ongoing disruptions to supply are likely to
keep prices higher for longer. Consistent with our long-term view, we are
focused on companies (i) that have strong new product cycles and can generate
earnings growth regardless of the economy, (ii) that have restructured their
businesses to improve profitability, and (iii) whose managements are focused on
improving shareholder value.
2
Portfolio Managers' Report ING VP GROWTH OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
5/3/01 12/31/01 12/31/02
------ -------- --------
ING VP Growth Opportunites Portfolio $10,000 $7,957 $5,449
S&P 500 Index $10,000 $9,276 $7,225
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
-----------------------------
SINCE INCEPTION
1 YEAR 5/3/01
------ ------
Class S -31.51% -30.63%
S&P 500 Index -22.10% -17.72%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP Growth Opportunities Portfolio against the S&P 500 Index.
The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/01.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. The Portfolio invests in small and medium-sized
companies which may be more susceptible to price swings and less liquid than
larger companies.
See accompanying index descriptions on page 18.
3
ING VP LARGECAP GROWTH PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Mary Lisanti, Executive Vice President and Chief
Investment Officer; Jeffrey Bernstein, Senior Vice President and Senior
Portfolio Manager, ING Investments, LLC.
GOAL: The ING VP LargeCap Growth Portfolio (the "Portfolio") seeks long-term
capital appreciation by investing primarily in stocks from a universe of U.S.
companies with market capitalizations corresponding to the upper 90% of the S&P
500 Index.
MARKET OVERVIEW: The U.S. stock market finished its third consecutive down year
on December 31, 2002 as financial markets continued to exhibit substantial
volatility. While the economy resumed a growth trajectory during the first
quarter of the year, the rate of growth was less than many had hoped, and
corporate profit growth remained elusive. However, this year saw a further
complication to the market picture, as a rash of corporate and accounting
scandals rattled investor confidence, and the world's geopolitical tensions took
a turn for the worse on a number of fronts. The Federal Reserve moved to
alleviate the situation by continuing its accommodative stance, sending
short-term interest rates to their lowest levels in over forty years.
Technology stocks were once again the worst performers, although significant
declines also occurred in the telecommunications, utility, and industrial
sectors. There were no sectors in the S&P 500 that even turned in a positive
performance in 2002. Small and mid capitalization stocks outperformed large cap
equities, and value benchmarks declined less than growth indices. All of the
major equity benchmarks declined to levels last seen in 1998. However, the
equity markets did begin to show signs of life at the end of 2002, turning in
strong performance in the fourth quarter.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class S
shares, excluding any charges, provided a total return of -34.80% compared to
the Russell 1000 Growth Index, which returned -27.88%.
PORTFOLIO SPECIFICS: The Portfolio is managed in a growth style: the portfolio
management team seeks companies with above average earnings growth potential
relative to companies in its benchmark. These stocks can often be more expensive
on a Price to Earnings (P/E) basis than the average stock, but look attractive
relative to their growth rates. Historically, this strategy has rewarded
investors over the long term; the "bet" the investor is making is that growth
companies will be able to deliver on the earnings promise and therefore justify
the existing P/E or perhaps even see an expansion of the P/E multiple over time.
This strategy is to some extent dependent on a stable to growing economy; it has
its greatest difficulty in periods of global recession, when companies have
difficulty meeting earnings estimates and multiples collapse. This describes the
period we have just been through in the market.
The Portfolio's underperformance can primarily be attributed to the exposure to
more cyclically sensitive technology stocks, such as semiconductors. These
stocks underperformed as the economic recovery was pushed further out into the
future. However, the Portfolio did benefit from strong stock selection in the
healthcare sector, as stocks such as Boston Scientific, Stryker, and Forest Labs
all outperformed substantially. During the year, we cut back on our exposure to
consumer related and technology stocks, which began the year as the sectors with
the biggest exposure in the Portfolio. In their place, we increased our holdings
in healthcare and telecommunications.
MARKET OUTLOOK: As in 1990-1991, current economic recovery appears fragile,
corporate profit growth is anemic, and the stock market is beset over concerns
about credit risk, balance sheets, consumer spending, and corporate capital
spending. Although the Federal Reserve continues to pump liquidity into the
market, we expect it will likely take some time for this stimulus to work its
way through the economy.
Nevertheless, we do believe that corporate profits have bottomed and should
improve in 2003. We are significantly overweight the technology and healthcare
sectors, which we expect may be poised for faster than average growth. Also, we
have increased our exposure to the energy sector, as ongoing disruptions to
supply are likely to keep prices higher for longer. Consistent with our
long-term view, we are focused on companies (i) that have strong new product
cycles and can generate earnings growth regardless of the economy, (ii) that
have restructured their businesses to improve profitability, and (iii) whose
managements are focused on improving shareholder value.
4
Portfolio Managers' Report ING VP LARGECAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
8/2/01 12/31/01 12/31/02
------ -------- --------
ING VP LargeCap Growth Portfolio $10,000 $9,660 $6,298
Russell 1000 Growth Index $10,000 $9,517 $6,863
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
-----------------------------
SINCE INCEPTION
1 YEAR 8/2/01
------ ------
Class S -34.80% -27.79%
Russell 1000 Growth Index -27.88% -23.33%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP LargeCap Growth Portfolio against the Russell 1000 Growth
Index. The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 8/1/01.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investment in equities. Investing in funds that are concentrated in a smaller
number of holdings poses greater risk than those funds with a larger number of
holdings because each investment has a greater effect on the Fund's performance.
See accompanying index descriptions on page 18.
5
ING VP MIDCAP OPPORTUNITIES PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Mary Lisanti, Executive Vice President and Chief
Investment Officer; Jeffrey Bernstein, Senior Vice President and Senior
Portfolio Manager, ING Investments, LLC.
GOAL: The ING VP MidCap Opportunities Portfolio (the "Portfolio") seeks
long-term capital appreciation by investing primarily in the common stock of
mid-sized U.S. companies that the Portfolio Managers feel have above average
prospects for growth.
MARKET OVERVIEW: The U.S. stock market finished its third consecutive down year
on December 31, 2002 as financial markets continued to exhibit substantial
volatility. While the economy resumed a growth trajectory during the first
quarter of the year, the rate of growth was less than many had hoped, and
corporate profit growth remained elusive. However, this year saw a further
complication to the market picture, as a rash of corporate and accounting
scandals rattled investor confidence, and the world's geopolitical tensions took
a turn for the worse on a number of fronts. The Federal Reserve moved to
alleviate the situation by continuing its accommodative stance, sending
short-term interest rates to their lowest levels in over forty years.
Technology stocks were once again the worst performers, although significant
declines also occurred in the telecommunications, utility, and industrial
sectors. There were no sectors in the S&P 500 Index that even turned in a
positive performance in 2002. Small and mid capitalization stocks outperformed
large cap equities, and value benchmarks declined less than growth indices. All
of the major equity benchmarks declined to levels last seen in 1998. However,
the equity markets did begin to show signs of life at the end of 2002, turning
in strong performance in the fourth quarter.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class S
shares, excluding any charges, provided a total return of -25.99% compared to
the S&P Midcap 400 Index, which returned -14.51%.
PORTFOLIO SPECIFICS: The Portfolio is managed in a growth style: the portfolio
management team seeks companies with above average earnings growth potential
relative to companies in its benchmark. These stocks can often be more expensive
on a Price to Earnings (P/E) basis than the average stock, but look attractive
relative to their growth rates. Historically, this strategy has rewarded
investors over the long term; the "bet" the investor is making is that growth
companies will be able to deliver on the earnings promise and therefore justify
the existing P/E or perhaps even see an expansion of the P/E multiple over time.
This strategy is to some extent dependent on a stable to growing economy; it has
its greatest difficulty in periods of global recession, when companies have
difficulty meeting earnings estimates and multiples collapse. This describes the
period we have just been through in the market.
The Portfolio's underperformance can primarily be attributed to the exposure to
more cyclically sensitive technology stocks, such as semiconductors. These
stocks underperformed as the economic recovery was pushed further out into the
future. However, the Portfolio did benefit from strong stock selection in the
energy and telecommunications sectors, as stocks such as XTO Energy, Valero, and
Nextel Communications all outperformed substantially. During the year, we cut
back on our exposure to consumer related and technology stocks, which began the
year as the sectors with the biggest exposure in the Portfolio. In their place,
we increased our holdings in healthcare and telecommunications.
MARKET OUTLOOK: As in 1990-1991, current economic recovery appears fragile,
corporate profit growth is anemic, and the stock market is beset over concerns
about credit risk, balance sheets, consumer spending, and corporate capital
spending. Although the Federal Reserve continues to pump liquidity into the
market, we expect it will likely take some time for this stimulus to work its
way through the economy.
Nevertheless, we do believe that corporate profits have bottomed and should
improve in 2003. We are significantly overweight the technology and healthcare
sectors, which we expect may be poised for faster than average growth. Also, we
have increased our exposure to the energy sector, as ongoing disruptions to
supply are likely to keep prices higher for longer. Consistent with our
long-term view, we are focused on companies (i) that have strong new product
cycles and can generate earnings growth regardless of the economy, (ii) that
have restructured their businesses to improve profitability, and (iii) whose
managements are focused on improving shareholder value.
6
Portfolio Managers' Report ING VP MIDCAP OPPORTUNITIES PORTFOLIO
- --------------------------------------------------------------------------------
5/7/01 12/31/01 12/31/02
------ -------- --------
ING VP MidCap Opportunites Portfolio $10,000 $8,507 $6,296
S&P MidCap 400 Index $10,000 $10,033 $8,577
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
-----------------------------
SINCE INCEPTION
1 YEAR 5/7/01
------ ------
Class S -25.99% -24.45%
S&P MidCap 400 Index -14.51% -8.80%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP MidCap Opportunities Portfolio against the S&P MidCap 400
Index. The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total returns would have
been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/01.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller medium-sized companies may entail greater price variability
than investing in stocks of larger companies. Investing in funds that are
concentrated in a smaller number of holdings poses greater risk than those funds
with a larger number of holdings because each investment has a greater effect on
the Fund's performance.
See accompanying index descriptions on page 18.
7
ING VP SMALLCAP OPPORTUNITIES PORTFOLIO Portfolio Manager's Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: Mary Lisanti, Executive Vice-President and Chief
Investment Officer, ING Investments, LLC.
GOAL: The ING VP SmallCap Opportunities Portfolio (the "Portfolio") seeks
long-term capital appreciation by investing at least 80% of its total assets in
the common stock of smaller U.S. companies that the Portfolio Manager feels have
above average prospects for growth.
MARKET OVERVIEW: The U.S. stock market finished its third consecutive down year
on December 31, 2002 as financial markets continued to exhibit substantial
volatility. While the economy resumed a growth trajectory during the first
quarter of the year, the rate of growth was less than many had hoped, and
corporate profit growth remained elusive. However, this year saw a further
complication to the market picture, as a rash of corporate and accounting
scandals rattled investor confidence, and the world's geopolitical tensions took
a turn for the worse on a number of fronts. The Federal Reserve moved to
alleviate the situation by continuing its accommodative stance, sending
short-term interest rates to their lowest levels in over forty years.
Technology stocks were once again the worst performers, although significant
declines also occurred in the telecommunications, utility, and industrial
sectors. There were no sectors in the S&P 500 Index that even turned in a
positive performance in 2002. Small and mid capitalization stocks outperformed
large cap equities, and value benchmarks declined less than growth indices. All
of the major equity benchmarks declined to levels last seen in 1998. However,
the equity markets did begin to show signs of life at the end of 2002, turning
in strong performance in the fourth quarter.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class S
shares, excluding any charges, provided a total return of -43.74% compared to
the Russell 2000 Index, which returned -20.48%.
PORTFOLIO SPECIFICS: The Portfolio is managed in a growth style: the portfolio
management team seeks companies with above average earnings growth potential
relative to companies in its benchmark. These stocks can often be more expensive
on a Price to Earnings (P/E) basis than the average stock, but look attractive
relative to their growth rates. Historically, this strategy has rewarded
investors over the long term; the "bet" the investor is making is that growth
companies will be able to deliver on the earnings promise and therefore justify
the existing P/E or perhaps even see an expansion of the P/E multiple over time.
This strategy is to some extent dependent on a stable to growing economy; it has
its greatest difficulty in periods of global recession, when companies have
difficulty meeting earnings estimates and multiples collapse. This describes the
period we have just been through in the market.
The Portfolio's underperformance can primarily be attributed to the exposure to
more cyclically sensitive technology stocks, such as semiconductors. These
stocks underperformed as the economic recovery was pushed further out into the
future. However, the Portfolio did benefit from selective stock picking in the
healthcare and technology sectors, as stocks such as Taro Pharmaceuticals,
Cognizant Technology Solutions, and Avid Technology all outperformed
substantially. During the year, we cut back on our exposure to financial stocks,
while we increased our holdings in healthcare and information technology.
MARKET OUTLOOK: As in 1990-1991, current economic recovery appears fragile,
corporate profit growth is anemic, and the stock market is beset over concerns
about credit risk, balance sheets, consumer spending, and corporate capital
spending. Although the Federal Reserve continues to pump liquidity into the
market, we expect it will likely take some time for this stimulus to work its
way through the economy.
Nevertheless, we do believe that corporate profits have bottomed and should
improve in 2003. We are significantly overweight the technology and healthcare
sectors, which we expect may be poised for faster than average growth. Also, we
have increased our exposure to the energy sector, as ongoing disruptions to
supply are likely to keep prices higher for longer. Consistent with our
long-term view, we are focused on companies (i) that have strong new product
cycles and can generate earnings growth regardless of the economy, (ii) that
have restructured their businesses to improve profitability, and (iii) whose
managements are focused on improving shareholder value.
8
ING VP SMALLCAP OPPORTUNITIES PORTFOLIO Portfolio Manager's Report
- --------------------------------------------------------------------------------
5/3/01 12/31/01 12/31/02
------ -------- --------
ING VP SmallCap Opportunites Portfolio $10,000 $8,610 $4,844
Russell 2000 Index $10,000 $10,166 $8,084
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
-----------------------------
SINCE INCEPTION
1 YEAR 5/3/01
------ ------
Class S -43.74% -35.38%
Russell 2000 Index -20.48% -11.98%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP SmallCap Opportunities Portfolio against the Russell 2000
Index. The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/01.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investment in equities. The Portfolio invests in smaller companies which may be
more susceptible to price volatility and are less liquid than larger companies.
See accompanying index descriptions on page 18.
9
ING VP LARGE COMPANY VALUE PORTFOLIO Portfolio Manager's Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT: Thomas Jackson, Senior Vice President and Senior Portfolio
Manager, ING Investments, LLC.
GOAL: The ING VP Large Company Value Portfolio the "Portfolio") seeks long-term
capital appreciation with income as a secondary objective.
MARKET OVERVIEW: The U.S. stock market declined significantly in the year ended
December 31, 2002 with the S&P 500 Index (S&P 500) down 22.10% and the S&P/Barra
Value Index down 20.86%. The period exhibited substantial volatility as the
stock market declined dramatically into early October 2002 and then rallied in
the fourth quarter of the year. The stock market was buffeted by a number of
concerns: 1) The fear of a double dip recession as an already slow economic
rebound began to falter; 2) A below average rebound in corporate profits; 3) An
absolute aversion to risk in the corporate debt markets resulting in quality
spreads continuing to widen compared to Treasury bond yields; and 4) Investor
concerns regarding possible military action in Iraq. The rebound from the
October lows was accompanied initially by some better than expected signs of
economic growth, by a further cut in interest rates by the Federal Reserve, and
by narrowing quality spreads in the debt markets.
For the year, the stocks of smaller and mid-sized companies outperformed those
of larger companies. Looking at the S&P/Barra style based indices, value stocks
outperformed growth stocks across the capitalization spectrum for the third year
in a row.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class S
shares provided a total return of -22.39%, compared to the S&P 500, which
returned -22.10%.
PORTFOLIO SPECIFICS: The Portfolio is being managed in a value investment style,
which concentrates on companies that sell at significant valuation discounts to
the stock market and which also sell at significant valuation discounts to their
own history. There is a large degree of contrary opinion embodied in this
approach. Studies of the past indicate that this may be a good way to manage
money over the long run. However, it is worthwhile to point out that the stock
market is not ignorant. Generally companies that sell at large valuation
discounts to the market are experiencing some, hopefully temporary, problem. The
value investor is accepting the risk of the problems and the attendant time risk
until they are (if ever) solved. In return, the investor receives the potential
"benefit" of buying investments on sale.
This description of value investing serves as a good introduction to the
analysis of the performance results for the period and to illustrate the risks
of the value approach. The under-performance of the Portfolio for the last year
relative to the S&P 500 and the S&P/Barra Value Index is more than attributable
to the Fund's large and unsuccessful investments in the electric utility
industry. This position was established after the Enron debacle as the stocks in
the industry declined substantially and were selling at both very high dividend
yields and low valuations compared to the past. However, the confluence of
events afflicting them turned out to be akin to the Perfect Storm. They included
questionable accounting and business practices, debt heavy balance sheets, the
California energy crisis, regional over capacity, lower demand for electricity
due to the recession, a collapse in energy trading, declining profit margins,
and rapidly declining credit ratings. These problems combined to depress not
only current profits, but ultimately the longer-term outlook for company profits
as well. In short, while the stocks appeared "cheap" on the numbers, the
problems proved to be much worse than expected resulting in significant further
declines in the stocks. The declines in the long-term profit outlook made the
initial valuation judgment incorrect. We eventually reduced the utility
investment substantially, but not before it negatively impacted the results of
the Portfolio. There is a general lesson in this with regard to value investing:
If the problem that is making the stock "cheap" turns out to be intractable, the
original "discount price" is likely to be insufficient to justify the
investment. If you buy what turns out to be shoddy merchandise, even on sale,
you are unlikely to have a happy result.
Much did go relatively right over the last year. The Portfolio's underweight in
technology, financial, and energy stocks combined with relatively good
selectivity in these groups partially offset the poor performance of the
utilities.
MARKET OUTLOOK: While the length and depth of the market decline over the last
several years has been painful, the good news is that stocks appear now more
reasonably priced than they have been in a long time. In fact, at the October
lows, the market was selling below its long term average price to earnings ratio
based on consensus 2003 earnings estimates. Given the substantial decline in
interest rates (which compete with stocks for investor attention and serve as
the underpinning for stock valuation), stocks are at more attractive valuation
levels than has been the case for the last quarter of a century. In fact, the
dividend yield on the market is now higher than short-term interest rates, a
situation that has not been experienced for any extended period since the early
1950's. Meanwhile, the economy and corporate profits continue to grow albeit at
modest rates, inflation seems under control, and the Federal Reserve is
accommodating.
The market continues to deal with a number of issues including accounting
integrity and corporate governance, record levels of corporate and consumer
debt, the intermediate term trajectory of the economy, the long-term growth of
corporate profits, and the impact of the potential war in Iraq and the war
against terrorism in general. While each of these issues has the potential to
significantly impact short-term market returns, current valuation levels would
seem to be attractive enough to justify the belief that the worst of this long
and deep bear market may be behind us. With that said, it is also reasonable to
expect that future returns from stocks may be significantly below what we became
accustomed to in the `80's and `90's. In fact, stocks may well provide returns
10
Portfolio Manager's Report ING VP LARGE COMPANY VALUE PORTFOLIO
- --------------------------------------------------------------------------------
below their long-term average. However, compared to current low interest rates,
they may still be the best deal in town.
Our strategy is to continue to seek out companies that have depressed current
valuations where we believe that their long-term prospects are not adequately
reflected in their stock price. Technology and Healthcare companies are
over-weighted compared to the Value indices (about in line with the S&P 500). As
an offset, we are under-weighted in Financial Services (particularly banks) and
Consumer Cyclical companies compared to most value benchmarks. While the
portfolio has been constructed stock by stock, there are a couple of broad
themes that run through the portfolio: 1). To the degree possible, we own
companies with pricing power. In the current very low inflation environment,
pricing power is a valuable asset. Property and Casualty Insurance, Healthcare,
Tobacco, and perhaps Energy companies all currently have the ability to raise
prices on their products. 2). Dividends are a more certain component of equity
return than capital gains. All things equal, we would prefer to own dividend
payers rather than non-dividend payers.
7/31/01 12/31/01 12/31/02
------- -------- --------
ING VP Large Company Value Portfolio $10,000 $10,492 $8,143
S&P 500 Index $10,000 $9,538 $7,430
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
------------------------------
SINCE INCEPTION
1 YEAR 7/31/01
------ -------
Class S -22.39% -13.47%
S&P 500 Index -22.10% -18.92%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP Large Company Value Portfolio against the S&P 500 Index.
The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total returns would have
been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 8/1/01.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller medium-sized companies may entail greater price variability
than investing in stocks of larger companies. The Fund may also invest in
foreign securities. International investing does pose special risks, including
currency fluctuations, economic and political risks not found in investments
that are solely domestic. Investing in funds that are concentrated in a smaller
number of holdings poses greater risk than those funds with a larger number of
holdings because each investment has a greater effect on the Fund's performance.
See accompanying index descriptions on page 18.
11
ING VP MAGNACAP PORTFOLIO Portfolio Manager's Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Thomas Jackson, Senior Vice President and Senior
Portfolio Manager, ING Investments, LLC.
GOAL: The ING VP MagnaCap Portfolio (the "Portfolio") seeks growth of capital
with dividend income as secondary consideration.
MARKET OVERVIEW: The U.S. stock market declined significantly in the year ended
December 31, 2002 with the S&P 500 Index (S&P 500) down 22.10% and the S&P/Barra
Value Index down 20.86%. The period exhibited substantial volatility as the
stock market declined dramatically into early October 2002 and then rallied in
the fourth quarter of the year. The stock market was buffeted by a number of
concerns: 1) The fear of a double dip recession as an already slow economic
rebound began to falter; 2) A below average rebound in corporate profits; 3) An
absolute aversion to risk in the corporate debt markets resulting in quality
spreads continuing to widen compared to Treasury bond yields; and 4) Investor
concerns regarding possible military action in Iraq. The rebound from the
October lows was accompanied initially by some better than expected signs of
economic growth, by a further cut in interest rates by the Federal Reserve, and
by narrowing quality spreads in the debt markets.
For the year, the stocks of smaller and mid-sized companies outperformed those
of larger companies. Looking at the S&P/Barra style based indices, value stocks
outperformed growth stocks across the capitalization spectrum for the third year
in a row.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class S
shares, excluding any charges, provided a total return of -22.99%, compared to
the S&P 500, which returned -22.10%.
PORTFOLIO SPECIFICS: The Portfolio is being managed in a value investment style,
which concentrates on companies that sell at significant valuation discounts to
the stock market and which also sell at significant valuation discounts to their
own history. There is a large degree of contrary opinion embodied in this
approach. Studies of the past indicate that this may be a good way to manage
money over the long run. However, it is worthwhile to point out that the stock
market is not ignorant. Generally companies that sell at large valuation
discounts to the market are experiencing some, hopefully temporary, problem. The
value investor is accepting the risk of the problems and the attendant time risk
until they are (if ever) solved. In return, the investor receives the potential
"benefit" of buying investments on sale.
This description of value investing serves as a good introduction to the
analysis of the performance results for the period and to illustrate the risks
of the value approach. The under-performance of the Portfolio for the last year
relative to the S&P 500 and the S&P/Barra Value Index is more than attributable
to the Portfolio's large and unsuccessful investment in the Electric Utility
industry. This position was established after the Enron debacle as the stocks in
the industry declined substantially and were selling at both very high dividend
yields and low valuations compared to the past. However, the confluence of
events afflicting them turned out to be akin to the Perfect Storm. They included
questionable accounting and business practices, debt heavy balance sheets, the
California energy crisis, regional over capacity, lower demand for electricity
due to the recession, a collapse in energy trading, declining profit margins,
and rapidly declining credit ratings. These problems combined to depress not
only current profits, but ultimately the longer-term outlook for company profits
as well. In short, while the stocks appeared "cheap" on the numbers, the
problems proved to be much worse than expected resulting in significant further
declines in the stocks. The declines in the long-term profit outlook made the
initial valuation judgment incorrect. We eventually reduced the Utility
investment substantially, but not before it negatively impacted the results of
the Portfolio. There is a general lesson in this with regard to Value investing:
If the problem that is making the stock "cheap" turns out to be intractable, the
original "discount price" is likely to be insufficient to justify the
investment. If you buy what turns out to be shoddy merchandise, even on sale,
you are unlikely to have a happy result.
Much did go relatively right over the last year. The Portfolio's underweight in
technology, financial, and energy stocks combined with relatively good
selectivity in these groups partially offset the poor performance of the
utilities.
MARKET OUTLOOK: While the length and depth of the market decline over the last
several years has been painful, the good news is that stocks appear now more
reasonably priced than they have been in a long time. In fact, at the October
lows, the market was selling below its long term average price to earnings ratio
based on consensus 2003 earnings estimates. Given the substantial decline in
interest rates (which compete with stocks for investor attention and serve as
the underpinning for stock valuation), stocks are at more attractive valuation
levels than has been the case for the last quarter of a century. In fact, the
dividend yield on the market is now higher than short-term interest rates, a
situation that has not been experienced for any extended period since the early
1950's. Meanwhile, the economy and corporate profits continue to grow albeit at
modest rates, inflation seems under control, and the Federal Reserve is
accommodating.
The market continues to deal with a number of issues including accounting
integrity and corporate governance, record levels of corporate and consumer
debt, the intermediate term trajectory of the economy, the long-term growth of
corporate profits, and the impact of the potential war in Iraq and the war
against terrorism in general. While each of these issues has the potential to
significantly impact short-term market returns, current valuation levels would
seem to be attractive enough to justify the belief that the worst of this long
and deep bear market may be behind us. With that said, it is also reasonable to
expect that future returns from stocks may be significantly below what we became
accustomed to in the `80's and `90's. In fact, stocks may well provide returns
12
Portfolio Manager's Report ING VP MAGNACAP PORTFOLIO
- --------------------------------------------------------------------------------
below their long-term average. However, compared to current low interest rates,
they may still be the best deal in town.
Our strategy is to continue to seek out companies that have depressed current
valuations where we believe that their long-term prospects are not adequately
reflected in their stock price. Technology and Healthcare companies are
over-weighted compared to the Value indices (about in line with the S&P 500). As
an offset, we are under-weighted in Financial Services (particularly banks) and
Consumer Cyclical companies compared to most value benchmarks. While the
portfolio has been constructed stock by stock, there are a couple of broad
themes that run through the portfolio: 1). To the degree possible, we own
companies with pricing power. In the current very low inflation environment,
pricing power is a valuable asset. Property and Casualty Insurance, Healthcare,
Tobacco, and perhaps Energy companies all currently have the ability to raise
prices on their products. 2). Dividends are a more certain component of equity
return than capital gains. All things equal, we would prefer to own dividend
payers rather than non-dividend payers.
5/3/01 12/31/01 12/31/02
------ -------- --------
ING VP MagnaCap Portfolio (1) $ 10,000 $ 9,425 $ 7,258
S&P 500 Index (2) $ 10,000 $ 9,276 $ 7,225
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
------------------------------
SINCE INCEPTION
1 YEAR 5/3/01
------ ------
Class S -22.99% -17.55%
S&P 500 Index -22.10% -17.72%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP MagnaCap Portfolio against the S&P 500 Index. The Index
is unmanaged and has an inherent performance advantage over the Portfolio since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The
Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 5/1/01.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. International investing does pose special risks
including currency fluctuation, economic, and political risks not found in
domestic investments. Investing in funds that are concentrated in a smaller
number of holdings poses greater risk than those funds with a larger number of
holdings because each investment has a greater effect on the Fund's performance.
See accompanying index descriptions on page 18.
13
ING VP CONVERTIBLE PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Ed Schriver, Anu Sahai, Andy Mitchell, ING
Investments, LLC.
GOAL: The ING VP Convertible Portfolio, (the "Portfolio") seeks to maximize
total return, consisting of capital appreciation and current income, by
investing at least 80% of its assets in convertible securities.
MARKET OVERVIEW: The first half of 2002 witnessed a divergence between the
economy and the financial markets. The market posted positive returns in early
2002, only to see them eroded by increasing concerns regarding integrity of
corporate accounting, reduced expectations on the strength of the U.S. economic
rebound, international hostilities and valuation levels within the equity
markets. At the same time, Wall St. firms lost some credibility from
investigations into their role in the telecom/internet bubble. To jump-start the
economy, the Federal Reserve kept lowering short-term rates to the lowest levels
seen in decades. The late-year rally was not substantial enough to mitigate the
full year negative returns.
The increasingly defensive tone of the U.S. financial markets led to
value-oriented sectors such as financials, consumer staples, and materials
posting the strongest returns. Thanks to the accounting scandals revealed for
some of the large companies like Adelphia Communications, Enron, Xerox and
WorldCom, the worst performing sectors were the technology, utility, media, and
telecom sectors.
PERFORMANCE: For the year ended December 31, 2002, the Portfolio's Class S
shares, excluding any charges, provided a total return of -6.89% compared to the
Credit Suisse First Boston Convertible Index, which returned -8.13%
PORTFOLIO SPECIFICS: The convertible securities market was not immune to the
changes the financial markets witnessed. Since the convertible securities
universe is over weighted in technology, one might have even expected
convertibles to fare worse in the continued sell-off of the last year. With the
decrease in equity valuations, however, more of the convertible universe has
become more bond like than it has been in the past, and thus, less sensitive to
changes in the underlying equity. As an asset class, convertibles outperformed
stocks and trounced technology heavy indices such as the NASDAQ Composite.
Following a management change in April, the Portfolio benefited from the
repositioning to a more market-weighted and near-term defensive posture with
respect to equity sensitivity and certain sector positioning. Security selection
was particularly successful in the technology, telecommunication and utility
sectors, where the Portfolio was underweight. Overweighting of the healthcare
and financial sectors also helped the Portfolio versus the benchmark. Though
energy as a sector was down, driven by the Enron collapse, the Portfolio was
able to out perform the sector through favorable sub-sector and security
selections. Within healthcare, the Portfolio witnessed positive returns in the
health services segment, though somewhat offset by the negative performance of
the biotechnology segment.
MARKET OUTLOOK: Despite the likelihood that the Fed may continue to be more
accommodative, we think the profitability outlook for firms may only slowly
improve. Businesses simply do not have much pricing power and indeed this aspect
is one of the reasons why inflation will likely remain under control during the
economic recovery and why the Fed may be under less pressure to raise rates than
commonly assumed. Continued investor uncertainty is not out of the question,
with forward-looking economic indicators pointing to lingering softness in the
U.S. economy in the near term. Thus, we expect volatility in the markets to stay
high through the early part of 2003. In light of this, convertibles are probably
the most attractive asset class due to the upside potential and the downside
protection.
We continue to favor a relatively more defensive holding mix in the near term.
At the same time, we continue to look for companies, primarily in cyclicals, but
across the spectrum, that may benefit from a gradually recovering economy as we
expect the market will likely reward companies that typically benefit in the
recovery part of the cycle.
A bottom up approach, which relies on fundamental analysis and careful stock
selection within our broader top down sector positioning strategy, continues to
be the foundation for our investment decisions.
14
Portfolio Managers' Report ING VP CONVERTIBLE PORTFOLIO
- --------------------------------------------------------------------------------
8/20/01 12/31/01 12/31/02
------- -------- --------
ING VP Convertible Portfolio $10,000 $10,567 $9,840
Credit Suisse First Boston Convertible Index $10,000 $10,031 $9,216
AVERAGE ANNUAL
TOTAL RETURNS FOR THE
PERIODS ENDED
DECEMBER 31, 2002
---------------------------
SINCE INCEPTION
1 YEAR 8/20/01
------ -------
Class S -6.89% -1.17%
Credit Suisse First Boston Convertible
Index -8.13% -5.94%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP Convertible Portfolio against the Credit Suisse First
Boston Convertible Index. The Index is unmanaged and has an inherent performance
advantage over the Portfolio since it has no cash in its portfolio, imposes no
sales charges and incurs no operating expenses. An investor cannot invest
directly in an index. The Portfolio's performance is shown without the
imposition of any expenses or charges which are, or may be, imposed under your
annuity contract or life insurance policy. Total returns would have been lower
if such expenses or charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 9/1/01.
PRINCIPAL RISK FACTOR(S): The credit standing of the issuer and other factors
may affect the investment value of a convertible security. The market value of
convertible debt securities tends to vary inversely with the level of interest
rates. Lower rated securities may be less liquid than higher quality
investments. This fund also has exposure to financial, market and interest rate
risks. Higher yields reflect the higher credit risks associated with certain
lower rated securities in the Fund's portfolio and in some cases, the lower
market prices for those instruments. The Portfolio may also invest in small and
medium sized companies, which may be more susceptible to greater price
volatility than larger companies. Investing in funds that are concentrated in a
smaller number of holdings poses greater risk than those funds with a larger
number of holdings because each investment has a greater effect on the Fund's
performance.
See accompanying index descriptions on page 18.
15
ING VP INTERNATIONAL VALUE PORTFOLIO Portfolio Managers' Report
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT TEAM: Brandes' LargeCap Investment Committee, Brandes
Investment Partners, L.P.
GOAL: The ING VP International Value Portfolio (the "Portfolio") seeks long-term
capital appreciation by investing primarily in non-U.S. companies with market
capitalizations greater than $1 billion. The Portfolio may hold up to 25% of its
assets in companies with smaller market capitalizations.
MARKET OVERVIEW: 2002 was a year in which an expected global recovery failed to
take hold and the only meaningful source of demand benefiting international
companies was the U.S. consumer! Ultimately, confidence was depressed by
corporate scandals and the threat of war. After an August rally fizzled, major
markets fell to multi-year lows at the beginning of October, before rebounding
in the last quarter. For the year, based on the relevant MSCI indices expressed
in U.S. dollars, European markets (ex the U.K.) fell 20.3%, the U.K. market fell
15.2%, Japan fell 10.3% and emerging markets fell an average of 6.2%.
Practically all of the losses were incurred in the second half. The U.S. dollar
fell nearly 12% on average against foreign currencies, (using stock market
capitalization as weights).
PERFORMANCE: For the period from inception (March 19, 2002), the Portfolio's
class S shares, excluding any charges, provided a total return of -19.04%,
compared to the MSCI EAFE, which returned -16.13%
PORTFOLIO SPECIFICS: Since the change in management, the Portfolio has gained in
asset allocation from its cash holdings and by being underweight technology, as
the managers were skeptical about the pace of global recovery in capital
spending. Stock selection gains were made for the half-year among financial
stocks and materials. However, this was diminished by significant stock
selection losses in the consumer discretionary sector.
Since mid year, the stock that contributed most to performance was U.K. mobile
telecommunications giant Vodaphone, which rose 34%. The stock that contributed
least was German insurer Allianz, which fell 53%.
Since the initial re-positioning of the Portfolio, sector weightings have not
changed dramatically and were driven by changes in relative value, often at the
stock level. The underweighting in technology was reduced by the end of the year
as prices became more reasonable. On the other hand the underweighting in
financials was increased as the continued failure of the world's economies to
gain traction dampened their prospects. The underweighting in utilities was also
increased and the overweighting in consumer staples reduced to neutral, as
stocks in these sectors seemed to offer less and less value.
Changes in regional weights during this time were again driven by the sector and
stock decisions of the type referred to above. The most noteworthy net results
were the reduction of the underweight in Japan and the increase in our emerging
markets weighting largely at the expense of developed Europe ex the U.K.
MARKET OUTLOOK: As welcomed as the rally in the last quarter of 2002 was, half
of the gains were given back in December as the old nagging economic fears
resurfaced: that the one and only material source of demand in the world to keep
business activity going was U.S. consumers and they were starting to tire. There
is still no sign of a rebound in capital spending after the excesses of the late
1990s. Add to this geopolitical foreboding, as armed conflict in the Middle East
edged ever closer and a new crisis gathered over the Korean Peninsula.
Investment strategy in our broadly based international Portfolios, therefore,
assumes a continued state of weak global demand. An underweight in financials,
principally banks, by about 6% and in utilities by about 5%, are our biggest
sector bets. Regionally we are underweight in developed markets against the MSCI
EAFE benchmark but we hold between 5% and 6% in emerging markets plus a few
names in Canada. It must be stressed, however, that these sector and regional
weighting decisions arise primarily at the stock level. Cash remains relatively
high because of the need to be deliberate before investing in these markets,
where there are no safe havens.
16
Portfolio Managers' Report ING VP INTERNATIONAL VALUE PORTFOLIO
- --------------------------------------------------------------------------------
3/19/02 12/31/02
------- --------
ING VP International Value Portfolio $10,000 $8,096
MSCI EAFE Index $10,000 $8,387
TOTAL RETURNS FOR THE
PERIOD ENDED
DECEMBER 31, 2002
---------------------
SINCE INCEPTION
3/19/02
-------
Class S -19.04%
MSCI EAFE Index -16.13%(1)
Based on a $10,000 initial investment, the table and graph above illustrate the
total return of ING VP International Value Portfolio against the MSCI EAFE
Index. The Index is unmanaged and has an inherent performance advantage over the
Portfolio since it has no cash in its portfolio, imposes no sales charges and
incurs no operating expenses. An investor cannot invest directly in an index.
The Portfolio's performance is shown without the imposition of any expenses or
charges which are, or may be, imposed under your annuity contract or life
insurance policy. Total returns would have been lower if such expenses or
charges were included.
Performance table and graph do not reflect the deduction of taxes that a
shareholder will pay on portfolio distributions or the redemption of portfolio
shares.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Portfolio. Total return results would
have been lower had there been no waiver to the Portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS'
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Since inception performance for the index is shown from 4/1/02.
PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany
investments in equities. International investing does pose special risks
including currency fluctuation, economic, and political risks not found in
domestic investments. Investing in funds that are concentrated in a smaller
number of holdings poses greater risk than those funds with a larger number of
holdings because each investment has a greater effect on the Portfolio's
performance.
See accompanying index descriptions on page 18.
17
INDEX DESCRIPTIONS
- --------------------------------------------------------------------------------
The STANDARD & POORS (S&P) 500 INDEX is a widely recognized, unmanaged index of
500 common stocks.
The RUSSELL 2000 INDEX is an unmanaged index that measures the performance of
2,000 small companies.
The NASDAQ COMPOSITE INDEX is an unmanaged index that measures all domestic and
non-U.S. based common stocks listed on the Nasdaq stock market. The index is
market-value weighted.
The S&P MIDCAP 400 INDEX is an unmanaged index which measures performance of the
mid-size company segment of the U.S. market.
The RUSSELL 1000 GROWTH INDEX is an index that measures the performance of those
Russell 1000 Index companies with higher price-to-book ratios and higher
forecasted growth values.
The CREDIT SUISSE FIRST BOSTON CONVERTIBLE INDEX is an index representing the
universe of convertible securities.
The MSCI EAFE INDEX consists of more than 1,000 securities taken from the
largest market capitalization companies based in Europe, Australia and Asia
(Australasia), and the Far East.
The S&P BARRA VALUE INDEX is a capitalization-weighted index of all the stocks
in the S&P 500 Index that have low price-to-book ratios.
All indices are unmanaged.
An investor cannot invest directly in an index.
18
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
ING Variable Products Trust:
We have audited the accompanying statements of assets and liabilities, of ING VP
Growth Opportunities Portfolio, ING VP LargeCap Growth Portfolio, ING VP MidCap
Opportunities Portfolio, ING VP SmallCap Opportunities Portfolio, ING VP Large
Company Value Portfolio, ING VP MagnaCap Portfolio, ING VP Convertible Portfolio
and ING VP International Value Portfolio (formerly, Pilgrim VP Growth
Opportunities Portfolio, Pilgrim VP LargeCap Growth Portfolio, Pilgrim VP MidCap
Opportunities Portfolio, Pilgrim VP SmallCap Opportunities Portfolio, Pilgrim VP
Large Company Value Portfolio, Pilgrim VP MagnaCap Portfolio, Pilgrim VP
Convertible Portfolio, and Pilgrim VP International Value Portfolio,
respectively), eight Portfolios within the ING Variable Products Trust
(formerly, Pilgrim Variable Products Trust) (the "Trust"), including the
portfolios of investments, as of December 31, 2002, and the related statements
of operations for the year then ended, statements of changes in net assets for
each of the years or periods in the two-year period then ended and financial
highlights for each of the years or periods in the three-year period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. For all
periods ending prior to January 1, 2000 the financial highlights were audited by
other auditors whose report thereon dated February 15, 2000 expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002 by correspondence with the custodians
and brokers, and other appropriate audit procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above, except those identified as having been audited by other auditors, present
fairly, in all material respects the financial position of ING VP Growth
Opportunities Portfolio, ING VP LargeCap Growth Portfolio, ING VP MidCap
Opportunities Portfolio, ING VP SmallCap Opportunities Portfolio, ING VP Large
Company Value Portfolio, ING VP MagnaCap Portfolio, ING VP Convertible Portfolio
and ING VP International Value Portfolio as of December 31, 2002, the results of
their operations, changes in their net assets and financial highlights for the
years or periods specified in the first paragraph above, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Boston, Massachusetts
February 7, 2003
19
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING VP ING VP ING VP
GROWTH LARGECAP MIDCAP SMALLCAP
OPPORTUNITIES GROWTH OPPORTUNITIES OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
ASSETS:
Investments in securities at value* $ 14,343,977 $ 1,234,280 $ 6,790,952 $ 91,353,820
Short-term investments at amortized cost 574,000 96,000 435,000 4,360,000
Cash 630 216 815 484
Receivables:
Investment securities sold 192,179 33,914 101,741 1,567,381
Fund shares sold 39,045 -- 86,883 380,040
Dividends and interest 1,181 907 608 1,411
Prepaid expenses 108 -- 2 2,508
Reimbursement due from manager 5,216 1,725 118 14,565
------------ ----------- ------------ -------------
Total assets 15,156,336 1,367,042 7,416,119 97,680,209
------------ ----------- ------------ -------------
LIABILITIES:
Payable for investment securities purchased 259,524 23,827 62,731 802,178
Payable for fund shares redeemed 5 42 46,631 42,419
Payable to affiliates (Note 6) 12,756 1,403 5,673 78,468
Other accrued expenses and liabilities 18,480 21,888 23,590 76,233
------------ ----------- ------------ -------------
Total liabilities 290,765 47,160 138,625 999,298
------------ ----------- ------------ -------------
NET ASSETS $ 14,865,571 $ 1,319,882 $ 7,277,494 $ 96,680,911
============ =========== ============ =============
NET ASSETS WERE COMPRISED OF:
Paid-in Capital 24,274,652 1,839,448 10,140,114 184,482,950
Accumulated net investment loss -- (3,239) -- --
Accumulated net realized loss on investments (9,474,889) (557,505) (2,884,366) (92,355,367)
Net unrealized appreciation of investments 65,808 41,178 21,746 4,553,328
------------ ----------- ------------ -------------
NET ASSETS $ 14,865,571 $ 1,319,882 $ 7,277,494 $ 96,680,911
============ =========== ============ =============
* Cost of securities $ 14,278,169 $ 1,193,102 $ 6,769,206 $ 86,800,492
CLASS R:
Net assets $ 4,808,144 n/a $ 4,682,989 $ 64,766,869
Shares authorized unlimited n/a unlimited unlimited
Par value $ 0.01 n/a $ 0.01 $ 0.01
Shares outstanding 1,280,499 n/a 1,040,991 6,084,636
Net asset value and redemption price per share $ 3.75 n/a $ 4.50 $ 10.64
CLASS S:
Net assets $ 10,057,427 $ 1,319,882 $ 2,594,505 $ 31,914,042
Shares authorized unlimited unlimited unlimited unlimited
Par value $ 0.01 $ 0.01 $ 0.01 $ 0.01
Shares outstanding 2,675,633 210,667 580,646 3,008,213
Net asset value and redemption price per share $ 3.76 $ 6.27 $ 4.47 $ 10.61
See Accompanying Notes to Financial Statements
20
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING VP
LARGE ING VP ING VP INTERNATIONAL
COMPANY VALUE MAGNACAP CONVERTIBLE VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
ASSETS:
Investments in securities at value* $ 1,320,628 $ 16,986,136 $ 1,345,619 $ 58,164,142
Short-term investments at amortized cost 65,000 711,000 187,000 --
Cash 330 633 557 6,501,919
Receivables:
Investment securities sold -- -- -- 909,405
Fund shares sold 651 1,692 4,096 269,043
Dividends and interest 3,224 40,537 5,567 66,918
Other Assets (Note 2) -- -- -- 1,428,715
Prepaid expenses -- 105 2 24,344
Reimbursement due from manager -- 5,209 3,611 84,053
----------- ------------ ----------- ------------
Total assets 1,389,833 17,745,312 1,546,452 67,448,539
----------- ------------ ----------- ------------
LIABILITIES:
Payable for investment securities purchased -- -- -- 1,810,358
Payable for fund shares redeemed -- 7,821 -- --
Payable for securities loaned -- -- -- 1,428,715
Payable to affiliates (Note 6) 2,158 14,961 1,381 59,513
Other accrued expenses and liabilities 21,288 10,987 18,443 66,075
----------- ------------ ----------- ------------
Total liabilities 23,446 33,769 19,824 3,364,661
----------- ------------ ----------- ------------
NET ASSETS $ 1,366,387 $ 17,711,543 $ 1,526,628 $ 64,083,878
=========== ============ =========== ============
NET ASSETS WERE COMPRISED OF:
Paid-in Capital 1,668,504 21,683,696 1,620,968 75,107,726
Accumulated net investment loss (2,821) -- (3,051) --
Accumulated net realized loss on investments and
foreign currencies (60,647) (897,632) (80,938) (7,952,816)
Net unrealized depreciation of investments and
foreign currencies (238,649) (3,074,521) (10,351) (3,071,032)
----------- ------------ ----------- ------------
NET ASSETS $ 1,366,387 $ 17,711,543 $ 1,526,628 $ 64,083,878
=========== ============ =========== ============
* Cost of securities $ 1,559,277 $ 20,060,657 $ 1,355,970 $ 61,242,782
CLASS R:
Net assets n/a $ 4,868,494 n/a $ 64,042,061
Shares authorized n/a unlimited n/a unlimited
Par value n/a $ 0.01 n/a $ 0.01
Shares outstanding n/a 714,226 n/a 7,450,020
Net asset value and redemption price per share n/a $ 6.82 n/a $ 8.60
CLASS S:
Net assets $ 1,366,387 $ 12,843,049 $ 1,526,628 $ 41,817
Shares authorized unlimited unlimited unlimited unlimited
Par value $ 0.01 $ 0.01 $ 0.01 $ 0.01
Shares outstanding 172,416 1,875,537 161,523 4,817
Net asset value and redemption price per share $ 7.92 $ 6.85 $ 9.45 $ 8.68
See Accompanying Notes to Financial Statements
21
STATEMENTS OF OPERATIONS for the year ended December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING VP ING VP ING VP
GROWTH LARGECAP MIDCAP SMALLCAP
OPPORTUNITIES GROWTH OPPORTUNITIES OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
INVESTMENT INCOME:
Dividends (net of foreign taxes)* $ 36,843 $ 6,701 $ 18,083 $ 58,263
Interest 17,782 1,810 9,157 93,425
------------ ---------- ------------ -------------
Total investment income 54,625 8,511 27,240 151,688
------------ ---------- ------------ -------------
EXPENSES:
Investment advisory fees 104,703 9,184 44,465 807,368
Distribution and service fees:
Class S 20,670 3,062 4,419 63,213
Transfer agent fees
Class R 6,941 -- 11,223 24,480
Class S 9,285 7,403 4,451 9,072
Administrative and service fees 13,960 1,225 5,929 107,649
Custody and accounting fees 26,161 9,145 14,700 68,579
Shareholder reporting expense 6,544 3,384 1,853 84,438
Registration fees 12 -- 5 114
Professional fees 16,699 4,310 6,300 211,830
Trustee fees 598 749 459 10,818
Insurance expense 305 28 163 1,430
Miscellaneous expense 648 759 700 4,949
Organization fees -- 5,371 -- --
------------ ---------- ------------ -------------
Total expenses 206,526 44,620 94,667 1,393,940
Less:
Net waived and reimbursed fees 65,358 31,118 38,270 376,990
------------ ---------- ------------ -------------
Net expenses 141,168 13,502 56,397 1,016,950
------------ ---------- ------------ -------------
Net investment loss (86,543) (4,991) (29,157) (865,262)
------------ ---------- ------------ -------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net realized loss on investments (4,318,716) (491,100) (1,362,217) (53,973,850)
Net change in unrealized depreciation of
investments (983,883) (13,247) (443,368) (8,612,173)
------------ ---------- ------------ -------------
Net realized and unrealized loss on investments (5,302,599) (504,347) (1,805,585) (62,586,023)
------------ ---------- ------------ -------------
DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (5,389,142) $ (509,338) $ (1,834,742) $ (63,451,285)
============ ========== ============ =============
* Foreign taxes $ 40 $ 13 $ 164 $ --
See Accompanying Notes to Financial Statements
22
STATEMENTS OF OPERATIONS for the year ended December 31, 2002
- --------------------------------------------------------------------------------
ING VP ING VP
LARGE ING VP ING VP INTERNATIONAL
COMPANY VALUE MAGNACAP CONVERTIBLE VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
INVESTMENT INCOME:
Dividends (net of foreign taxes)* $ 22,529 $ 261,758 $ 16,558 $ 811,292
Interest 2,514 26,330 31,140 69,204
Securities loaned income -- -- -- 13,253
---------- ------------ ---------- ------------
Total investment income 25,043 288,088 47,698 893,749
---------- ------------ ---------- ------------
EXPENSES:
Investment advisory fees 8,906 102,228 9,209 499,493
Distribution and service fees:
Class S 2,969 25,425 3,070 75
Transfer agent fees
Class R -- 3,591 -- 27,950
Class S 7,483 10,432 6,664 18
Administrative and service fees 1,188 13,630 1,228 49,949
Custodian and fund accounting fees 2,860 14,244 5,279 104,074
Shareholder reporting expense 4,110 5,628 2,203 37,437
Registration fees -- 9 -- 1,033
Professional fees 7,720 11,991 8,729 46,995
Trustee fees 747 541 399 11,221
Insurance expense 27 246 28 7,310
Miscellaneous expenses 768 582 641 2,925
Organization fees 5,371 -- 5,368 --
---------- ------------ ---------- ------------
Total expenses 42,149 188,547 42,818 788,480
Less:
Net waived and reimbursed fees 29,033 45,577 29,023 287,805
---------- ------------ ---------- ------------
Net expenses 13,116 142,970 13,795 500,675
---------- ------------ ---------- ------------
Net investment income 11,927 145,118 33,903 393,074
---------- ------------ ---------- ------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCIES
Net realized loss on investments (54,063) (726,298) (76,620) (7,709,041)
Net realized loss on foreign currencies -- -- -- (22,000)
Net change in unrealized depreciation of
investments and foreign currencies (268,118) (3,062,141) (38,482) (930,382)
---------- ------------ ---------- ------------
Net realized and unrealized loss on investments
and foreign currencies (322,181) (3,788,439) (115,102) (8,661,423)
---------- ------------ ---------- ------------
DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (310,254) $ (3,643,321) $ (81,199) $ (8,268,349)
========== ============ ========== ============
* Foreign taxes $ -- $ -- $ -- $ 104,257
See Accompanying Notes to Financial Statements
23
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ING VP ING VP
GROWTH OPPORTUNITIES LARGECAP GROWTH
PORTFOLIO PORTFOLIO
------------------------------ -----------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ----------- -----------
DECREASE IN NET ASSETS FROM OPERATIONS:
Net investment loss $ (86,543) $ (29,783) $ (4,991) $ (1,247)
Net realized loss on investments (4,318,716) (4,003,897) (491,100) (66,405)
Net change in unrealized appreciation
(depreciation) of investments (983,883) 987,091 (13,247) 54,425
------------ ------------ ----------- -----------
Net decrease in net assets resulting from
operations (5,389,142) (3,046,589) (509,338) (13,227)
------------ ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class S -- -- (5,645) --
------------ ------------ ----------- -----------
Total distributions -- -- (5,645) --
------------ ------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 14,682,749 13,711,812 1,864,616 1,038,463
Shares resulting from dividend reinvestments -- -- 5,645 --
Cost of shares redeemed (6,801,716) (4,428,344) (1,052,512) (8,120)
------------ ------------ ----------- -----------
Net increase in net assets resulting from capital
share transactions 7,881,033 9,283,468 817,749 1,030,343
------------ ------------ ----------- -----------
Net increase in net assets 2,491,891 6,236,879 302,766 1,017,116
------------ ------------ ----------- -----------
NET ASSETS:
Beginning of period 12,373,680 6,136,801 1,017,116 --
------------ ------------ ----------- -----------
End of period $ 14,865,571 $ 12,373,680 $ 1,319,882 $ 1,017,116
============ ============ =========== ===========
Accumulated net investment loss at end of period $ -- $ -- $ (3,239) $ (1,042)
============ ============ =========== ===========
- ----------
(1) Portfolio commenced operations on August 2, 2001.
See Accompanying Notes to Financial Statements
24
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
ING VP ING VP
MIDCAP OPPORTUNITIES SMALLCAP OPPORTUNITIES
PORTFOLIO PORTFOLIO
----------------------------- --------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
----------- ----------- ------------- -------------
DECREASE IN NET ASSETS FROM OPERATIONS:
Net investment loss $ (29,157) $ (10,166) $ (865,262) $ (655,228)
Net realized loss on investments (1,362,217) (1,256,157) (53,973,850) (29,337,014)
Net change in unrealized appreciation
(depreciation) of investments (443,368) 393,412 (8,612,173) (9,567,139)
----------- ----------- ------------- -------------
Net decrease in net assets resulting from
operations (1,834,742) (872,911) (63,451,285) (39,559,381)
----------- ----------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class R -- (381) -- --
Net realized gains from investments:
Class R -- -- -- (248,319)
Class S -- -- -- (16,454)
----------- ----------- ------------- -------------
Total distributions -- (381) -- (264,773)
----------- ----------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 9,201,732 5,574,063 72,144,579 71,921,597
Shares resulting from dividend reinvestments -- 381 -- 264,773
Cost of shares redeemed (4,570,452) (2,215,396) (31,028,615) (44,860,295)
----------- ----------- ------------- -------------
Net increase in net assets resulting from capital
share transactions 4,631,280 3,359,048 41,115,964 27,326,075
----------- ----------- ------------- -------------
Net increase (decrease) in net assets 2,796,538 2,485,756 (22,335,321) (12,498,079)
----------- ----------- ------------- -------------
NET ASSETS:
Beginning of year 4,480,956 1,995,200 119,016,232 131,514,311
----------- ----------- ------------- -------------
End of year $ 7,277,494 $ 4,480,956 $ 96,680,911 $ 119,016,232
=========== =========== ============= =============
Accumulated net investment income at end of year $ -- $ -- $ -- $ --
=========== =========== ============= =============
See Accompanying Notes to Financial Statements
25
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
ING VP ING VP
LARGE COMPANY VALUE MAGNACAP
PORTFOLIO PORTFOLIO
----------------------------- ------------------------------
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001(1) 2002 2001
----------- --------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 11,927 $ 2,075 $ 145,118 $ 41,621
Net realized gain (loss) on investments (54,063) 495 (726,298) (143,502)
Net change in unrealized appreciation
(depreciation) of investments (268,118) 29,469 (3,062,141) (29,820)
----------- --------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations (310,254) 32,039 (3,643,321) (131,701)
----------- --------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class R -- -- (43,315) (24,178)
Class S (13,658) (1,855) (103,242) (25,423)
Net realized gains from investments:
Class S -- (8,582) -- --
----------- --------- ------------ -----------
Total distributions (13,658) (10,437) (146,557) (49,601)
----------- --------- ------------ -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 1,367,632 940,620 18,749,038 7,882,757
Shares resulting from dividend reinvestments 13,658 10,437 146,557 49,601
Cost of shares redeemed (372,487) (291,163) (5,548,976) (713,772)
----------- --------- ------------ -----------
Net increase in net assets resulting from capital
share transactions 1,008,803 659,894 13,346,619 7,218,586
----------- --------- ------------ -----------
Net increase in net assets 684,891 681,496 9,556,741 7,037,284
----------- --------- ------------ -----------
NET ASSETS:
Beginning of period 681,496 -- 8,154,802 1,117,518
----------- --------- ------------ -----------
End of period $ 1,366,387 $ 681,496 $ 17,711,543 $ 8,154,802
=========== ========= ============ ===========
Accumulated net investment loss at end of period $ (2,821) $ (1,090) $ -- $ --
=========== ========= ============ ===========
- ----------
(1) Portfolio commenced operations on July 31, 2001.
See Accompanying Notes to Financial Statements
26
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
ING VP ING VP
CONVERTIBLE INTERNATIONAL VALUE
PORTFOLIO PORTFOLIO
------------------------------- -----------------------------------
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001(1) 2002 2001
----------- --------- ------------- ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 33,903 $ 5,195 $ 393,074 $ 447,076
Net realized gain (loss) on investments and
foreign currencies (76,620) (1,881) (7,731,041) 911,291
Net change in unrealized appreciation
(depreciation) of investments and foreign
currencies (38,482) 28,131 (930,382) (4,385,459)
----------- --------- ------------- ------------
Net increase (decrease) in net assets resulting
from operations (81,199) 31,445 (8,268,349) (3,027,092)
----------- --------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class R -- -- (465,254) (448,174)
Class S (35,863) (4,854) (260) --
Net realized gains from investments:
Class R -- -- -- (953,059)
Class S -- (4,038) -- --
----------- --------- ------------- ------------
Total distributions (35,863) (8,892) (465,514) (1,401,233)
----------- --------- ------------- ------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 1,073,298 693,465 187,989,450 76,172,846
Shares resulting from dividend reinvestments 35,863 8,892 465,585 1,401,233
Cost of shares redeemed (187,311) (3,070) (148,859,996) (66,738,442)
----------- --------- ------------- ------------
Net increase in net assets resulting from capital
share transactions 921,850 699,287 39,595,039 10,835,637
----------- --------- ------------- ------------
Net increase in net assets 804,788 721,840 30,861,176 6,407,312
----------- --------- ------------- ------------
NET ASSETS:
Beginning of period 721,840 -- 33,222,702 26,815,390
----------- --------- ------------- ------------
End of period $ 1,526,628 $ 721,840 $ 64,083,878 $ 33,222,702
=========== ========= ============= ============
Undistributed net investment income
(accumulated net investment loss) at end of
period $ (3,051) $ (1,091) $ -- $ 17,565
=========== ========= ============= ============
- ----------
(1) Portfolio commenced operations on August 20, 2001.
See Accompanying Notes to Financial Statements
27
ING VP GROWTH OPPORTUNITIES PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
-----------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 5.49 6.90
Income from investment operations:
Net investment loss $ (0.02) (0.01)
Net realized and unrealized loss
on investments $ (1.71) (1.40)
Total from investment operations $ (1.73) (1.41)
Net asset value, end of period $ 3.76 5.49
TOTAL RETURN(2) % (31.51) (20.43)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 10,057 5,387
Ratio of expenses to average net assets after expense
reimbursement(3)(4) % 1.10 1.10
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 1.58 2.58
Ratio of net investment loss to average net assets after
expense reimbursement(3)(4) % (0.70) (0.72)
Portfolio turnover rate % 407 471
- ----------
(1) The Portfolio commenced offering of Class S shares on May 3, 2001.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
28
ING VP LARGECAP GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
-----------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.66 10.00
Income from investment operations:
Net investment loss $ (0.01) (0.01)
Net realized and unrealized loss on
investments $ (3.35) (0.33)
Total from investment operations $ (3.36) (0.34)
Less distributions from:
Net investment income $ 0.03 --
Total distributions $ 0.03 --
Net asset value, end of period $ 6.27 9.66
TOTAL RETURN(2) % (34.80) (3.40)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,320 1,017
Ratio of expenses to average net assets after
expense reimbursement(3)(4) % 1.10 1.10
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 3.64 7.19
Ratio of net investment loss to average net assets after
expense reimbursement(3)(4) % (0.41) (0.47)
Portfolio turnover rate % 496 159
- ----------
(1) The Portfolio commenced operations on August 2, 2001.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
29
ING VP MIDCAP OPPORTUNITIES PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
-----------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 6.04 7.10
Income from investment operations:
Net investment loss $ (0.02) (0.01)
Net realized and unrealized loss
on investments $ (1.55) (1.05)
Total from investment operations $ (1.57) (1.06)
Net asset value, end of period $ 4.47 6.04
TOTAL RETURN(2) % (25.99) (14.93)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 2,595 865
Ratio of expenses to average net assets after expense
reimbursement(3)(4) % 1.12 1.10
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 1.75 4.28
Ratio of net investment loss to average net assets after
expense reimbursement(3)(4) % (0.67) (0.67)
Portfolio turnover rate % 387 429
- ----------
(1) The Portfolio commenced offering of Class S shares on May 7, 2001.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
30
ING VP SMALLCAP OPPORTUNITIES PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
-----------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 18.86 21.97
Income from investment operations:
Net investment loss $ (0.08) (0.05)
Net realized and unrealized loss on investments $ (8.17) (3.01)
Total from investment operations $ (8.25) (3.06)
Less distributions from:
Net realized gain on investments $ -- 0.05
Total distributions $ -- 0.05
Net asset value, end of period $ 10.61 18.86
TOTAL RETURN(2) % (43.74) (13.90)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 31,914 15,743
Ratio of expenses to average net assets after
expense reimbursement(3)(4) % 1.10 1.10
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 1.49 1.71
Ratio of net investment loss to average net assets after
expense reimbursement(3)(4) % (0.97) (0.90)
Portfolio turnover rate % 414 304
- ----------
(1) The Portfolio commenced offering of Class S shares on May 3, 2001.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
31
ING VP LARGE COMPANY VALUE PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
-----------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.31 10.00
Income from investment operations:
Net investment income $ 0.09 0.03
Net realized and unrealized gain (loss) on investments $ (2.39) 0.46
Total from investment operations $ (2.30) 0.49
Less distributions from:
Net investment income $ 0.09 0.03
Net realized gain on investments $ -- 0.15
Total distributions $ 0.09 0.18
Net asset value, end of period $ 7.92 10.31
TOTAL RETURN(2) % (22.39) 4.92
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,366 681
Ratio of expenses to average net assets after
expense reimbursement(3)(4) % 1.10 1.10
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 3.55 8.57
Ratio of net investment income to average net assets
after expense reimbursement(3)(4) % 1.00 0.96
Portfolio turnover rate % 41 22
- ----------
(1) The Portfolio commenced operations on July 31, 2001.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
32
ING VP MAGNACAP PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
-----------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.98 9.59
Income from investment operations:
Net investment income $ 0.07 0.05
Net realized and unrealized loss on investments $ (2.13) (0.60)
Total from investment operations $ (2.06) (0.55)
Less distributions from:
Net investment income $ 0.07 0.06
Total distributions $ 0.07 0.06
Net asset value, end of period $ 6.85 8.98
TOTAL RETURN(2) % (22.99) (5.75)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 12,843 5,854
Ratio of expenses to average net assets after expense
reimbursement(3)(4) % 1.10 1.10
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 1.45 1.53
Ratio of net investment income to average net assets
after expense reimbursement(3)(4) % 1.01 1.13
Portfolio turnover rate % 47 72
- ----------
(1) The Portfolio commenced offering of Class S shares on May 7, 2001.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
33
ING VP CONVERTIBLE PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
-----------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.42 10.00
Income from investment operations:
Net investment income $ 0.25 0.08
Net realized and unrealized gain (loss) on investments $ (0.97) 0.49
Total from investment operations $ (0.72) 0.57
Less distributions from:
Net investment income $ 0.25 0.08
Net realized gains on investments -- 0.07
Total distributions $ 0.25 0.15
Net asset value, end of period $ 9.45 10.42
TOTAL RETURN(2) % (6.89) 5.67
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 1,527 722
Ratio of expenses to average net assets after
expense reimbursement(3)(4) % 1.12 1.10
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 3.49 7.33
Ratio of net investment income to average net assets
after expense reimbursement(3)(4) % 2.76 2.49
Portfolio turnover rate % 69 14
- ----------
(1) The Portfolio commenced operations on August 20, 2001.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
34
ING VP INTERNATIONAL VALUE PORTFOLIO FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
CLASS S
------------
PERIOD
ENDED
DECEMBER 31,
2002(1)
------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.80
Income from investment operations:
Net investment income $ 0.05
Net realized and unrealized loss on investments $ (2.10)
Total from investment operations $ (2.05)
Less distributions from:
Net investment income $ 0.07
Total distributions $ 0.07
Net asset value, end of period $ 8.68
TOTAL RETURN(2) % (19.04)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 42
Ratio of expenses to average net assets after
expense reimbursement(3)(4) % 1.20
Ratio of expenses to average net assets prior to expense
reimbursement(3) % 1.83
Ratio of net investment income to average net assets
after expense reimbursement(3)(4) % 0.56
Portfolio turnover rate % 164
- ----------
(1) The Class commenced operations on March 19, 2002.
(2) Assumes dividends have been reinvested and does not reflect the effect of
contract insurance charges. Total return for periods less than one year are
not annualized.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses (excluding interest,
taxes, brokerage and extraordinary expenses) subject to possible recoupment
by ING Investments, LLC within three years.
See Accompanying Notes to Financial Statements
35
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
ORGANIZATION. The ING Variable Products Trust is a business trust organized
under the laws of the Commonwealth of Massachusetts on December 17, 1993 and
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. There are eleven investment series which comprise
the Trust. The names of the eight Portfolios in this report, which offer Class S
shares along with their respective investment objectives, are set forth below.
ING VP GROWTH OPPORTUNITIES PORTFOLIO ("GROWTH OPPORTUNITIES PORTFOLIO") is a
diversified portfolio which seeks long-term growth of capital through
investments in common stock of U.S. companies that the portfolio manager feels
have above average prospects for growth.
ING VP LARGECAP GROWTH PORTFOLIO ("LARGECAP GROWTH PORTFOLIO") is a diversified
portfolio which seeks long-term capital appreciation by investing primarily in
stocks from a universe of U.S. companies with market capitalization
corresponding to the upper 90% of the S&P 500 Index.
ING VP MIDCAP OPPORTUNITIES PORTFOLIO ("MIDCAP OPPORTUNITIES PORTFOLIO") is a
diversified portfolio which seeks long-term capital appreciation through
investments in common stock of mid-sized U.S. companies that the portfolio
managers feel have above average prospects for growth.
ING VP SMALLCAP OPPORTUNITIES PORTFOLIO ("SMALLCAP OPPORTUNITIES PORTFOLIO") is
a diversified portfolio with the investment objective of long-term capital
appreciation by investing primarily in small to mid-sized companies that are
believed to have above average prospects for growth.
ING VP LARGE COMPANY VALUE PORTFOLIO ("LARGE COMPANY VALUE PORTFOLIO") is a
diversified portfolio which seeks long-term capital appreciation with income as
a secondary objective.
ING VP MAGNACAP PORTFOLIO ("MAGNACAP PORTFOLIO") is a diversified portfolio
whose investment objective is growth of capital through investments in common
stock of companies that have paid increasing dividends or have had the
capability to pay rising dividends from their operations, with dividend income
as a second consideration.
ING VP CONVERTIBLE PORTFOLIO ("CONVERTIBLE PORTFOLIO") is a diversified
portfolio which seeks to maximize total return by investing primarily in
convertible securities, while maintaining aggregate risk measures similar to
that of the overall convertible universe.
ING VP INTERNATIONAL VALUE PORTFOLIO ("INTERNATIONAL VALUE PORTFOLIO") is a
diversified portfolio with the investment objective of long-term capital
appreciation by investing primarily in foreign companies with a market valuation
greater than $1 billion, but may hold up to 25% of its assets in companies with
smaller market capitalization.
Each Portfolio offers Class S shares. Growth Opportunities Portfolio, MidCap
Opportunities Portfolio, SmallCap Opportunities Portfolio, MagnaCap Portfolio
and International Value Portfolio also offer Class R shares. The two classes
differ principally in the applicable shareholder service fees. Shareholders of
each class also bear certain expenses that pertain to that particular class. All
shareholders bear the common expenses of the Portfolio and earn income from the
portfolio pro rata based on the average daily net assets of each class, without
distinction between share classes. Dividends are determined separately for each
class based on income and expenses allocable to each class. Realized gains are
allocated to each class pro rata based on the net assets of each class on the
date of distribution. No class has preferential dividend rights. Differences in
per share dividend rates generally result from the relative weighting of pro
rata income and realized gain allocations and from differences in separate class
expenses, including shareholder servicing fees.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the
Portfolios in the preparation of their financial statements, and such policies
are in conformity with accounting principles generally accepted in the United
States of America for investment companies.
A. SECURITY VALUATION. Investments in equity securities traded on a national
securities exchange or included on the NASDAQ National Market System are
valued at the last reported sale price. Securities traded on an exchange or
NASDAQ for which there has been no sale and
36
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
securities traded in the over-the-counter-market are valued at the mean
between the last reported bid and ask prices. All investments quoted in
foreign currencies will be valued daily in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at that time. Debt securities
are valued at bid prices obtained from independent services or from one or
more dealers making markets in the securities. U.S. Government obligations
are valued by using market quotations or independent pricing services which
uses prices provided by market-makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Securities for which market quotations are not readily
available are valued at their respective fair values as determined in good
faith and in accordance with policies set by the Board of Directors.
Investments in securities maturing in less than 60 days from the date of
acquisition are valued at amortized cost, which, when combined with accrued
interest, approximates market value.
B. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Securities transactions are
accounted for on the trade date. Realized gains and losses are reported on
the basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis. Dividend income is recorded on the
ex-dividend date, or for certain foreign securities, when the information
becomes available to the Portfolios. Premium amortization and discount
accretion are determined by the effective yield method.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Portfolios are
maintained in U.S. dollars. Any foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and liabilities-
at the exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and expenses-at
the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market values are presented at the foreign
exchange rates at the end of the day, the Portfolios do not isolate the
portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the
net realized and unrealized gains or losses from investments. For
securities, which are subject to foreign withholding tax upon disposition,
liabilities are recorded on the statement of assets and liabilities for the
estimated tax withholding based on the securities current market value.
Upon disposition, realized gains or losses on such securities are recorded
net of foreign withholding tax. Reported net realized foreign exchange
gains or losses arise from sales and maturities of short-term securities,
sales of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Portfolios' books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities other
than investments in securities at fiscal year end, resulting from changes
in the exchange rate. Foreign security and currency transactions may
involve certain considerations and risks not typically associated with
investing in U.S. companies and the U.S. Government. These risks include
but are not limited to re-evaluation of currencies and future adverse
political and economic developments which could cause securities and their
markets to be less liquid and prices more volatile than those of comparable
U.S. companies and the U.S. Government.
D. FOREIGN CURRENCY TRANSACTIONS AND FUTURES CONTRACTS. Certain portfolios may
enter into foreign currency exchange transactions to convert to and from
different foreign currencies and to and from the U.S. dollar in connection
with the planned purchases or sales of securities. The Portfolios either
enter into these transactions on a spot basis at the spot rate prevailing
in the foreign currency exchange market or use forward foreign currency
contracts
37
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
to purchase or sell foreign currencies. When the contract is fulfilled or
closed, gains or losses are realized. Until then, the gain or loss is
included in unrealized appreciation or depreciation. Risks may arise upon
entering into forward contracts from the potential inability of
counterparties to meet the terms of their forward contracts and from the
potential inability of counterparties to meet the terms of their forward
contracts and from unanticipated movements in the value of foreign
currencies relative to the U.S. dollar.
Each Portfolio may enter into futures contracts involving foreign currency,
interest rates, securities and securities indices, for hedging purposes
only. A futures contract obligates the seller of the contract to deliver
and the purchaser of the contract to take delivery of the type of foreign
currency, financial instrument or security called for in the contract at a
specified future time for a specified price. Upon entering into such a
contract, a Portfolio is required to deposit and maintain as collateral
such initial margin as required by the exchange on which the contract is
traded. Pursuant to the contract, a Portfolio agrees to receive from or pay
to the broker an amount equal to the daily fluctuations in the value of the
contract. Such receipts or payments are known as variation margins and are
recorded as unrealized gains or losses by the Portfolios. When the contract
is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
E. DISTRIBUTIONS TO SHAREHOLDERS. The Portfolios record distributions to their
shareholders on ex-date. Dividends from net investment income are declared
and paid quarterly by the Portfolios. Each portfolio pays dividends and
capital gains, if any, annually.
F. FEDERAL INCOME TAXES. It is the policy of the Portfolios, to comply with
the requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute substantially all of their
net investment income and any net realized capital gains to their
shareholders. Therefore, a federal income tax or excise tax provision is
not required. The Board of Directors intends to offset any net capital
gains with any available capital loss carryforward until each carryforward
has been fully utilized or expires. In addition, no capital gain
distribution shall be made until the capital loss carryforward has been
fully utilized or expires.
G. USE OF ESTIMATES. Management of the Portfolios has made certain estimates
and assumptions relating to the reporting of assets, liabilities, income,
and expenses to prepare these financial statements in conformity with
accounting principles generally accepted in the United States of America.
Actual results could differ from these estimates.
H. REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements
only with government securities dealers recognized by the Board of
Governors of the Federal Reserve System or with member banks of the Federal
Reserve System. Under such agreements, the seller of the security agrees to
repurchase it at a mutually agreed upon time and price. The resale price is
in excess of the purchase price and reflects an agreed upon interest rate
for the period of time the agreement is outstanding. The period of the
repurchase agreements is usually short, from overnight to one week, while
the underlying securities generally have longer maturities. Each Portfolio
will always receive as collateral securities acceptable to it whose market
value is equal to at least 100% of the amount being invested by the
Portfolio. The underlying collateral is valued daily on a mark to market
basis to assure that the value, including accrued interest is at least
equal to the repurchase price. If the seller defaults, a Portfolio might
incur a loss or delay in the realization of proceeds if the value of the
collateral securing the repurchase agreement declines, and it might incur
disposition costs in liquidating the collateral.
I. SECURITIES LENDING. Under an agreement with Brown Brothers Harriman
("BBH"), the Portfolio can lend its securities to approved brokers, dealers
and other financial institutions. It has the option to temporarily loan up
to 33 1/3% of its total assets in exchange for a negotiated lender's fee.
The borrower is required to fully collateralize the loans with cash,
letters of credit or U.S. Government securities. Loans are collateralized
by cash, U.S. Government securities
38
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
or irrevocable performance letters of credit issued by banks approved by
the Portfolio. The collateral must be in an amount equal to at least 105%
of the market value of non-U.S. securities loaned and 102% of the market
value of U.S. securities loaned. The cash collateral received is reflected
on the Statement of Assets and Liabilities as Other Assets. The cash
collateral received as of December 31, 2002 is $1,428,715. The cash
collateral received is invested in Brown Brothers Investment Trust. BBH is
investing cash collateral, on behalf of the ING Funds participating in the
BBH Securities Lending Program, in the Securities Lending Investment Fund
("SLIF") which is a series of the Brown Brothers Investment Trust ("BBIT").
The BBIT is a Delaware business trust whose units are not offered for sale
to the public, and whose purchasers are qualified purchasers such as
registered investment companies ("RICs") in accordance with the provisions
of Section 3(C) of the Investment Company Act of 1940. The standard
investment guidelines are modeled after SEC Rule 2a-7. A portion of the
income generated by the investment of the collateral, net of any rebates
paid by BBH to borrowers, is remitted to BBH as lending agent and the
remainder is paid to the Portfolio. Generally, in the event of counterparty
default, the Portfolio has the right to use the collateral to offset losses
incurred. There would be a potential loss to the Portfolio in the event the
Portfolio is delayed or prevented from exercising its right to dispose of
the collateral. The Portfolio bears the risk of loss with respect to the
investment of collateral. At December 31, 2002, the International Value
Portfolio had securities on loan with a total market value of $1,366,209.
J. ILLIQUID AND RESTRICTED SECURITIES. Illiquid securities are not readily
marketable. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for
the Portfolio to sell them promptly at an acceptable price. Restricted
securities are those sold under Rule 144A of the Securities Act of 1933
(1933 Act) or are securities offered pursuant to Section 4(2) of the 1933
Act, and are subject to legal or contractual restrictions on resale and may
not be publicly sold without registration under the 1933 Act. Each
Portfolio may invest up to 15% of its net assets in illiquid securities.
Illiquid and restricted securities are valued using market quotations when
readily available. In the absence of market quotations, the securities are
valued based upon their fair value determined under procedures approved by
the Board. The Portfolio will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any.
K. DELAYED DELIVERY TRANSACTIONS. A Portfolio may purchase or sell securities
on a when-issued or forward commitment basis. The price of the underlying
securities and date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated. The market value of such
is identified in the Portfolios' Portfolio of Investments. Losses may arise
due to changes in the market value of the securities or from the inability
of counterparties to meet the terms of the contract. In connection with
such purchases, the Portfolios are required to hold liquid assets as
collateral with the Portfolios' custodian sufficient to cover the purchase
price.
NOTE 3 -- INVESTMENT TRANSACTIONS
For the year ended December 31, 2002, the cost of purchases and sales of
securities, excluding short-term and U.S. government securities, were as
follows:
PURCHASES SALES
----------- -----------
Growth Opportunities Portfolio $61,168,918 $52,394,758
LargeCap Growth Portfolio 6,445,834 5,608,055
MidCap Opportunities Portfolio 25,544,992 21,390,957
SmallCap Opportunities Portfolio 470,488,964 429,474,151
Large Company Value Portfolio 1,451,468 438,320
MagnaCap Portfolio 19,203,738 5,728,364
Convertible Portfolio 1,548,058 753,602
International Value Portfolio 110,534,319 73,420,342
39
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
Each of the Portfolios has entered into an Investment Management Agreement with
ING Investments, LLC. ("the Manager", formerly ING Pilgrim Investments, LLC), a
wholly-owned subsidiary of ING Groep N.V. The investment management agreements
compensate the Manager with a fee, computed daily and payable monthly, based on
the average daily net assets of each Portfolio. The Manager receives an
investment advisory fee calculated at an annual rate of 0.75% of average daily
net assets from each Portfolio, except International Value Portfolio, from which
it receives 1.00%.
The Manager has engaged Brandes Investment Partners, L.P. ("Brandes"), a
registered investment adviser, to serve as subadviser to the International Value
Portfolio.
Pursuant to the Administrative Services Agreement ING Funds Services, LLC
("IFS", formerly ING Pilgrim Group, LLC) acts as administrator and provides
certain administrative and shareholder services necessary for Portfolios
operations and is responsible for the supervision of other service providers.
IFS is entitled to receive from each Portfolio a fee at an annual rate of 0.10%
of its average daily net assets.
NOTE 5 -- DISTRIBUTION AND SERVICE FEES
Class S shares of each Portfolio has adopted a Plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"), whereby ING Funds Distributor, LLC (the
"Distributor") is reimbursed or compensated (depending on the class of shares)
by the Portfolios for expenses incurred in the distribution of each Portfolios'
shares ("Distribution Fees"). Pursuant to the 12b-1 Plan, the Distributor is
entitled to a payment each month for actual expenses incurred in the
distribution and promotion of each Portfolios' shares, including expenses
incurred in printing prospectuses and reports used for sales purposes, expenses
incurred in preparing and printing sales literature and other such distribution
related expenses, including any distribution or shareholder servicing fees
("Service Fees") paid to securities dealers who have executed a distribution
agreement with the Distributor. Under the 12b-1 Plan, each Portfolio pays the
Distributor a Distribution Fee of 0.25% of average daily net assets attributable
to its Class S shares.
NOTE 6 -- OTHER TRANSACTIONS WITH AFFILIATED AND RELATED PARTIES
At December 31, 2002 the Portfolios had the following amounts recorded in
payable to affiliates on the accompanying Statements of Assets and Liabilities
(see Notes 4 and 5):
ACCRUED
ACCRUED SHAREHOLDER
INVESTMENT ACCRUED SERVICES AND
MANAGEMENT ADMINISTRATIVE DISTRIBUTION
FEES FEES FEES TOTAL
---------- ---------- ---------- ----------
Growth Opportunities Portfolio $ 9,698 $ 1,293 $ 1,765 $ 12,756
LargeCap Growth Portfolio 957 127 319 1,403
MidCap Opportunities Portfolio 4,635 618 420 5,673
SmallCap Opportunities Portfolio 63,811 9,155 5,502 78,468
Large Company Value Portfolio 1,744 118 296 2,158
MagnaCap Portfolio 11,290 1,505 2,166 14,961
Convertible Portfolio 941 126 314 1,381
International Value Portfolio 54,097 5,410 6 59,513
Each Portfolio has adopted a Retirement Policy covering all independent trustees
of the Portfolio who will have served as an independent trustee for at least
five years at the time of retirement. Benefits under this plan are based on an
annual rate as defined in the plan agreement, as amended May 24, 2002.
40
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 7 -- EXPENSE LIMITATIONS
For all Portfolios, the Investment Manager has voluntarily agreed to limit
expenses, excluding interest, taxes, brokerage and extraordinary expenses.
For Class R shares, the Manager has voluntarily agreed to limit the expenses of
the Growth Opportunities Portfolio, MidCap Opportunities Portfolio, SmallCap
Opportunities Portfolio, and MagnaCap Portfolio to 0.90% and International Value
Portfolio to 1.00% of the average daily net assets.
For Class S shares, the Manager has voluntarily agreed to limit the expenses of
the Growth Opportunities Portfolio, LargeCap Growth Portfolio, MidCap
Opportunities Portfolio, SmallCap Opportunities Portfolio, Large Company Value
Portfolio, MagnaCap Portfolio and Convertible Portfolio to 1.10% and
International Value Portfolio to 1.20% of the average daily net assets.
The Investment Manager will at a later date, recoup from each Portfolio,
expenses waived during the previous 36 months, but only if, after such
recoupment, the Portfolios expense ratio does not exceed the percentage
described above. Waived and reimbursed fees and any recoupment by the Investment
Manager of such waived and reimbursed fees are reflected on the accompanying
Statements of Operations for each Portfolio.
As of December 31, 2002, the cumulative amounts of reimbursed fees that are
subject to possible recoupment by the Manager are as follows:
Growth Opportunities Portfolio $171,363
LargeCap Growth Portfolio 47,263
MidCap Opportunities Portfolio 123,207
SmallCap Opportunities Portfolio 757,923
Large Company Value Portfolio 45,181
MagnaCap Portfolio 99,626
Convertible Portfolio 42,015
International Value Portfolio 551,627
NOTE 8 -- LINE OF CREDIT
All of the Portfolios included in this report, in addition to certain other
funds managed by the Adviser, have entered into an unsecured committed revolving
line of credit agreement (the "Credit Agreement") with State Street Bank and
Trust Company for an aggregate amount of $125,000,000. The proceeds may be used
only to: (1) temporarily finance the purchase and sale of securities; (2)
finance the redemption of shares of an investor in the Portfolios; and (3)
enable the Portfolios to meet other emergency expenses as defined in the Credit
agreement. The Portfolios to which the line of credit is available pay a
commitment fee equal to 0.10%per annum on the daily unused portion of the
committed line amount payable quarterly in arrears. At December 31, 2002 the
Portfolios did not have any loans outstanding.
NOTE 9 -- CAPITAL SHARE TRANSACTIONS
CLASS R CLASS S
------------------------------ ------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
GROWTH OPPORTUNITIES PORTFOLIO
(NUMBER OF SHARES)
Shares sold 977,706 993,011 2,263,413 1,265,321
Shares redeemed (972,913) (404,985) (568,100) (285,001)
------------ ------------ ------------ ------------
Net increase in shares outstanding 4,793 588,026 1,695,313 980,320
============ ============ ============ ============
GROWTH OPPORTUNITIES PORTFOLIO ($)
Shares sold $ 4,398,150 $ 6,419,382 $ 10,284,599 $ 7,292,430
Shares redeemed (4,345,599) (2,709,308) (2,456,117) (1,719,036)
------------ ------------ ------------ ------------
Net increase $ 52,551 $ 3,710,074 $ 7,828,482 $ 5,573,394
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 3, 2001.
41
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARE TRANSACTIONS (CONTINUED)
CLASS S
------------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------------ ------------
LARGECAP GROWTH PORTFOLIO
(NUMBER OF SHARES)
Shares sold 263,051 106,116
Shares issued as reinvestment of dividends 778 --
Shares redeemed (158,466) (812)
------------ ------------
Net increase in shares outstanding 105,363 105,304
============ ============
LARGECAP GROWTH PORTFOLIO ($)
Shares sold $ 1,864,616 $ 1,038,463
Shares issued as reinvestment of dividends 5,645 --
Shares redeemed (1,052,512) (8,120)
------------ ------------
Net increase $ 817,749 $ 1,030,343
============ ============
- ----------
(1) Portfolio commenced operations on August 2, 2001.
CLASS R CLASS S
------------------------------ ------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
MIDCAP OPPORTUNITIES PORTFOLIO
(NUMBER OF SHARES)
Shares sold 1,222,684 561,336 543,064 311,365
Shares issued as reinvestment of dividends -- 59 -- --
Shares redeemed (777,906) (185,530) (105,581) (168,202)
------------ ------------ ------------ ------------
Net increase in shares outstanding 444,778 375,865 437,483 143,163
============ ============ ============ ============
MIDCAP OPPORTUNITIES PORTFOLIO ($)
Shares sold $ 6,387,138 $ 3,711,327 $ 2,814,594 $ 1,862,736
Shares issued as reinvestment of dividends -- 381 -- --
Shares redeemed (4,046,935) (1,218,251) (523,517) (997,145)
------------ ------------ ------------ ------------
Net increase $ 2,340,203 $ 2,493,457 $ 2,291,077 $ 865,591
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 7, 2001.
CLASS R CLASS S
------------------------------ ------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
SMALLCAP OPPORTUNITIES PORTFOLIO
(NUMBER OF SHARES)
Shares sold 2,706,339 2,451,404 2,373,133 1,149,053
Shares issued as reinvestment of dividends -- 15,338 -- 1,017
Shares redeemed (2,091,191) (1,916,552) (199,602) (315,388)
------------ ------------ ------------ ------------
Net increase in shares outstanding 615,148 550,190 2,173,531 834,682
============ ============ ============ ============
SMALLCAP OPPORTUNITIES PORTFOLIO ($)
Shares sold $ 38,988,490 $ 49,377,479 $ 33,156,089 $ 22,544,118
Shares issued as reinvestment of dividends -- 248,319 -- 16,454
Shares redeemed (28,480,974) (38,757,211) (2,547,641) (6,103,084)
------------ ------------ ------------ ------------
Net increase $ 10,507,516 $ 10,868,587 $ 30,608,448 $ 16,457,488
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 3, 2001.
42
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARE TRANSACTIONS (CONTINUED)
CLASS S
------------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------------ ------------
LARGE COMPANY VALUE PORTFOLIO
(NUMBER OF SHARES)
Shares sold 145,615 95,143
Shares issued as reinvestment of dividends 1,622 1,037
Shares redeemed (40,914) (30,087)
------------ ------------
Net increase in shares outstanding 106,323 66,093
============ ============
LARGE COMPANY VALUE PORTFOLIO ($)
Shares sold $ 1,367,632 $ 940,620
Shares issued as reinvestment of dividends 13,658 10,437
Shares redeemed (372,487) (291,163)
------------ ------------
Net increase $ 1,008,803 $ 659,894
============ ============
CLASS R CLASS S
------------------------------ ------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001(1)
------------ ------------ ------------ ------------
MAGNACAP PORTFOLIO
(NUMBER OF SHARES)
Shares sold 638,924 206,930 1,710,812 667,086
Shares issued as reinvestment of dividends 5,974 2,776 14,128 2,964
Shares redeemed (188,337) (62,576) (501,591) (17,862)
------------ ------------ ------------ ------------
Net increase in shares outstanding 456,561 147,130 1,223,349 652,188
============ ============ ============ ============
MAGNACAP PORTFOLIO ($)
Shares sold $ 5,037,591 $ 1,906,554 $ 13,711,447 $ 5,976,203
Shares issued as reinvestment of dividends 43,315 24,179 103,242 25,422
Shares redeemed (1,521,013) (553,215) (4,027,963) (160,557)
------------ ------------ ------------ ------------
Net increase $ 3,559,893 $ 1,377,518 $ 9,786,726 $ 5,841,068
============ ============ ============ ============
- ----------
(1) Class S commenced offering of shares on May 7, 2001.
CLASS S
------------------------------
YEAR PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2002 2001(1)
------------ ------------
CONVERTIBLE PORTFOLIO
(NUMBER OF SHARES)
Shares sold 108,071 68,725
Shares issued as reinvestment of dividends 3,733 853
Shares redeemed (19,564) (295)
------------ ------------
Net increase in shares outstanding 92,240 69,283
============ ============
CONVERTIBLE PORTFOLIO ($)
Shares sold $ 1,073,298 $ 693,465
Shares issued as reinvestment of dividends 35,863 8,892
Shares redeemed (187,311) (3,070)
------------ ------------
Net increase $ 921,850 $ 699,287
============ ============
- ----------
(1) Portfolio commenced operations on August 20, 2001.
43
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
NOTE 9 -- CAPITAL SHARE TRANSACTIONS (CONTINUED)
CLASS R CLASS S
------------------------------ ------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002(1)
------------ ------------ ------------
INTERNATIONAL VALUE PORTFOLIO
(NUMBER OF SHARES)
Shares sold 19,907,274 7,134,980 4,895
Shares issued as reinvestment of dividends 47,712 135,154 27
Shares redeemed (15,740,348) (6,234,793) (105)
------------ ------------ ------------
Net increase in shares outstanding 4,214,638 1,035,341 4,817
============ ============ ============
INTERNATIONAL VALUE PORTFOLIO ($)
Shares sold $187,936,843 $ 76,172,846 $ 52,607
Shares issued as reinvestment of dividends 465,325 1,401,233 260
Shares redeemed (148,859,082) (66,738,442) (914)
------------ ------------ ------------
Net increase $ 39,543,086 $ 10,835,637 $ 51,953
============ ============ ============
- ----------
(1) Class S commenced offering shares on March 19, 2002.
NOTE 10 -- FEDERAL INCOME TAXES
During the year ended December 31, 2002, the foreign taxes paid were $104,257 by
International Value Portfolio.
Foreign taxes paid or withheld should be included in taxable income with an
offsetting deduction from gross income or as a credit for taxes paid to foreign
governments. You should consult your tax advisor regarding the appropriate
treatment of foreign taxes paid.
Dividends paid by the Portfolios from net investment income and distributions of
net realized short-term capital gains are, for federal income tax purposes,
taxable as ordinary income to shareholders. The tax composition of dividends and
distributions to shareholders for year ended December 31, 2002 were as follow:
ORDINARY LONG-TERM TAX RETURN
INCOME CAPITAL GAINS OF CAPITAL
-------- ------------- ----------
Growth Opportunities Portfolio $ -- $ -- $ --
LargeCap Growth Portfolio 5,645 -- --
MidCap Opportunities Portfolio -- -- --
SmallCap Opportunities Portfolio -- -- --
Large Company Value Portfolio 13,658 -- --
MagnaCap Portfolio 146,557 -- --
Convertible Portfolio 35,863 -- --
International Value Portfolio 465,514 -- --
The amount of distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains, foreign currency
transactions, organization costs and other temporary differences. To the extent
that these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassifications. To the extent
distributions exceed net investment income and/or net realized capital gains for
tax purposes, they are reported as distributions of paid-in capital.
44
NOTES TO FINANCIAL STATEMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Accordingly, the following amounts represent current year permanent tax
differences that have been reclassified as of December 31, 2002:
ACCUMULATED NET
PAID-IN UNDISTRIBUTED NET REALIZED GAINS
CAPITAL INVESTMENT INCOME ON INVESTMENTS
---------- ----------------- --------------
Growth Opportunities Portfolio $ (86,543) $ 86,543 $ --
LargeCap Growth Portfolio (8,439) 8,439 --
MidCap Opportunities Portfolio (29,157) 29,157 --
SmallCap Opportunities Portfolio (865,262) 865,262 --
MagnaCap Portfolio (1,439) 1,439 --
International Value Portfolio (105,111) 54,875 50,236
Capital loss carryforwards, which may be used to offset future realized capital
gains for federal income tax purposes were as follows at December 31, 2002:
AMOUNT EXPIRATION DATES
----------- ----------------
Growth Opportunities Portfolio $ 9,235,672 2009-2010
LargeCap Growth Portfolio 502,083 2009-2011
MidCap Opportunities Portfolio 2,768,100 2009-2010
SmallCap Opportunities Portfolio 89,425,663 2009-2011
Large Company Value Portfolio 60,647 2010
MagnaCap Portfolio 896,162 2009-2010
Convertible Portfolio 80,938 2010-2011
International Value Portfolio 7,693,903 2009-2011
The following represents the tax-basis components of distributable earnings as
of December 31, 2002:
UNDISTRIBUTED CAPITAL
UNDISTRIBUTED LONG-TERM UNREALIZED LOSS
ORDINARY INCOME CAPITAL GAINS APPRECIATION/DEPRECIATION CARRYFORWARDS
--------------- ------------- ------------------------- -------------
Growth Opportunities Portfolio $ -- $ -- $ (173,409) $ (9,235,672)
LargeCap Growth Portfolio -- -- (14,242) (502,083)
MidCap Opportunities Portfolio -- -- (94,519) (2,768,100)
SmallCap Opportunities Portfolio -- -- 1,623,624 (89,425,663)
Large Company Value Portfolio 420 -- (238,649) (60,647)
MagnaCap Portfolio -- -- (3,075,990) (896,162)
Convertible Portfolio 192 -- (10,351) (80,938)
International Value Portfolio 2,566 -- (3,329,945) (7,693,903)
NOTE 11 -- SUBSEQUENT EVENTS
On January 7, 2003, the Board of Trustees of ING Funds approved a proposal to
reorganize the following "Disappearing Portfolio" into the following "Surviving
Portfolio" (the "Reorganization"):
DISAPPEARING PORTFOLIO SURVIVING PORTFOLIO
---------------------- -------------------
ING VP Large Company Value Portfolio ING VP MagnaCap Portfolio
The proposed Reorganization is subject to approval by shareholders of the
Disappearing Portfolio.
45
ING VP
Growth
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 95.63%
AIRLINES: 1.71%
6,500 @,@@ Ryanair Holdings PLC ADR $ 254,540
-----------
254,540
-----------
APPAREL: 4.25%
9,900 @ Coach, Inc. 325,908
12,300 @ Gymboree Corp. 195,078
5,100 @ Polo Ralph Lauren Corp. 110,976
-----------
631,962
-----------
BIOTECHNOLOGY: 2.63%
12,500 @ Exact Sciences Corp. 135,375
5,900 @ Genzyme Corp.-Genl Division 174,463
7,000 @ Telik, Inc. 81,620
-----------
391,458
-----------
CHEMICALS: 0.89%
2,800 @ Cabot Microelectronics Corp. 132,160
-----------
132,160
-----------
COMMERCIAL SERVICES: 2.13%
6,400 @ University of Phoenix Online 229,376
1,900 @ Weight Watchers Intl., Inc. 87,343
-----------
316,719
-----------
COMPUTERS: 6.92%
1,400 @ Affiliated Computer Services, Inc. 73,710
1,200 @ Cognizant Technology Solutions Corp. 86,676
3,900 Electronic Data Systems Corp. 71,877
9,200 Hewlett-Packard Co. 159,712
3,300 @ Imation Corp. 115,764
2,100 International Business Machines Corp. 162,750
2,500 @ Lexmark Intl., Inc. 151,250
7,400 @ NetScreen Technologies, Inc. 124,616
8,300 @ Network Appliance, Inc. 83,000
-----------
1,029,355
-----------
DIVERSIFIED FINANCIAL SERVICES: 0.96%
2,100 Goldman Sachs Group, Inc. 143,010
-----------
143,010
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 0.75%
3,800 @ Wilson Greatbatch Technologies, Inc. 110,960
-----------
110,960
-----------
ELECTRONICS: 2.99%
4,300 @ Cymer, Inc. 138,675
3,500 Parker Hannifin Corp. 161,455
17,600 Symbol Technologies, Inc. 144,672
-----------
444,802
-----------
ENTERTAINMENT: 1.84%
3,600 @ International Game Technology 273,312
-----------
273,312
-----------
FOOD: 0.78%
2,200 @ Whole Foods Market, Inc. 116,006
-----------
116,006
-----------
HEALTHCARE-PRODUCTS: 3.31%
7,800 @ Boston Scientific Corp. 331,656
2,800 @ St. Jude Medical, Inc. 111,216
1,200 @ Zimmer Holdings, Inc. 49,824
-----------
492,696
-----------
HEALTHCARE-SERVICES: 2.96%
8,100 @ Covance, Inc. 199,179
3,200 @ Coventry Health Care, Inc. 92,896
3,700 @ Pediatrix Medical Group, Inc. 148,222
-----------
440,297
-----------
INSURANCE: 0.99%
1,600 @@ RenaissanceRe Holdings Ltd. 63,360
2,100 WR Berkley Corp. 83,181
-----------
146,541
-----------
INTERNET: 3.75%
2,400 @ eBay, Inc. 162,768
500 @ Expedia, Inc. 33,465
2,800 @ Symantec Corp. 113,428
5,600 @ United Online, Inc. 89,270
9,700 @ Yahoo, Inc. 158,595
-----------
557,526
-----------
LEISURE TIME: 0.92%
2,500 @ Hotels.com 136,575
-----------
136,575
-----------
MACHINERY-DIVERSIFIED: 0.46%
1,200 @ Zebra Technologies Corp. 68,760
-----------
68,760
-----------
MEDIA: 4.03%
9,800 @ AOL Time Warner, Inc. 128,380
10,400 @ Cablevision Systems Corp. 174,096
5,300 @ COX Communications, Inc. 150,520
3,900 @ Westwood One, Inc. 145,704
-----------
598,700
-----------
MINING: 0.80%
4,100 Newmont Mining Corp. 119,023
-----------
119,023
-----------
MISCELLANEOUS MANUFACTURING: 2.31%
900 3M Co. 110,970
13,600 @@ Tyco Intl. Ltd. 232,288
-----------
343,258
-----------
OIL & GAS: 5.77%
3,200 @,@@ Nabors Industries Ltd. 112,864
4,400 @,@@ Precision Drilling Corp. 143,176
5,200 @ Pride Intl., Inc. 77,480
8,100 Valero Energy Corp. 299,214
9,100 XTO Energy, Inc. 224,770
-----------
857,504
-----------
OIL & GAS SERVICES: 2.80%
3,000 @ Cooper Cameron Corp. 149,460
6,200 Halliburton Co. 116,002
4,600 @ Smith Intl., Inc. 150,052
-----------
415,514
-----------
See Accompanying Notes to Financial Statements
46
ING VP
Growth
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS: 10.58%
8,700 @ Amylin Pharmaceuticals, Inc. $ 140,418
5,200 @,@@ Biovail Corp. 137,332
1,300 @ Cephalon, Inc. 63,268
2,500 Eli Lilly & Co. 158,750
1,200 @ Forest Laboratories, Inc. 117,864
3,200 @ Gilead Sciences, Inc. 108,800
4,300 @ Medimmune, Inc. 116,831
3,300 @ Neurocrine Biosciences, Inc. 150,678
2,800 @ NPS Pharmaceuticals, Inc. 70,476
5,900 @ Scios, Inc. 192,222
3,200 @,@@ Taro Pharmaceuticals Industries 120,320
6,900 @ Watson Pharmaceuticals, Inc. 195,063
-----------
1,572,022
-----------
RETAIL: 9.65%
7,800 @ Chico's FAS, Inc. 147,498
18,600 Gap, Inc. 288,672
3,700 @ Linens 'N Things, Inc. 83,620
3,900 Nordstrom, Inc. 73,983
9,900 @ Pacific Sunwear of California 175,131
6,500 @ Petsmart, Inc. 111,345
17,400 @ Staples, Inc. 318,420
6,200 TJX Cos., Inc. 121,024
4,200 @ Williams-Sonoma, Inc. 114,030
-----------
1,433,723
-----------
SEMICONDUCTORS: 7.17%
25,100 @ Altera Corp. 309,734
4,100 @ Cree, Inc. 67,035
3,200 @ Lam Research Corp. 34,560
5,300 Linear Technology Corp. 136,316
4,900 @,@@ Marvell Technology Group Ltd. 92,414
25,100 @ Skyworks Solutions, Inc. 216,362
16,100 @ Teradyne, Inc. 209,461
-----------
1,065,882
-----------
SOFTWARE: 6.76%
11,900 @ Borland Software Corp. 146,370
5,800 @ Hyperion Solutions Corp. 148,886
2,700 @ Intuit, Inc. 126,684
5,900 @ Mercury Interactive Corp. 174,935
9,600 @ Peoplesoft, Inc. 175,680
7,300 @ Pinnacle Systems, Inc. 99,353
2,500 @ Pixar, Inc. 132,475
-----------
1,004,383
-----------
TELECOMMUNICATIONS: 4.51%
19,700 @ AT&T Wireless Services, Inc. 111,305
12,200 @ CIENA Corp. 62,708
3,300 @ EchoStar Communications Corp. 73,458
24,000 @ Nextel Communications, Inc. 277,200
1,700 @ Utstarcom, Inc. 33,711
2,900 Verizon Communications, Inc. 112,375
-----------
670,757
-----------
TOYS/GAMES/HOBBIES: 0.93%
5,500 @ Leapfrog Enterprises, Inc. 138,325
-----------
138,325
-----------
TRANSPORTATION: 2.08%
3,800 @ Arkansas Best Corp. 98,728
1,900 Roadway Corp. 69,939
5,600 @ Yellow Corp. 141,070
-----------
309,737
-----------
Total Common Stock (Cost $14,114,285) 14,215,507
-----------
MUTUAL FUNDS: 0.86%
EQUITY FUND: 0.86%
5,800 Semiconductor HOLDRs Trust 128,470
-----------
Total Mutual Funds (Cost $163,884) 128,470
-----------
Total Long-Term Investments (Cost $14,278,169) 14,343,977
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 3.86%
REPURCHASE AGREEMENT: 3.86%
$ 574,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $574,026 to be received
upon repurchase (Collateralized by $530,000
U.S. Treasury Notes, 4.875% Market Value
$586,313 due 02/15/12) $ 574,000
-----------
Total Short-Term Investments (Cost $574,000) 574,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $14,852,169)* 100.35% $14,917,977
OTHER ASSETS AND LIABILITIES-NET -0.35% (52,406)
------ -----------
NET ASSETS 100.00% $14,865,571
====== ===========
@ Non-income producing security
@@ Foreign Issuer
ADR American Depository Receipt
* Cost for federal income tax purposes is $15,091,386. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 546,734
Gross Unrealized Depreciation (720,143)
-----------
Net Unrealized Depreciation $ (173,409)
===========
See Accompanying Notes to Financial Statements
47
ING VP
LargeCap
Growth
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 93.52%
AEROSPACE/DEFENSE: 0.74%
100 Northrop Grumman Corp. $ 9,700
-----------
9,700
-----------
BIOTECHNOLOGY: 4.39%
1,200 @ Amgen, Inc. 58,008
-----------
58,008
-----------
COMPUTERS: 14.03%
300 @ Affiliated Computer Services, Inc. 15,795
1,400 @ Dell Computer Corp. 37,436
700 Electronic Data Systems Corp. 12,901
3,200 @ EMC Corp.-Mass. 19,648
1,900 Hewlett-Packard Co. 32,984
700 International Business Machines Corp. 54,250
200 @ Lexmark Intl., Inc. 12,100
-----------
185,114
-----------
COSMETICS/PERSONAL CARE: 0.82%
200 Avon Products, Inc. 10,774
-----------
10,774
-----------
DIVERSIFIED FINANCIAL SERVICES: 9.88%
1,600 American Express Co. 56,560
1,000 Citigroup, Inc. 35,190
400 Goldman Sachs Group, Inc. 27,240
300 Merrill Lynch & Co., Inc. 11,385
-----------
130,375
-----------
HEALTHCARE-PRODUCTS: 8.66%
1,200 @ Boston Scientific Corp. 51,024
500 Medtronic, Inc. 22,800
200 @ St. Jude Medical, Inc. 7,944
300 Stryker Corp. 20,136
300 @ Zimmer Holdings, Inc. 12,456
-----------
114,360
-----------
HEALTHCARE-SERVICES: 0.91%
500 @ WellChoice, Inc. 11,975
-----------
11,975
-----------
INSURANCE: 0.84%
300 Allstate Corp. 11,097
-----------
11,097
-----------
INTERNET: 2.41%
300 @ eBay, Inc. 20,346
700 @ Yahoo, Inc. 11,445
-----------
31,791
-----------
MACHINERY-DIVERSIFIED: 0.69%
200 Deere & Co. 9,170
-----------
9,170
-----------
MEDIA: 5.13%
2,200 @ AOL Time Warner, Inc. 28,820
226 @ Comcast Corp. 5,327
700 @ COX Communications, Inc. 19,880
300 Tribune Co. 13,638
-----------
67,665
-----------
MINING: 1.32%
600 Newmont Mining Corp. 17,418
-----------
17,418
-----------
MISCELLANEOUS MANUFACTURING: 2.10%
100 3M Co. 12,330
900 @@ Tyco Intl. Ltd. 15,372
-----------
27,702
-----------
OIL & GAS SERVICES: 4.00%
900 Baker Hughes, Inc. 28,971
600 Halliburton Co. 11,226
300 Schlumberger Ltd. 12,627
-----------
52,824
-----------
PHARMACEUTICALS: 7.41%
400 Eli Lilly & Co. 25,400
200 @ Forest Laboratories, Inc. 19,644
500 Merck & Co., Inc. 28,305
800 Pfizer, Inc. 24,456
-----------
97,805
-----------
RETAIL: 5.53%
500 @ Best Buy Co., Inc. 12,075
2,100 Gap, Inc. 32,592
800 @ Staples, Inc. 14,640
700 TJX Cos, Inc. 13,664
-----------
72,971
-----------
SEMICONDUCTORS: 5.56%
1,800 Intel Corp. 28,026
1,000 Linear Technology Corp. 25,720
700 @ Novellus Systems, Inc. 19,656
-----------
73,402
-----------
SOFTWARE: 4.72%
500 @ Intuit, Inc. 23,460
500 @ Microsoft Corp. 25,850
1,200 @ Oracle Corp. 12,960
-----------
62,270
-----------
TELECOMMUNICATIONS: 12.33%
740 AT&T Corp. 19,321
2,400 @ AT&T Wireless Services, Inc. 13,560
2,300 @ Cisco Systems, Inc. 30,130
1,800 @ Nextel Communications, Inc. 20,790
2,200 @@ Nokia OYJ ADR 34,100
700 @ Qualcomm, Inc. 25,473
500 Verizon Communications, Inc. 19,375
-----------
162,749
-----------
TRANSPORTATION: 2.05%
500 FedEx Corp. 27,110
-----------
27,110
-----------
Total Common Stock (Cost $1,193,102) 1,234,280
-----------
See Accompanying Notes to Financial Statements
48
ING VP
LargeCap
Growth
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 7.27%
REPURCHASE AGREEMENT: 7.27%
$ 96,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $96,004 to be received
upon repurchase (Collateralized by $70,000
U.S. Treasury Bonds, 8.500% Market Value
$103,753 due 02/15/20) $ 96,000
-----------
Total Short-Term Investments (Cost $96,000) 96,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,289,102)* 100.79% $ 1,330,280
OTHER ASSETS AND LIABILITIES-NET -0.79% (10,398)
------ -----------
NET ASSETS 100.00% $ 1,319,882
====== ===========
@ Non-income producing security
@@ Foreign Issuer
ADR American Depository Receipt
* Cost for federal income tax purposes is $1,344,523. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 21,011
Gross Unrealized Depreciation (35,254)
-----------
Net Unrealized Depreciation $ (14,243)
===========
See Accompanying Notes to Financial Statements
49
ING VP
MidCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 93.31%
AEROSPACE/DEFENSE: 1.00%
750 Northrop Grumman Corp. $ 72,750
-----------
72,750
-----------
AIRLINES: 3.75%
9,900 Delta Air Lines, Inc. 119,790
3,900 @,@@ Ryanair Holdings PLC ADR 152,724
-----------
272,514
-----------
APPAREL: 6.03%
6,000 @ Coach, Inc. 197,520
1,200 @ Columbia Sportswear Co. 53,304
2,600 Liz Claiborne, Inc. 77,090
5,100 @ Polo Ralph Lauren Corp. 110,976
-----------
438,890
-----------
BIOTECHNOLOGY: 1.34%
3,300 @ Genzyme Corp.-Genl Division 97,581
-----------
97,581
-----------
CHEMICALS: 0.91%
1,400 @ Cabot Microelectronics Corp. 66,080
-----------
66,080
-----------
COMMERCIAL SERVICES: 3.50%
6,200 @ University of Phoenix Online 222,208
700 @ Weight Watchers Intl., Inc. 32,179
-----------
254,387
-----------
COMPUTERS: 2.93%
700 @ Affiliated Computer Services, Inc. 36,855
1,100 @ Lexmark Intl., Inc. 66,550
11,000 @ Network Appliance, Inc. 110,000
-----------
213,405
-----------
ELECTRONICS: 3.68%
3,600 Parker Hannifin Corp. 166,068
12,400 Symbol Technologies, Inc. 101,928
-----------
267,996
-----------
ENTERTAINMENT: 2.50%
2,400 @ International Game Technology 182,208
-----------
182,208
-----------
ENVIRONMENTAL CONTROL: 1.83%
13,300 @ Allied Waste Industries, Inc. 133,000
-----------
133,000
-----------
FOOD: 1.30%
1,800 @ Whole Foods Market, Inc. 94,914
-----------
94,914
-----------
HEALTHCARE-SERVICES: 0.44%
1,100 @ Coventry Health Care, Inc. 31,933
-----------
31,933
-----------
INSURANCE: 3.40%
1,000 @@ RenaissanceRe Holdings Ltd. 39,600
1,200 Safeco Corp. 41,604
4,200 WR Berkley Corp. 166,362
-----------
247,566
-----------
INTERNET: 4.01%
300 @ Expedia, Inc. 20,079
3,400 @ Symantec Corp. 137,734
8,200 @ Yahoo, Inc. 134,070
-----------
291,883
-----------
LEISURE TIME: 1.20%
1,600 @ Hotels.com 87,408
-----------
87,408
-----------
MACHINERY-DIVERSIFIED: 0.94%
1,200 @ Zebra Technologies Corp. 68,760
-----------
68,760
-----------
MEDIA: 5.95%
9,100 @ Cablevision Systems Corp. 152,334
1,550 Scripps Co. (E.W.) 119,272
4,000 @ Univision Communications, Inc. 98,000
1,700 @ Westwood One, Inc. 63,512
-----------
433,118
-----------
OIL & GAS: 4.33%
1,500 @,@@ Nabors Industries Ltd. 52,905
2,700 @ Pride Intl., Inc. 40,230
4,000 Valero Energy Corp. 147,760
3,000 XTO Energy, Inc. 74,100
-----------
314,995
-----------
OIL & GAS SERVICES: 3.49%
1,500 @ Cooper Cameron Corp. 74,730
3,300 Halliburton Co. 61,743
3,600 @ Smith Intl., Inc. 117,432
-----------
253,905
-----------
PACKAGING & CONTAINERS: 0.97%
4,600 @ Smurfit-Stone Container Corp. 70,799
-----------
70,799
-----------
PHARMACEUTICALS: 11.29%
2,700 @,@@ Biovail Corp. 71,307
5,000 @ Celgene Corp. 107,350
2,200 @ Cephalon, Inc. 107,070
4,200 @ Gilead Sciences, Inc. 142,800
2,000 @ Medimmune, Inc. 54,340
4,600 @@ Teva Pharmaceutical Industries ADR 177,606
5,700 @ Watson Pharmaceuticals, Inc. 161,139
-----------
821,612
-----------
RETAIL: 7.02%
5,800 @ Chico's FAS, Inc. 109,678
2,100 Nordstrom, Inc. 39,837
5,300 Pier 1 Imports, Inc. 100,329
4,300 @ Saks, Inc. 50,482
8,700 @ Staples, Inc. 159,210
1,900 @ Williams-Sonoma, Inc. 51,585
-----------
511,121
-----------
See Accompanying Notes to Financial Statements
50
ING VP
MidCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
SEMICONDUCTORS: 7.66%
13,800 @ Altera Corp. $ 170,292
1,500 @ Lam Research Corp. 16,200
17,300 @ LSI Logic Corp. 99,821
5,400 @,@@ Marvell Technology Group Ltd. 101,844
13,000 @ Teradyne, Inc. 169,130
-----------
557,287
-----------
SOFTWARE: 5.85%
3,600 @ BMC Software, Inc. 61,596
1,400 @ Intuit, Inc. 65,688
2,900 @ Mercury Interactive Corp. 85,985
3,200 @ Peoplesoft, Inc. 58,560
2,900 @ Pixar, Inc. 153,671
-----------
425,500
-----------
TELECOMMUNICATIONS: 5.74%
6,500 @ CIENA Corp. 33,410
7,200 @ Comverse Technology, Inc. 72,144
3,200 @ EchoStar Communications Corp. 71,232
11,600 @ Nextel Communications, Inc. 133,980
5,400 @ Utstarcom, Inc. 107,082
-----------
417,848
-----------
TRANSPORTATION: 2.25%
1,500 @ SCS Transportation, Inc. 14,865
5,900 @ Yellow Corp. 148,627
-----------
163,492
-----------
Total Common Stock (Cost $6,769,206) 6,790,952
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 5.98%
REPURCHASE AGREEMENT: 5.98%
$ 435,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $435,019 to be received
upon repurchase (Collateralized by $405,000
U.S. Treasury Notes, 4.875% Market Value
$448,031 due 02/15/12) $ 435,000
-----------
Total Short-Term Investments (Cost $435,000) 435,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $7,204,206)* 99.29% $ 7,225,952
OTHER ASSETS AND LIABILITIES-NET 0.71% 51,542
------ -----------
NET ASSETS 100.00% $ 7,277,494
====== ===========
@ Non-income producing security
@@ Foreign Issuer
ADR American Depository Receipt
* Cost for federal income tax purposes is $7,320,471. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 188,265
Gross Unrealized Depreciation (282,784)
-----------
Net Unrealized Depreciation $ (94,519)
===========
See Accompanying Notes to Financial Statements
51
ING VP
SmallCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 93.49%
ADVERTISING: 1.37%
43,300 @ Getty Images, Inc. $ 1,322,815
-----------
1,322,815
-----------
AEROSPACE/DEFENSE: 1.02%
27,000 Engineered Support Systems, Inc. 989,820
-----------
989,820
-----------
APPAREL: 4.22%
32,400 @ Columbia Sportswear Co. 1,439,208
101,700 @ Gymboree Corp. 1,612,962
38,600 @ Quiksilver, Inc. 1,029,076
-----------
4,081,246
-----------
BIOTECHNOLOGY: 1.92%
18,600 @ Affymetrix, Inc. 425,754
38,400 @ ICOS Corp. 898,944
45,600 @ Telik, Inc. 531,696
-----------
1,856,394
-----------
COMPUTERS: 8.62%
23,000 @ Cognizant Technology Solutions Corp. 1,661,290
44,200 @ Hutchinson Technology, Inc. 914,940
38,600 @ Imation Corp. 1,354,088
29,400 @ Kronos, Inc. 1,087,506
55,300 @ Manhattan Associates, Inc. 1,308,398
78,000 @ NetScreen Technologies, Inc. 1,313,520
23,100 @ Pec Solutions, Inc. 690,690
-----------
8,330,432
-----------
DIVERSIFIED FINANCIAL SERVICES: 2.17%
11,500 Chicago Mercantile Exchange 502,090
73,800 @ Portfolio Recovery Associates, Inc. 1,346,924
37,900 @ Providian Financial Corp. 245,971
-----------
2,094,985
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 0.82%
27,200 @ Wilson Greatbatch Technologies, Inc. 794,240
-----------
794,240
-----------
ELECTRONICS: 2.63%
49,100 @ Cymer, Inc. 1,583,475
116,600 Symbol Technologies, Inc. 958,452
-----------
2,541,927
-----------
ENTERTAINMENT: 2.88%
92,700 @ Alliance Gaming Corp. 1,578,681
74,900 @ Macrovision Corp. 1,201,396
-----------
2,780,077
-----------
ENVIRONMENTAL CONTROL: 0.82%
20,600 @ Waste Connections, Inc. 795,366
-----------
795,366
-----------
HEALTHCARE-PRODUCTS: 3.06%
10,900 @ Advanced Neuromodulation Systems, Inc. 382,590
86,800 @ Cepheid, Inc. 442,506
27,600 Cooper Cos., Inc. 690,552
5,000 @ Cyberonics 92,000
57,100 @ Immucor, Inc. 1,156,275
27,500 @ Novoste Corp. 198,550
-----------
2,962,473
-----------
HEALTHCARE-SERVICES: 5.45%
29,900 @ Centene Corp. 1,004,341
50,500 @ Covance, Inc. 1,241,795
21,100 @ Coventry Health Care, Inc. 612,533
16,200 @ Pacificare Health Systems 455,220
24,500 @ Pediatrix Medical Group, Inc. 981,470
60,800 @ VistaCare, Inc. 973,408
-----------
5,268,767
-----------
INSURANCE: 1.01%
37,100 @,@@ Platinum Underwriters Holdings Ltd. 977,585
-----------
977,585
-----------
INTERNET: 4.92%
45,800 @ Checkfree Corp. 732,846
92,900 @ Digital River, Inc. 1,110,155
90,100 @ Macromedia, Inc. 959,565
59,000 @ United Online, Inc. 940,519
47,300 @ Websense, Inc. 1,010,375
-----------
4,753,460
-----------
MACHINERY-DIVERSIFIED: 1.10%
18,600 @ Zebra Technologies Corp. 1,065,780
-----------
1,065,780
-----------
MEDIA: 0.16%
10,200 @ Cumulus Media, Inc. 151,674
-----------
151,674
-----------
MINING: 1.16%
98,500 @,@@ Glamis Gold Ltd. 1,116,990
-----------
1,116,990
-----------
OIL & GAS: 3.21%
11,400 @ Evergreen Resources, Inc. 511,290
23,400 Patina Oil & Gas Corp. 740,610
33,700 @,@@ Precision Drilling Corp. 1,096,598
34,000 @ Premcor, Inc. 755,820
-----------
3,104,318
-----------
OIL & GAS SERVICES: 1.48%
20,400 @ Hydril Co. 480,828
31,000 @ National-Oilwell, Inc. 677,040
15,700 @ Varco Intl., Inc. 273,180
-----------
1,431,048
-----------
See Accompanying Notes to Financial Statements
52
ING VP
SmallCap
Opportunities
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS: 11.83%
32,500 @ Accredo Health, Inc. $1,145,625
82,900 @ Amylin Pharmaceuticals, Inc. 1,338,006
126,700 @ BioMarin Pharmaceuticals, Inc. 893,235
76,200 @ First Horizon Pharmaceutical Corp. 569,824
66,300 @ Medicines Co. 1,062,126
29,800 @ NBTY, Inc. 523,884
28,500 @ Neurocrine Biosciences, Inc. 1,301,310
44,100 @ NPS Pharmaceuticals, Inc. 1,109,997
61,300 @ Scios, Inc. 1,997,154
39,900 @,@@ Taro Pharmaceuticals Industries 1,500,240
-----------
11,441,401
-----------
RETAIL: 11.12%
17,400 @ California Pizza Kitchen, Inc. 438,480
77,000 @ Chico's FAS, Inc. 1,456,070
17,800 @ Coldwater Creek, Inc. 341,760
28,400 @ Cosi, Inc. 157,904
59,900 @ Dick's Sporting Goods, Inc. 1,150,080
41,400 @ HOT Topic, Inc. 947,232
50 @ J Jill Group, Inc. 699
20,400 @ JOS A Bank Clothiers, Inc. 434,928
43,200 @ Kirkland's, Inc. 488,160
47,100 @ Linens 'N Things, Inc. 1,064,460
29,000 @ Men's Wearhouse, Inc. 497,350
93,600 @ Pacific Sunwear of California 1,655,784
38,200 @ Panera Bread Co. 1,329,742
21,800 @ PF Chang's China Bistro, Inc. 791,340
-----------
10,753,989
-----------
SEMICONDUCTORS: 7.69%
56,300 @ Artisan Components, Inc. 868,709
66,300 @ Asyst Technologies, Inc. 487,305
89,300 @ Cree, Inc. 1,460,055
20,500 @ Lam Research Corp. 221,400
77,400 @ Monolithic System Technology, Inc. 934,992
55,200 @,@@ O2Micro Intl. Ltd. 538,145
120,800 @ Omnivision Technologies, Inc. 1,639,256
149,000 @ Skyworks Solutions, Inc. 1,284,380
-----------
7,434,242
-----------
SOFTWARE: 9.93%
38,300 @ Altiris, Inc. 609,736
53,700 @ Avid Technology, Inc. 1,232,415
76,600 @ Borland Software Corp. 942,180
64,000 @ Documentum, Inc. 1,002,240
54,800 @ EPIQ Systems, Inc. 839,536
61,600 @ Hyperion Solutions Corp. 1,581,272
30,200 @ IMPAC Medical Systems, Inc. 559,304
38,100 @ JD Edwards & Co. 429,768
71,200 @ Packeteer, Inc. 488,432
140,500 @ Pinnacle Systems, Inc. 1,912,205
-----------
9,597,088
-----------
TELECOMMUNICATIONS: 2.19%
25,300 @ Adtran, Inc. 832,370
77,100 @ Boston Communications Group 979,941
12,100 @ SafeNet, Inc. 306,735
-----------
2,119,046
-----------
TOYS/GAMES/HOBBIES: 1.69%
35,400 @ Leapfrog Enterprises, Inc. 890,310
83,200 @ Marvel Enterprises, Inc. 747,136
-----------
1,637,446
-----------
TRANSPORTATION: 1.02%
17,800 @ Old Dominion Freight Line 504,630
13,100 Roadway Corp. 482,211
-----------
986,841
-----------
Total Common Stock (Cost $85,829,837) 90,389,450
-----------
MUTUAL FUNDS: 1.00%
EQUITY FUND: 1.00%
24,200 iShares Russell 2000 Growth Index Fund 964,370
-----------
Total Mutual Funds (Cost $970,655) 964,370
-----------
Total Long-Term Investments (Cost $86,800,492) 91,353,820
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 4.51%
REPURCHASE AGREEMENT: 4.51%
$4,360,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $4,360,194 to be received
upon repurchase (Collateralized by $3,005,000
U.S. Treasury Bonds, 8.500% Market Value
$4,453,972 due 02/15/20) $4,360,000
-----------
Total Short-Term Investments (Cost $4,360,000) 4,360,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $91,160,492)* 99.00% $95,713,820
OTHER ASSETS AND LIABILITIES-NET 1.00% 967,091
------ -----------
NET ASSETS 100.00% $96,680,911
====== ===========
@ Non-income producing security
@@ Foreign Issuer
* Cost for federal income tax purposes is $94,090,196. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 4,358,736
Gross Unrealized Depreciation (2,735,112)
-----------
Net Unrealized Appreciation $ 1,623,624
===========
See Accompanying Notes to Financial Statements
53
ING VP
Large Company
Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 96.65%
AGRICULTURE: 0.10%
68 Monsanto Co. $ 1,309
-----------
1,309
-----------
COMMERCIAL SERVICES: 3.22%
4,200 @ Cendant Corp. 44,016
-----------
44,016
-----------
COMPUTERS: 4.39%
5,500 @ EMC Corp.-Mass. 33,770
1,506 Hewlett-Packard Co. 26,144
-----------
59,914
-----------
COSMETICS/PERSONAL CARE: 1.04%
300 Kimberly-Clark Corp. 14,241
-----------
14,241
-----------
DIVERSIFIED FINANCIAL SERVICES: 7.99%
1,000 Alliance Capital Management Holding LP 31,000
1,200 Citigroup, Inc. 42,228
900 Morgan Stanley 35,928
-----------
109,156
-----------
ELECTRIC: 0.66%
2,800 @ Reliant Resources, Inc. 8,960
-----------
8,960
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 1.12%
300 Emerson Electric Co. 15,255
-----------
15,255
-----------
FOOD: 1.95%
134 @ Del Monte Foods Co. 1,031
300 HJ Heinz Co. 9,861
700 Sara Lee Corp. 15,757
-----------
26,649
-----------
FOREST PRODUCTS & PAPER: 2.81%
300 Bowater, Inc. 12,585
500 MeadWestvaco Corp. 12,355
300 Temple-Inland, Inc. 13,443
-----------
38,383
-----------
HEALTHCARE-SERVICES: 2.16%
500 @ Tenet Healthcare Corp. 8,200
300 @ WellPoint Health Networks 21,348
-----------
29,548
-----------
INSURANCE: 15.48%
500 Allstate Corp. 18,495
200 American Intl. Group 11,570
300 Chubb Corp. 15,660
1,100 Cigna Corp. 45,232
800 Hartford Financial Services Group, Inc. 36,344
500 Loews Corp. 22,230
900 St. Paul Cos. 30,645
2,143 @ Travelers Property Casualty Corp. 31,395
-----------
211,571
-----------
MACHINERY-CONSTRUCTION & MINING: 1.00%
300 Caterpillar, Inc. 13,716
-----------
13,716
-----------
MEDIA: 1.34%
1,400 @ AOL Time Warner, Inc. 18,340
-----------
18,340
-----------
MINING: 3.06%
1,100 Alcoa, Inc. 25,058
1,000 @ Freeport-McMoRan Copper & Gold, Inc. 16,780
-----------
41,838
-----------
MISCELLANEOUS MANUFACTURING: 6.29%
1,800 Honeywell Intl., Inc. 43,200
2,500 @@ Tyco Intl. Ltd. 42,700
-----------
85,900
-----------
OIL & GAS: 9.59%
300 Amerada Hess Corp. 16,515
900 Anadarko Petroleum Corp. 43,110
320 Apache Corp. 18,237
100 ChevronTexaco Corp. 6,648
687 ConocoPhillips 33,244
300 Kerr-McGee Corp. 13,290
-----------
131,044
-----------
PHARMACEUTICALS: 7.18%
1,400 Bristol-Myers Squibb Co. 32,410
900 @ IVAX Corp. 10,917
900 @ King Pharmaceuticals, Inc. 15,471
600 Pfizer, Inc. 18,342
500 Pharmacia Corp. 20,900
-----------
98,040
-----------
PIPELINES: 0.89%
1,750 EL Paso Corp. 12,180
-----------
12,180
-----------
RETAIL: 7.79%
900 CVS Corp. 22,473
700 @ Federated Department Stores 20,132
900 May Department Stores Co. 20,682
1,400 McDonald's Corp. 22,512
1,100 RadioShack Corp. 20,614
-----------
106,413
-----------
SAVINGS & LOANS: 2.27%
900 Washington Mutual, Inc. 31,077
-----------
31,077
-----------
SEMICONDUCTORS: 1.84%
3,900 @ Advanced Micro Devices, Inc. 25,194
-----------
25,194
-----------
See Accompanying Notes to Financial Statements
54
ING VP
Large Company
Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS: 11.81%
1,700 @ 3Com Corp. $ 7,871
5,000 @ ADC Telecommunications, Inc. 10,450
4,400 @ AT&T Wireless Services, Inc. 24,860
8,800 @ JDS Uniphase Corp. 21,736
6,400 @ Lucent Technologies, Inc. 8,064
6,300 @ Tellabs, Inc. 45,801
1,100 Verizon Communications, Inc. 42,625
-----------
161,407
-----------
TOBACCO: 2.67%
900 Philip Morris Cos., Inc. 36,477
-----------
36,477
-----------
Total Common Stock (Cost $1,559,277) 1,320,628
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 4.76%
REPURCHASE AGREEMENT: 4.76%
$ 65,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $65,003 to be received
upon repurchase (Collateralized by $45,000
U.S. Treasury Bonds, 9.875% Market Value
$70,369 due 11/15/15) $ 65,000
-----------
Total Short-Term Investments (Cost $65,000) 65,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,624,277)* 101.41% $ 1,385,628
OTHER ASSETS AND LIABILITIES-NET -1.41% (19,241)
------ -----------
NET ASSETS 100.00% $ 1,366,387
====== ===========
@ Non-income producing security
@@ Foreign Issuer
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized depreciation consists of:
Gross Unrealized Appreciation $ 18,944
Gross Unrealized Depreciation (257,593)
-----------
Net Unrealized Depreciation $ (238,649)
===========
See Accompanying Notes to Financial Statements
55
ING VP
MagnaCap
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 95.91%
AGRICULTURE: 0.15%
1,387 Monsanto Co. $ 26,700
-----------
26,700
-----------
COMMERCIAL SERVICES: 3.25%
54,900 @ Cendant Corp. 575,352
-----------
575,352
-----------
COMPUTERS: 4.81%
69,500 @ EMC Corp.-Mass. 426,730
24,506 Hewlett-Packard Co. 425,424
-----------
852,154
-----------
COSMETICS/PERSONAL CARE: 1.05%
3,900 Kimberly-Clark Corp. 185,133
-----------
185,133
-----------
DIVERSIFIED FINANCIAL SERVICES: 7.08%
10,900 Alliance Capital Management Holding LP 337,900
14,900 Citigroup, Inc. 524,331
9,800 Morgan Stanley 391,216
-----------
1,253,447
-----------
ELECTRIC: 0.68%
37,800 @ Reliant Resources, Inc. 120,960
-----------
120,960
-----------
ELECTRICAL COMPONENTS & EQUIPMENT: 1.58%
5,500 Emerson Electric Co. 279,675
-----------
279,675
-----------
FOOD: 1.25%
9,800 Sara Lee Corp. 220,598
-----------
220,598
-----------
FOREST PRODUCTS & PAPER: 3.15%
4,300 Bowater, Inc. 180,385
6,900 MeadWestvaco Corp. 170,499
4,600 Temple-Inland, Inc. 206,126
-----------
557,010
-----------
HEALTHCARE-SERVICES: 2.53%
5,600 @ Tenet Healthcare Corp. 91,840
5,000 @ WellPoint Health Networks 355,800
-----------
447,640
-----------
INSURANCE: 16.88%
9,300 Allstate Corp. 344,007
3,200 American Intl. Group 185,120
5,500 Chubb Corp. 287,100
14,900 Cigna Corp. 612,688
9,400 Hartford Financial Services Group, Inc. 427,042
8,200 Loews Corp. 364,572
10,800 St. Paul Cos. 367,740
27,436 @ Travelers Property Casualty Corp. 401,937
-----------
2,990,206
-----------
MACHINERY-CONSTRUCTION & MINING: 1.26%
4,900 Caterpillar, Inc. 224,028
-----------
224,028
-----------
MEDIA: 1.10%
14,900 @ AOL Time Warner, Inc. 195,190
-----------
195,190
-----------
MINING: 2.71%
14,850 Alcoa, Inc. 338,283
8,400 @ Freeport-McMoRan Copper & Gold, Inc. 140,952
-----------
479,235
-----------
MISCELLANEOUS MANUFACTURING: 5.56%
21,200 Honeywell Intl., Inc. 508,800
27,910 @@ Tyco Intl. Ltd. 476,703
-----------
985,503
-----------
OIL & GAS: 11.97%
5,500 Amerada Hess Corp. 302,775
10,400 Anadarko Petroleum Corp. 498,160
6,560 Apache Corp. 373,854
3,800 ChevronTexaco Corp. 252,624
7,530 ConocoPhillips 364,377
3,300 GlobalSantaFe Corp. 80,256
5,600 Kerr-McGee Corp. 248,080
-----------
2,120,126
-----------
OIL & GAS SERVICES: 0.72%
6,850 Halliburton Co. 128,163
-----------
128,163
-----------
PHARMACEUTICALS: 6.98%
18,000 Bristol-Myers Squibb Co. 416,700
8,800 @ IVAX Corp. 106,744
11,200 @ King Pharmaceuticals, Inc. 192,528
6,500 Pfizer, Inc. 198,705
7,700 Pharmacia Corp. 321,860
-----------
1,236,537
-----------
PIPELINES: 0.78%
19,900 EL Paso Corp. 138,504
-----------
138,504
-----------
RETAIL: 7.02%
9,200 CVS Corp. 229,724
9,200 @ Federated Department Stores 264,592
11,900 May Department Stores Co. 273,462
18,200 McDonald's Corp. 292,656
9,800 RadioShack Corp. 183,652
-----------
1,244,086
-----------
SAVINGS & LOANS: 1.60%
8,200 Washington Mutual, Inc. 283,146
-----------
283,146
-----------
SEMICONDUCTORS: 1.48%
40,500 @ Advanced Micro Devices, Inc. 261,630
-----------
261,630
-----------
See Accompanying Notes to Financial Statements
56
ING VP
MagnaCap
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS: 9.88%
18,900 @ 3Com Corp. $ 87,507
49,400 @ ADC Telecommunications, Inc. 103,246
47,300 @ AT&T Wireless Services, Inc. 267,245
97,500 @ JDS Uniphase Corp. 240,825
59,200 @ Lucent Technologies, Inc. 74,592
63,900 @ Tellabs, Inc. 464,553
13,200 Verizon Communications, Inc. 511,500
-----------
1,749,468
-----------
TOBACCO: 2.44%
10,650 Philip Morris Cos., Inc. 431,645
-----------
431,645
-----------
Total Common Stock (Cost $20,060,657) 16,986,136
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 4.01%
REPURCHASE AGREEMENT: 4.01%
$ 711,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $711,032 to be received
upon repurchase (Collateralized by $660,000
U.S. Treasury Notes, 4.875% Market Value
$730,125 due 02/15/02) $ 711,000
-----------
Total Short-Term Investments (Cost $711,000) 711,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $20,771,657)* 99.92% $17,697,136
OTHER ASSETS AND LIABILITIES-NET 0.08% 14,407
------ -----------
NET ASSETS 100.00% $17,711,543
====== ===========
@ Non-income producing security
@@ Foreign Issuer
* Cost for federal income tax purposes is $20,773,126. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 165,002
Gross Unrealized Depreciation (3,240,992)
-----------
Net Unrealized Depreciation $(3,075,990)
===========
See Accompanying Notes to Financial Statements
57
ING VP
Convertible
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 4.25%
AEROSPACE/DEFENSE: 0.38%
550 @ Titan Corp. $ 5,720
-----------
5,720
-----------
HEALTHCARE-SERVICES: 2.70%
2,000 @ Community Health Systems, Inc. 41,180
-----------
41,180
-----------
HOME BUILDERS: 0.11%
100 DR Horton, Inc. 1,735
-----------
1,735
-----------
MISCELLANEOUS MANUFACTURING: 0.44%
275 General Electric Co. 6,696
-----------
6,696
-----------
RETAIL: 0.62%
350 Wendy's International, Inc. 9,475
-----------
9,475
-----------
Total Common Stock (Cost $70,810) 64,806
-----------
PREFERRED STOCK: 14.90%
AEROSPACE/DEFENSE: 1.01%
350 Titan Capital Trust 15,400
-----------
15,400
-----------
AUTO MANUFACTURERS: 3.26%
500 @ Ford Motor Co. Capital Trust II 20,425
1,200 General Motors Corp. 29,316
-----------
49,741
-----------
DIVERSIFIED FINANCIAL SERVICES: 2.28%
1,700 Gabelli Asset Management, Inc. 34,850
-----------
34,850
-----------
FOOD: 1.96%
575 Suiza Capital Trust II 29,972
-----------
29,972
-----------
FOREST PRODUCTS & PAPER: 0.41%
135 International Paper Capital 6,294
-----------
6,294
-----------
INSURANCE: 3.59%
185 Prudential Financial, Inc. 10,095
2,000 Travelers Property Casualty Corp. 44,700
-----------
54,795
-----------
SAVINGS & LOANS: 1.62%
475 Washington Mutual, Inc. 24,641
-----------
24,641
-----------
TELECOMMUNICATIONS: 0.77%
230 @ COX Communications, Inc. 6,829
10 Lucent Technologies, Inc. 4,925
-----------
11,754
-----------
Total Preferred Stock (Cost $238,932) 227,447
-----------
CONVERTIBLE PREFERRED STOCK: 2.56%
HEALTHCARE-SERVICES: 1.02%
200 Anthem, Inc. 15,550
-----------
15,550
-----------
SAVINGS & LOANS: 1.54%
300 Sovereign Capital Trust II 23,580
-----------
23,580
-----------
Total Convertible Preferred Stock
(Cost $32,675) 39,130
-----------
MUTUAL FUNDS: 2.60%
EQUITY FUND: 2.60%
450 SPDR Trust Series 1, 0.000%, due 39,703
-----------
Total Mutual Funds (Cost $39,847) 39,703
-----------
Principal
Amount Value
- --------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS: 58.27%
ADVERTISING: 1.00%
$ 16,000 @ Young & Rubicam, Inc., 3.000%, due 01/15/05 $ 15,280
-----------
15,280
-----------
AGRICULTURE: 0.67%
10,000 @,# Bunge Ltd. Finance Corp., 3.750%, due 11/15/22 10,275
-----------
10,275
-----------
AUTO PARTS & EQUIPMENT: 2.73%
100,000 @,# Lear Corp., 0.000%, due 02/20/22 41,625
-----------
41,625
-----------
BIOTECHNOLOGY: 2.49%
20,000 @,# Amgen, Inc., 0.000%, due 03/01/32 14,825
25,000 @ Genzyme Corp.-Genl Division, 3.000%,
due 05/15/21 23,187
-----------
38,012
-----------
COMPUTERS: 1.15%
20,000 @,@@,# ASML Holding NV, 4.250%, due 11/30/04 17,550
-----------
17,550
-----------
DISTRIBUTION/WHOLESALE: 1.37%
30,000 @ Costco Wholesale Corp., 0.000%, due 08/19/17 20,925
-----------
20,925
-----------
See Accompanying Notes to Financial Statements
58
ING VP
Convertible
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES: 8.45%
$ 40,000 Franklin Resources, Inc., 0.000%, due 05/11/31 $ 23,800
90,000 Merrill Lynch & Co., Inc., 0.000%, due 05/23/31 46,912
100,000 Verizon Global Funding Corp., 0.000%,
due 05/15/21 58,250
-----------
128,962
-----------
ELECTRIC: 0.43%
13,000 @ Calpine Corp., 4.000%, due 12/26/06 6,467
-----------
6,467
-----------
ELECTRONICS: 2.52%
75,000 @ Solectron Corp., 0.000%, due 11/20/20 38,437
-----------
38,437
-----------
FOOD: 1.42%
30,000 # General Mills, Inc., 0.000%, due 10/28/22 21,713
-----------
21,713
-----------
HEALTHCARE-SERVICES: 4.59%
35,000 @ Laboratory Corp. of America Holdings, 0.000%,
due 09/11/21 23,494
20,000 @ Quest Diagnostics, 1.750%, due 11/30/21 21,000
40,000 @ Universal Health Services, Inc., 0.426%,
due 06/23/20 25,600
-----------
70,094
-----------
INSURANCE: 1.70%
30,000 # AmerUs Group Co., 2.000%, due 03/06/32 25,987
-----------
25,987
-----------
INTERNET: 0.91%
25,000 @ America Online, Inc., 0.000%, due 12/06/19 13,875
-----------
13,875
-----------
LODGING: 1.76%
90,000 @@ Four Seasons Hotels, Inc., 0.000%,
due 09/23/29 26,888
-----------
26,888
-----------
MEDIA: 3.92%
60,000 @ Clear Channel Communications, Inc., 2.625%,
due 04/01/03 59,850
-----------
59,850
-----------
MINING: 0.88%
20,000 @,@@ Inco Ltd., 0.000%, due 03/29/21 13,500
-----------
13,500
-----------
MISCELLANEOUS MANUFACTURING: 1.89%
40,000 @@ Tyco Intl. Ltd., 0.000%, due 11/17/20 28,850
-----------
28,850
-----------
OIL & GAS: 5.58%
20,000 Devon Energy Corp., 4.900%, due 08/15/08 20,175
18,000 Kerr-McGee Corp., 5.250%, due 02/15/10 19,598
35,000 @ Nabors Industries Ltd., 0.000%, due 02/05/21 22,269
25,000 Transocean, Inc., 1.500%, due 05/15/21 23,094
-----------
85,136
-----------
PHARMACEUTICALS: 3.62%
15,000 @ Alza Corp., 0.000%, due 07/28/20 11,737
20,000 @ King Pharmaceuticals, Inc., 2.750%,
due 11/15/21 18,100
35,000 # Roche Holdings, Inc., 0.000%, due 01/19/15 25,375
-----------
55,212
-----------
SEMICONDUCTORS: 4.20%
20,000 @ Burr-Brown Corp., 4.250%, due 02/15/07 20,175
20,000 @,@@ Chartered Semiconductor Manufacturing Ltd,
2.500%, due 04/02/06 18,825
30,000 @ Cypress Semiconductor Corp., 4.000%,
due 02/01/05 25,163
-----------
64,163
-----------
SOFTWARE: 3.74%
30,000 @ BEA Systems, Inc., 4.000%, due 12/15/06 27,300
20,000 @ First Data Corp., 2.000%, due 03/01/08 22,600
15,000 @ Network Associates, Inc., 0.000%, due 02/13/18 7,256
-----------
57,156
-----------
TELECOMMUNICATIONS: 3.25%
25,000 @,@@ Amdocs Ltd., 2.000%, due 06/01/08 23,250
20,000 @ EchoStar Communications Corp., 4.875%,
due 01/01/07 17,800
10,000 @ Nextel Communications, Inc., 6.000%,
due 06/01/11 8,625
-----------
49,675
-----------
Total Convertible Corporate Bonds
(Cost $892,155) 889,632
-----------
CORPORATE BONDS: 5.56%
BIOTECHNOLOGY: 1.29%
25,000 @ Millennium Pharmaceuticals, Inc., 5.500%,
due 01/15/07 19,719
-----------
19,719
-----------
COMMERCIAL SERVICES: 0.65%
10,000 @ Cendant Corp., 3.000%, due 05/04/21 9,913
-----------
9,913
-----------
ELECTRONICS: 1.97%
65,000 @,@@ Celestica, Inc., 0.000%, due 08/01/20 30,144
-----------
30,144
-----------
See Accompanying Notes to Financial Statements
59
ING VP
Convertible
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
OIL & GAS SERVICES: 1.65%
$ 25,000 @ Cooper Cameron Corp., 1.750%, due 05/17/21 $ 25,125
-----------
25,125
-----------
Total Corporate Bonds (Cost $81,551) 84,901
-----------
Total Long-Term Investments (Cost $1,355,970) 1,345,619
-----------
SHORT-TERM INVESTMENTS: 12.25%
REPURCHASE AGREEMENT: 12.25%
$ 187,000 State Street Repurchase Agreement dated 12/31/02,
0.800% due 01/02/03, $187,008 to be received
upon repurchase (Collateralized by $175,000
U.S. Treasury Notes, 4.875% Market Value
$193,594 due 02/15/12) $ 187,000
-----------
Total Short-Term Investments (Cost $187,000) 187,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,542,970)* 100.39% $ 1,532,619
OTHER ASSETS AND LIABILITIES-NET -0.39% (5,991)
------ -----------
NET ASSETS 100.00% $ 1,526,628
====== ===========
@ Non-income producing security
@@ 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 Portfolio's Board of Directors.
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized depreciation consists of:
Gross Unrealized Appreciation $ 42,533
Gross Unrealized Depreciation (52,884)
-----------
Net Unrealized Depreciation $ (10,351)
===========
See Accompanying Notes to Financial Statements
60
ING VP
International
Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCK: 90.76%
AUSTRALIA: 1.40%
195,100 QBE Insurance Group Ltd. $ 894,809
-----------
TOTAL AUSTRALIA 894,809
-----------
CANADA: 2.01%
87,900 Bombardier, Inc. 296,173
32,000 EnCana Corp 990,914
-----------
TOTAL CANADA 1,287,087
-----------
DENMARK: 1.20%
5,500 Novo-Nordisk A/S ADR 158,950
5,750 Novo-Nordisk A/S 165,986
18,400 TDC A/S 446,741
-----------
TOTAL DENMARK 771,677
-----------
FINLAND: 2.17%
31,200 Nokia OYJ 495,652
6,300 Nokia OYJ ADR 97,650
24,900 UPM-Kymmene OYJ 798,970
-----------
TOTAL FINLAND 1,392,272
-----------
FRANCE: 9.58%
9,750 Aventis SA 529,595
16,250 Carrefour SA 722,996
22,550 Pechiney SA 790,720
15,200 Schneider Electric SA 718,677
12,250 Societe Generale 712,917
8,050 Total Fina Elf SA 1,148,851
13,300 Total Fina Elf SA ADR 950,950
17,911 Valeo SA 561,566
-----------
TOTAL FRANCE 6,136,272
-----------
GERMANY: 2.22%
15,200 Deutsche Bank AG 699,710
18,100 Deutsche Boerse AG 724,264
-----------
TOTAL GERMANY 1,423,974
-----------
GREECE: 0.78%
47,700 Greek Organization of Football Prognostics SA 502,183
-----------
TOTAL GREECE 502,183
-----------
IRELAND: 0.79%
46,700 Irish Life & Permanent PLC 504,387
-----------
TOTAL IRELAND 504,387
-----------
ISRAEL: 1.39%
23,100 Teva Pharmaceutical
Industries ADR 891,891
-----------
TOTAL ISRAEL 891,891
-----------
ITALY: 2.04%
141,750 Banca Fideuram S.p.A. 665,903
269,400 A Parmalat Finanziaria S.p.A. 641,259
-----------
TOTAL ITALY 1,307,162
-----------
JAPAN: 15.35%
8,100 Advantest Corp. 362,880
18,900 FamilyMart 370,042
30,000 Fanuc Ltd. 1,326,316
28,000 Ito-Yokado Co. Ltd. 825,263
41,000 Kao Corp 899,411
2,400 Mabuchi Motor Co. Ltd. 220,699
31,000 A Mitsui Fudosan Co. Ltd. 201,011
116,000 A Nikko Cordial Corp 390,737
46,000 Nomura Holdings, Inc. 516,749
417 NTT DoCoMo, Inc. 769,036
10,200 Otsuka Kagu Ltd. 160,623
37,200 Sekisui House Ltd. 263,141
45,100 Shimano, Inc. 683,621
21,500 Sony Corp. 898,021
8,000 Sony Corp. ADR 330,480
14,500 A Tokyo Electron Ltd. 655,705
35,900 Toyota Motor Corp. 964,387
-----------
TOTAL JAPAN 9,838,122
-----------
MEXICO: 1.43%
28,700 Telefonos de Mexico SA de CV ADR 917,826
-----------
TOTAL MEXICO 917,826
-----------
NETHERLANDS: 6.04%
88,400 Aegon NV 1,136,456
45,700 Koninklijke Philips Electronics NV 800,281
18,750 Royal Dutch Petroleum Co. 824,789
25,200 Royal Dutch Petroleum Co. ADR 1,109,304
-----------
TOTAL NETHERLANDS 3,870,830
-----------
NEW ZEALAND: 1.04%
280,900 Telecom Corp. of New Zealand Ltd. 666,651
-----------
TOTAL NEW ZEALAND 666,651
-----------
NORWAY: 0.83%
37,500 Norske Skogindustrier ASA 529,730
-----------
TOTAL NORWAY 529,730
-----------
RUSSIA: 0.60%
2,750 YUKOS ADR 384,313
-----------
TOTAL RUSSIA 384,313
-----------
SOUTH AFRICA: 1.27%
58,350 Gold Fields Ltd. ADR 814,566
-----------
TOTAL SOUTH AFRICA 814,566
-----------
SWEDEN: 1.16%
39,800 ForeningsSparbanken AB 471,466
34,400 Swedish Match AB 271,006
-----------
TOTAL SWEDEN 742,472
-----------
SWITZERLAND: 9.29%
16,500 Converium Holding AG 799,234
837 Givaudan 375,173
1,150 Julius Baer Holding AG 249,422
5,513 Nestle SA 1,167,806
20,200 Novartis AG ADR 741,946
15,783 Novartis AG 575,660
20,750 Roche Holding AG 1,445,389
12,300 @ UBS AG 597,571
-----------
TOTAL SWITZERLAND 5,952,201
-----------
See Accompanying Notes to Financial Statements
61
ING VP
International
Value
Portfolio
PORTFOLIO OF INVESTMENTS as of December 31, 2002 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TAIWAN: 1.15%
104,800 @ Taiwan Semiconductor
Manufacturing Co. Ltd. ADR $ 738,840
-----------
TOTAL TAIWAN 738,840
-----------
UNITED KINGDOM: 19.11%
1,900 Amvescap PLC ADR 23,940
196,850 Amvescap PLC 1,261,062
211,200 BP PLC 1,451,576
139,100 @ British Sky Broadcasting PLC 1,430,691
185,300 Cadbury Schweppes PLC 1,154,262
25,500 GlaxoSmithKline PLC 489,254
5,800 GlaxoSmithKline PLC ADR 217,268
10,700 HSBC Holdings PLC ADR 588,286
42,550 Imperial Tobacco Group PLC 722,553
97,000 London Stock Exchange PLC 492,984
636,700 @ mmO2 PLC 453,488
1,700 @ mmO2 PLC ADR 12,155
123,850 Pearson PLC 1,145,260
43,600 Provident Financial PLC 416,861
38,850 Rio Tinto PLC 775,409
5,250 Rio Tinto PLC ADR 417,533
38,250 United Business Media PLC 178,545
556,650 Vodafone Group PLC 1,014,702
-----------
TOTAL UNITED KINGDOM 12,245,829
-----------
UNITED STATES: 9.91%
23,100 iShares MSCI EAFE Index Fund 2,287,131
140,000 iShares MSCI Japan Index Fund 973,000
52,600 iShares S&P Europe 350 Index Fund 2,497,448
14,100 Schlumberger Ltd. 593,469
-----------
TOTAL UNITED STATES 6,351,048
-----------
Total Common Stock (Cost $61,242,782) 58,164,142
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $61,242,782)* 90.76% $58,164,142
OTHER ASSETS AND LIABILITIES-NET 9.24% 5,919,736
------ -----------
NET ASSETS 100.00% $64,083,878
====== ===========
@ Non-income producing security
ADR American Depository Receipt
A Loaned security, a portion or all of the security is on loan at December
31, 2002.
* Cost for federal income tax purposes is $61,501,695. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 1,185,067
Gross Unrealized Depreciation (4,522,620)
-----------
Net Unrealized Depreciation $(3,337,553)
===========
Percentage of
Industry Group Net Assets
- -------------- ----------
Agriculture 1.55%
Auto Manufacturers 1.50%
Auto Parts & Equipment 0.88%
Banks 5.18%
Chemicals 0.59%
Cosmetics/Personal Care 1.40%
Diversified Financial Services 7.80%
Electronics 4.23%
Entertainment 0.78%
Equity Fund 8.98%
Food 5.75%
Forest Products & Paper 2.06%
Hand/Machine Tools 1.12%
Home Builders 0.41%
Home Furnishings 1.92%
Insurance 4.41%
Leisure Time 1.07%
Media 4.30%
Mining 4.37%
Miscellaneous Manufacturing 0.46%
Oil & Gas 10.71%
Oil & Gas Services 0.93%
Pharmaceuticals 8.14%
Real Estate 0.31%
Retail 2.12%
Semiconductors 2.18%
Telecommunications 7.61%
Other Assets and Liabilities, Net 9.24%
------
NET ASSETS 100.00%
======
See Accompanying Notes to Financial Statements
62
TAX INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
Dividends paid during the fiscal year ended December 31, 2002 were as follows:
PORTFOLIO NAME TYPE PER SHARE AMOUNT
- -------------- ---- ----------------
LargeCap Growth Portfolio
Class S NII $0.0329
Large Company Value Portfolio
Class S NII $0.0875
MagnaCap Portfolio
Class R NII $0.0843
Class S NII $0.0704
Convertible Portfolio
Class S NII $0.2549
International Value Portfolio
Class R NII $0.0948
Class S NII $0.0726
- ----------
NII-Net investment income
Of the ordinary distributions made during the fiscal year ended December 31,
2002, the following percentages qualify for the dividend received deduction
available to corporate shareholders; 29.95%, 82.95%, 100% and 46.52% for the
LargeCap Growth Portfolio, Large Company Value Portfolio, MagnaCap Portfolio,
and Convertible Portfolio, respectively.
The foreign taxes paid or withheld of $104,257 in total and $0.01 per share for
the International Value Portfolio represents taxes incurred by the portfolio
from foreign sources. Foreign taxes paid or withheld should be included in
taxable income with an offsetting deduction from gross income or as a credit for
taxes paid to foreign governments.
The above figure may differ from those cited elsewhere in this report due to
differences in the calculation of income and gains for Securities and Exchange
Commission (book) purposes and Internal Revenue Service (tax) purposes.
Shareholder are strongly advised to consult their own tax advisers with respect
to the tax consequences of their Investments in the Portfolios. In January,
shareholders, excluding corporate shareholders, receive an IRS 1099 DIV
regarding the federal tax status of the dividends and distributions received by
them in the calendar year.
63
TRUSTEE AND OFFICER INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees. Information pertaining to the Trustees and Officers
of the Portfolio is set forth below:
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
Independent Trustees:
Paul S. Doherty Trustee October Mr. Doherty is President 104 Mr. Doherty is a Trustee of
7337 E. Doubletree Ranch Rd. 1999 to and Partner, Doherty, the GCG Trust (February
Scottsdale, AZ 85258 Present Wallace, Pillsbury and 2002 to present).
Born: 1934 Murphy, P.C., Attorneys
(1996 to present); a
Director of Tambrands,
Inc. (1993 to 1998); and a
Trustee of each of the
funds managed by
Northstar Investment
Management
Corporation (1993 to
1999).
J. Michael Earley Trustee February President and Chief 104 Mr. Earley is a Trustee of the
7337 E. Doubletree Ranch Rd. 2002 to Executive Officer of GCG Trust (1997 to present).
Scottsdale, AZ 85258 Present Bankers Trust Company,
Born: 1945 N.A. (1992 to present).
R. Barbara Gitenstein Trustee February President of the College 104 Dr. Gitenstein is a Trustee of
7337 E. Doubletree Ranch Rd. 2002 to of New Jersey (1999 to the GCG Trust (1997 to
Scottsdale, AZ 85258 Present present); Executive Vice present).
Born: 1948 President and Provost at
Drake University (1992 to
1998).
Walter H. May Trustee October Retired. Mr. May was 104 Mr. May is a Trustee for the
7337 E. Doubletree Ranch Rd. 1999 to formerly Managing Best Prep Charity (1991 to
Scottsdale, AZ 85258 Present Director and Director of present) and the GCG Trust
Born: 1936 Marketing for Piper (February 2002 to present).
Jaffray, Inc. (an
investment
banking/underwriting
firm). Mr. May was
formerly a Trustee of
each of the funds
managed by Northstar
Investment Management
Corporation (1996 to
1999).
Jock Patton Trustee August Private Investor. Mr. 104 Mr. Patton is a Trustee of
7337 E. Doubletree Ranch Rd. 1995 to Patton was formerly the GCG Trust (February
Scottsdale, AZ 85258 Present Director and Chief 2002 to present); He is also
Born: 1945 Executive Officer of Director of Hypercom, Inc.
Rainbow Multimedia and JDA Software Group,
Group, Inc. (January 1999 Inc. (January 1999 to
to December 2001); present); National Airlines
Director of Stuart Inc.; and BG Associates, In
Entertainment, Inc.;
Directory of Artisoft, Inc.
(1994 to 1998); President
and co-owner of
StockVal, Inc. (November
1992 to June 1997) and a
Partner and Director of
the law firm of Streich
Lang, P.A. (1972 to 1993).
64
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
David W.C. Putnam Trustee October President and Director of 104 Mr. Putnam is a Trustee of
7337 E. Doubletree Ranch Rd. 1999 to F.L. Putnam Securities GCG Trust (February 2002 to
Scottsdale, AZ 85258 Present Company, Inc. and its present); Director of F.L.
Born: 1939 affiliates. Mr. Putnam is Putnam Securities Company,
also President, Secretary Inc. (June 1978 to present);
and Trustee of The F.L. Putnam Investment
Principled Equity Market Management Company
Fund. Mr. Putnam was (December 2001 to present);
formerly a Asian American Bank and
Director/Trustee of Trust Trust Company (June 1992
Realty Corp., Anchor to present); and Notre
Investment Trust, Bow Dame Health Care Center
Ridge Mining Co., and (1991 to present). He is als
each of the funds a Trustee of The Principled
managed by Northstar Equity Market Fund
Investment Management (November 1996 to present);
Corporation (1994 to Progressive Capital
1999). Accumulation Trust (August
1998 to present); Anchor
International Bond Trust
(December 2000 to present);
F.L. Putnam Foundation
(December 2000 to present);
Mercy Endowment
Foundation (1995 to
present); and an Honorary
Trustee of Mercy Hospital
(1973 to present).
Blaine E. Rieke Trustee February General Partner of 104 Mr. Rieke is a
7337 E. Doubletree Ranch Rd. 2001 to Huntington Partners, an Director/Trustee of the
Scottsdale, AZ 85258 Present investment partnership Morgan Chase Trust Co.
Born: 1933 (1997 to present). Mr. (January 1998 to present)
Rieke was formerly and the GCG Trust (February
Chairman and Chief 2002 to present).
Executive Officer of
Firstar Trust Company
(1973 to 1996). Mr. Rieke
was formerly the
Chairman of the Board
and a Trustee of each of
the funds managed by
ING Investment
Management Co. LLC.
(1998 to 2001).
Roger B. Vincent Trustee February President of Springwell 104 Mr. Vincent is a Trustee of
7337 E. Doubletree Ranch Rd. 2002 to Corporation, a corporate the GCG Trust (1994 to
Scottsdale, AZ 85258 Present advisory firm (1989 to present) and a Director of
Born: 1945 present). Mr. Vincent was AmeriGas Propane, Inc.
formerly a Director of (1998 to present).
Tatham Offshore, Inc.
(1996 to 2000) and
Petrolane, Inc. (1993 to
1995).
65
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
Richard A. Wedemeyer Trustee February Vice President -- Finance 104 Mr. Wedemeyer is a Trustee
7337 E. Doubletree Ranch Rd. 2001 to and Administration -- of of Touchstone Consulting
Scottsdale, AZ 85258 Present the Channel Corporation, Group (1997 to present) and
Born: 1936 an importer of specialty the GCG Trust (February
alloy aluminum products 2002 to present).
(1996 to present). Mr.
Wedemeyer was
formerly Vice President
-- Finance and
Administration -- of
Performance Advantage,
Inc., a provider of
training and consultation
services (1992 to 1996),
and Vice President --
Operations and
Administration of Jim
Henson Productions
(1979 to 1997). Mr.
Wedemeyer was a
Trustee of each of the
funds managed by ING
Investment Management
Co. LLC. (1998 to 2001).
Interested Directors:
R. Glenn Hilliard(1) Trustee February Chairman and CEO of 104 Mr. Hilliard is a Trustee of
ING Americas 2002 to ING Americas and a the GCC Trust (February
5780 Powers Ferry Road, NW Present member of its Americas 2002 to present). Mr.
Atlanta, GA 30327 Executive Committee Hilliard also serves as a
Born: 1943 (1999 to present). Mr. member of the Board of
Hilliard was formerly Directors of the Clemson
Chairman and CEO of University Foundation, the
ING North America, Board of Councilors for the
encompassing the U.S., Carter Center, a Trustee of
Mexico and Canada the Woodruff Arts Center
regions (1994 to 1999). and also on the Board of
Directors for the High
Museum of Art.
66
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
Thomas J. McInerney(2) Trustee February Chief Executive Officer, 158 Mr. McInerney serves as a
7337 E. Doubletree Ranch Rd. 2001 to ING U.S. Financial Director/Trustee of Aeltus
Scottsdale, AZ 85258 Present Services (October 2001 to Investment Management,
Born: 1956 present); President, Chief Inc. (1997 to present); each
Executive Officer, and of the Aetna Funds (April
Director of Northern Life 2002 to present); Ameribest
Insurance Company Life Insurance Co. (2001 to
(2001 to present); and present); Equitable Life
President and Director of Insurance Co. (2001 to
Aetna Life Insurance and present); First Columbine
Annuity Company (1997 Life Insurance Co. (2001 to
to present), Aetna present); Golden American
Retirement Holdings, Inc. Life Insurance Co. (2001 to
(1997 to present), Aetna present); Life Insurance
Investment Adviser Company of Georgia (2001
Holding Co. (2000 to to present); Midwestern
present), and Aetna United Life Insurance Co.
Retail Holding Company (2001 to present); ReliaSta
(2000 to present). Mr. Life Insurance Co. (2001 to
McInerney was formerly present); Security Life of
General Manager and Denver (2001 to present);
Chief Executive Officer Security Connecticut Life
of ING Worksite Division Insurance Co. (2001 to
(since December 2000 to present); Southland Life
October 2001); President Insurance Co. (2001 to
of Aetna Financial present); USG Annuity and
Services (August 1997 to Life Company (2001 to
December 2000); Head of present); United Life and
National Accounts and Annuity Insurance Co. Inc
Core Sales and (2001 to present); and the
Marketing for Aetna U.S. GCG Trust (February 2002 to
Healthcare (April 1996 to present). Mr. McInerney is
March 1997). member of the Board of the
National Commission on
Retirement Policy, the
Governor's Council on
Economic Competitiveness
and Technology of
Connecticut, the Board of
Directors of the Connecticu
Business and Industry
Association, the Board of
Trustees of the Bushnell, t
Board for the Connecticut
Forum, and the Board of
the Metro Hartford
Chamber of Commerce, and
is Chairman of Concerned
Citizens for Effective
Government.
67
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY
AND AGE FUND SERVED PAST FIVE YEARS BY TRUSTEE TRUSTEE
------- ---- ------ --------------- ---------- -------
John G. Turner(3) Chairman and October President, Turner 104 Mr. Turner serves as a
7337 E. Doubletree Ranch Rd. Director/ 1999 to Investment Company member of the Board of the
Scottsdale, AZ 85258 Trustee Present (since January 2002). Mr. GCG Trust. Mr. Turner also
Born: 1939 Turner was formerly Vice serves as a Director of the
Chairman of ING Hormel Foods Corporation
Americas (2000 to 2001); (May 2000 to present),
Chairman and Chief Shopko Stores, Inc. (August
Executive Officer of 1999 to present), and M.A.
ReliaStar Financial Corp. Mortenson Co. (March 2002
and ReliaStar Life to present).
Insurance Company
(1993 to 2000); Chairman
of ReliaStar United
Services Life Insurance
Company (1995 to 1998);
Chairman of ReliaStar
Life Insurance Company
of New York (1995 to
2001); Chairman of
Northern Life Insurance
Company (1992 to 2000);
Chairman and
Director/Trustee of the
Northstar affiliated
investment companies
(1993 to 2001) and
Director, Northstar
Investment Management
Corporation and its
affiliates (1993 to 1999).
(1) Mr. Hilliard is an "interested person", as defined by the Investment
Company Act of 1940, as amended (the "1940 Act"), because of his
relationship with ING Americas, an affiliate of ING Investments, LLC.
(2) Mr. McInerney is an "interested person", as defined by the 1940 Act,
because of his affiliation with ING U.S. Worksite Financial Services, an
affiliate of ING Investments, LLC.
(3) Mr. Turner is an "interested person", as defined by the 1940 Act, because
of his former affiliation with ING Americas, an affiliate of ING
Investments, LLC.
68
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Officers:
James M. Hennessy President, Chief March 2002 to President and Chief Executive Officer of
7337 E. Doubletree Ranch Rd. Executive Officer, Present (for the ING Capital Corporation, LLC, ING Funds
Scottsdale, AZ 85258 and Chief Operat- ING Funds) Services, LLC, ING Advisors, Inc., ING In-
Born: 1949 ing Officer vestments, LLC, Lexington Funds Dis-
tributor, Inc., Express America T.C. Inc.
President, Chief February 2001 to and EAMC Liquidation Corp. (since De-
Executive Officer, March 2002 (for cember 2001); Executive Vice President
and Chief Operat- the Pilgrim Funds) and Chief Operating Officer of ING
ing Officer Funds Distributor, LLC (since June 2000).
Formerly, Executive Vice President and
Chief Operating June 2000 to Febru- Chief Operating Officer of ING Quantita-
Officer ary 2001 (for the tive Management, Inc. (October 2001 to
Pilgrim Funds) September 2002); Senior Executive Vice
President (June 2000 to December 2000)
and Secretary (April 1995 to December
2000) of ING Capital Corporation, LLC,
ING Funds Services, LLC, ING Investments,
LLC, ING Advisors, Inc., Express America
T.C. Inc., and EAMC Liquidation Corp.;
and Executive Vice President, ING Capital
Corporation, LLC and its affiliates (May
1998 to June 2000) and Senior Vice Presi-
dent, ING Capital Corporation, LLC and
its affiliates (April 1995 to April 1998).
Stanley D. Vyner Executive Vice March 2002 to Executive Vice President of ING Advisors,
7337 E. Doubletree Ranch Rd. President Present (for the Inc. and ING Investments, LLC (since July
Scottsdale, Arizona 85258 ING Funds) 2000) and Chief Investment Officer of
Born: 1950 the International Portfolios, ING Invest-
Executive Vice July 1996 to March ments, LLC (since July 1996). Formerly,
President 2002 (for the in- President and Chief Executive Officer of
ternational portfo- ING Investments, LLC (August 1996 to
lios of the Pilgrim August 2000).
Funds)
Mary Lisanti Executive Vice March 2002 to Executive Vice President of ING Invest-
7337 E. Doubletree Ranch Rd. President Present (for the ments, LLC and ING Advisors, Inc. (since
Scottsdale, AZ 85258 ING Funds) November 1999); Chief Investment Of-
Born: 1956 ficer of the Domestic Equity Portfolios,
Executive Vice May 1998 to ING Investments, LLC (since 1999). For-
President March 2002 (for merly, Executive Vice President of ING
the domestic eq- Quantitative Management, Inc. (July
uity portfolios of 2000 to September 2002); Executive Vice
the Pilgrim Funds) President and Chief Investment Officer
for the Domestic Equity Portfolios of
Northstar Investment Management Cor-
poration, whose name changed to Pil-
grim Advisors, Inc. and subsequently
became part of ING Investments, LLC
(May 1998 to October 1999); Portfolio
Manager with Strong Capital Manage-
ment (May 1996 to 1998); a Managing
Director and Head of Small- and Mid-
Capitalization Equity Strategies at Bank-
ers Trust Corp. (1993 to 1996).
69
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Michael J. Roland Executive Vice March 2002 to Executive Vice President, Chief Financial
7337 E. Doubletree Ranch Rd. President, Assis- Present (for the Officer and Treasurer of ING Funds Ser-
Scottsdale, AZ 85258 tant Secretary and ING Funds) vices, LLC, ING Funds Distributor, LLC,
Born: 1958 Principal Financial ING Advisors, Inc., ING Investments, LLC
Officer (December 2001 to present), Lexington
Funds Distributor, Inc., Express America
Chief Financial December 2002 T.C. Inc. and EAMC Liquidation Corp.
Officer to Present (since December 2001). Formerly, Execu-
(for the IPI Funds) tive Vice President, Chief Financial Of-
ficer and Treasurer of ING Quantitative
Senior Vice June 1998 to Management, Inc. (December 2001 to
President and March 2002 (for October 2002); Senior Vice President, ING
Principal Financial the Pilgrim Funds) Funds Services, LLC, ING Investments,
Officer LLC, and ING Funds Distributor, LLC (June
1998 to December 2001) and Chief Fi-
nancial Officer of Endeavor Group (April
1997 to June 1998).
Robert S. Naka Senior Vice March 2002 to Senior Vice President and Assistant Sec-
7337 E. Doubletree Ranch Rd. President and Present (for the retary of ING Funds Services, LLC, ING
Scottsdale, AZ 85258 Assistant Secretary ING Funds) Funds Distributor, LLC, ING Advisors, Inc.,
Born: 1963 ING Investments, LLC (October 2001 to
Senior Vice November 1999 to present) and Lexington Funds Distribu-
President and March 2002 (for tor, Inc. (since December 2001). Formerly,
Assistant Secretary the Pilgrim Funds) Senior Vice President and Assistant Sec-
retary for ING Quantitative Manage-
Assistant Secretary July 1996 to ment, Inc. (October 2001 to October
November 1999 2002); Vice President, ING Investments,
(for the Pilgrim LLC (April 1997 to October 1999) , ING
Funds) Funds Services, LLC (February 1997 to
August 1999) and Assistant Vice Presi-
dent, ING Funds Services, LLC (August
1995 to February 1997).
Robyn L. Ichilov Vice President and March 2002 to Vice President of ING Funds Services, LLC
7337 E. Doubletree Ranch Rd. Treasurer Present (for the (since October 2001) and ING Invest-
Scottsdale, AZ 85258 ING Funds) ments, LLC (since August 1997); Account-
Born: 1967 ing Manager, ING Investments, LLC (since
Vice President and May 1998 to November 1995).
Treasurer March 2002 (for
the Pilgrim Funds)
Vice President November 1997 to
May 1998 (for the
Pilgrim Funds)
Kimberly A. Anderson Vice President and March 2002 to Vice President and Assistant Secretary of
7337 E. Doubletree Ranch Rd. Secretary Present (for the ING Funds Services, LLC, ING Funds Dis-
Scottsdale, AZ 85258 ING Funds) tributor, LLC, ING Advisors, Inc., ING In-
Born: 1964 vestments, LLC (since October 2001) and
February 2001 to Lexington Funds Distributor, Inc. (since
March 2002 (for December 2001). Formerly, Vice President
the Pilgrim Funds) for ING Quantitative Management, Inc.
(October 2001 to October 2002); Assis-
tant Vice President of ING Funds Ser-
vices, LLC (November 1999 to January
2001) and has held various other posi-
tions with ING Funds Services, LLC for
more than the last five years.
Todd Modic Assistant Vice April 2002 to Director of Financial Reporting of ING
7337 E. Doubletree Ranch Rd. President Present (for Investments, LLC (since March 2001). For-
Scottsdale, AZ 85258 the ING Funds) merly, Director of Financial Reporting,
Born: 1967 Axient Communications, Inc. (May 2000
March 2002 to to January 2001) and Director of Fi-
Present (for nance, Rural/Metro Corporation (March
certain ING Funds) 1995 to May 2000).
August 2001 to
March 2002 (for
the Pilgrim Funds)
70
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Maria M. Anderson Assistant Vice April 2002 to Assistant Vice President of ING Funds
7337 E. Doubletree Ranch Rd. President Present (for Services, LLC (since October 2001). For-
Scottsdale, AZ 85258 the ING Funds) merly, Manager of Fund Accounting and
Born: 1958 Fund Compliance, ING Investments, LLC
March 2002 to (September 1999 to November 2001);
Present (for Section Manager of Fund Accounting,
certain ING Funds) Stein Roe Mutual Funds (July 1998 to
August 1999); and Financial Reporting
August 2001 to Analyst, Stein Roe Mutual Funds (August
March 2002 (for 1997 to July 1998).
the Pilgrim Funds)
Edwin Schriver Senior Vice March 2002 to Senior Vice President (since November
7337 E. Doubletree Ranch Rd. President and Present (for 1999) and Senior Portfolio Manager
Scottsdale, Arizona 85258 Senior Portfolio certain ING Funds) (since October 2001) for ING Invest-
Born: 1945 Manager ments, LLC. Formerly, Senior High Yield
November 1999 to Analyst, Dreyfus Corporation (April 1998
March 2002 (for to November 1999); and President of
certain Pilgrim Cresent City Research (July 1993 to April
Funds) 1998).
Steven Rayner Vice President March 2002 to Vice President of ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for (since October 2001). Formerly, Assistant
Scottsdale, Arizona 85258 Manager certain ING Funds) Vice President, ING Investments, LLC;
Born: 1966 (February 1998 to January 2001) and has
January 2001 to held various other positions with ING
March 2002 (for Investments, LLC and its predecessors
certain Pilgrim since June 1995.
Funds)
Robert Kloss Vice President March 2002 to Vice President of ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for (since January 2001) and has held various
Scottsdale, Arizona 85258 Manager certain ING Funds) other positions with ING Investments,
Born: 1955 LLC and its predecessors for the last five
January 2001 to years.
March 2002 (for
certain Pilgrim
Funds)
Thomas Jackson Senior Vice March 2002 to Senior Vice President, ING Investments,
7337 E. Doubletree Ranch Rd. President and Present (for LLC (since June 2001) and ING Advisors,
Scottsdale, Arizona 85258 Senior Portfolio certain ING Funds) Inc.(since October 2001); and Senior Port-
Born: 1945 Manager folio Manager for ING Investments, LLC
June 2001 to and ING Advisors, Inc. (since October
March 2002 (for 2001). Formerly Managing Director, Pru-
certain Pilgrim dential Investments (April 1990 to De-
Funds) cember 2000); and prior to April 1990,
Co-Chief Investment Officer and Manag-
ing Director at Century Capital Associ-
ates and Red Oak Advisors.
71
TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS
------- -------------- ----------- ---------------
Jeffrey Bernstein Senior Vice Presi- March 2002 to Senior Vice President (since October
7337 E. Doubletree Ranch Rd. dent and Senior Present (for 1999) of ING Investments, LLC and Senior
Scottsdale, Arizona 85258 Portfolio Manager certain ING Funds) Portfolio Manager (since October 2001)
Born: 1966 for ING Advisors, Inc. and ING Invest-
June 2000 to ments, LLC. Formerly, Portfolio Manager,
March 2002 (for Northstar Investment Management Cor-
certain Pilgrim poration, whose name changed to Pil-
Funds) grim Advisors, Inc.and subsequently
became part of ING Investments, LLC
(May 1998 to October 1999); Portfolio
Manager, Strong Capital Management
(1997 to May 1998); and Portfolio
Manager,Berkeley Capital (1995 to 1997).
Richard T. Saler Senior Vice Presi- March 2002 to Senior Vice President and Director of In-
7337 E. Doubletree Ranch Rd. dent and Senior Present (for ternational Equity Investment Strategy
Scottsdale, AZ 85258 Portfolio Manager certain ING Funds) of ING Investments, LLC and ING Advi-
Born: 1961 sors, Inc.(since October 2001). Formerly,
June 2000 to Senior Vice President and Director of In-
March 2002 (for ternational Equity Strategy, Lexington
certain the Pilgrim Management Corporation (which was
Funds) acquired by ING Investments, LLC 's par-
ent company in July 2000)(1986 to July
2000).
Philip A. Schwartz Senior Vice Presi- March 2002 to Senior Vice President and Director of In-
7337 E. Doubletree Ranch Rd. dent and Senior Present (for ternational Equity Investment Strategy
Scottsdale, AZ 85258 Portfolio Manager certain ING Funds) for ING Investments, LLC and ING Advi-
Born: 1961 sors, Inc.(since October 2001). Formerly,
June 2000 to Senior Vice President and Director of In-
March 2002 (for ternational Equity Strategy, Lexington
certain the Pilgrim Management Corporation (which was
Funds) acquired by ING Investments, LLC's par-
ent company in July 2000); Vice Presi-
dent of European Research Sales,
Cheuvreux de Virieu in Paris and New
York (prior to 1993).
Andy Mitchell Vice President April 2002 to Vice President, ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for (since July 2000). Formerly, Senior Credit
Scottsdale, AZ 85258 Manager certain ING Funds) Analyst, Katonah Capital (March 2000 to
Born: 1963 July 2000); Vice President and Senior
October 2000 to High Yield Analyst, Merrill Lynch Asset
March 2002 (for Management (March 1998 to March
certain the Pilgrim 2000); and Assistant Vice President and
Funds) Senior High Yield Analyst, Schroder Capi-
tal Management (March 1994 to March
1998).
Russ Stiver Vice President March 2002 to Vice President, ING Investments, LLC
7337 E. Doubletree Ranch Rd. and Co-Portfolio Present (for (since May 2000). Formerly, Acting Vice
Scottsdale, AZ 85258 Manager certain ING Funds) President, ING Investments, LLC (April
Born: 1962 1999 to April 2000) and Portfolio Man-
October 2000 to ager, Manulife Financial (November 1996
March 2002 (for to April 2000).
certain the Pilgrim
Funds)
72
INVESTMENT MANAGER
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
ADMINISTRATOR
ING Funds Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIANS
State Street Bank & Trust
801 Pennsylvania Avenue
Kansas City, Missouri 64105
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
LEGAL COUNSEL
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
99 High Street
Boston, MA 02110-2371
Prospectus containing more complete information regarding the Portfolios,
including charges and expenses, may be obtained by calling ING Variable Products
Trust at 1-800-992-0180. Please read the prospectus carefully before you invest
or send money.
[LION LOGO]
ING FUNDS VPTSAR 1202-021803
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEMS 4-8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Not applicable.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
(a) The officer certifications required by Section 906 of the Sarbanes-Oxley
Act of 2002 are attached hereto as EX-99.CERT.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act
(17 CFR 270.30a-2) is attached hereto as a part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ING Variable Products Trust
By /s/ James M. Hennessy
-------------------------------------
James M. Hennessy
President and Chief Executive Officer
Date March 3, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James M. Hennessy
-------------------------------------
James M. Hennessy
President and Chief Executive Officer
Date March 3, 2003
By /s/ Michael J. Roland
-------------------------------------
Michael J. Roland
Executive Vice President and
Chief Financial Officer
Date March 3, 2003