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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: 811-10223
---------------------------------------------
ING Senior Income Fund
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
7337 E. Doubletree Ranch Rd., Scottsdale, AZ 85258
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
The Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-992-0180
----------------------------
Date of fiscal year end: February 28
--------------------------
Date of reporting period: August 31, 2003
-------------------------
<Page>
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):
<Page>
SEMI-ANNUAL REPORT
SEMI-ANNUAL REPORT
AUGUST 31, 2003
ING SENIOR INCOME FUND
[GRAPHIC]
[ING FUNDS LOGO]
<Page>
ING Senior Income Fund
SEMI-ANNUAL REPORT
August 31, 2003
Table of Contents
<Table>
Portfolio Managers' Report 2
Statistics 6
Statement of Assets and Liabilities 7
Statement of Operations 9
Statements of Changes in Net Assets 10
Statement of Cash Flows 11
Financial Highlights 12
Notes to Financial Statements 14
Portfolio of Investments 21
Shareholder Meeting Information 33
Trustee and Officer Information 34
</Table>
<Page>
ING Senior Income Fund
PORTFOLIO MANAGERS' REPORT
Dear Shareholders:
ING Senior Income Fund (the "Fund") is a diversified, closed-end investment
company that seeks to provide investors with a high level of current income. The
Fund seeks to achieve this objective by investing in a professionally managed
portfolio comprised primarily of senior loans.
PERFORMANCE SUMMARY
During the six-month period ended August 31, 2003 (the "Reporting Period"), the
Fund's Class A and Q shares each distributed total dividends of $0.35, resulting
in an average annualized distribution rate of 4.63%(1) and 4.64%(1),
respectively. During the same period, the Fund's Class B and C shares each
distributed total dividends of $0.31, representing an average annualized
distribution rate of 4.13%.(1)
The Fund's total return for the Reporting Period, for each of the share classes,
excluding sales charges, (high of 4.56% on Class A; low of 4.23% on Class B) ran
behind that of the S&P/LSTA Loan Index (gross total return of 4.81%)(2), as the
Fund did not fully participate in a fairly broad-based rally in the
stressed/distressed (I.E., lesser credit quality) sub-sector of the
non-investment grade loan market. As is consistent with our investment
philosophy, we continue to be reluctant to significantly increase credit risk in
exchange for incremental yield. Since inception the Fund has performed well
across the Fund's four share classes (see details on page 4).
MARKET/FUND SPECIFIC DEVELOPMENTS
The overall tone of the senior loan market improved significantly over the
latter portion of the Reporting Period. Against the backdrop of an increasingly
healthy macroeconomic picture and improving corporate earnings, the default rate
on non-investment grade bank debt continued to decline, as evidenced by a 2.7%
twelve-month lagging default rate at the end of August, as compared to 6% at the
beginning of 2003. Further, many issuers that were struggling earlier in the
year were able to take advantage of more receptive capital markets to improve
their balance sheet and liquidity positions. The net effect was a broad-based
rally in loan prices and markedly improved investor sentiment.
Consistent with our approach since inception, the Fund remains conservatively
positioned as to both sector and issuer selection. We remain focused on
maintaining sufficient levels of diversification. During the Reporting Period,
in which net assets increased approximately 46%, the Fund's average amount
outstanding per loan declined modestly, while the number of individual loans
increased to 222 from 208. As stated in prior reports, we continue to believe
that adequate diversification represents the best line of defense against
broad-based credit risk.
Overall performance continues to be favorably impacted by three primary factors:
1) ongoing strength within sectors for which we are increasing relative
weightings; 2) further improvement in the underlying indicative prices for
several of the Fund's larger holdings; and 3) successful credit selection (I.E.,
the absence of non-performing credits). The Fund's largest sector exposure
continues to be Healthcare, Education and Childcare (7.6% of total assets at the
end of the Reporting Period, versus 7.3% as of February 28, 2003), followed by
Cable Television (7.0%, versus 6.3%) and Cellular Communications (5.7%, up from
4.7% as of February 28, 2003). We increased our exposure to the latter sector
based on improving operating trends, renewed access to capital markets, and the
stated intention by most issuers within the sector to proactively deal with
balance sheet and/or liquidity issues. Led by Nextel Communications (at 3.5% of
total assets as of August 31, 2003, the single largest holding in the
portfolio), virtually all of the Fund's wireless holdings improved in price
during the Reporting Period. We continue to monitor this group closely.
The Fund seeks to prudently utilize financial leverage in order to increase the
yield to the holders of common shares. As of August 31, 2003, the Fund did not
have any borrowings outstanding
2
<Page>
under a $100.0 million revolving credit facility. While the use of leverage for
investment purposes increases both investment opportunity and investment risk,
we continue to deploy leverage only when it is in the best interest of the
Fund's shareholders. With the improving outlook for senior loans, we expect to
begin using leverage again by the fourth calendar quarter of the year.
OUTLOOK
Coming off the impressive turnaround in the secured loan market that commenced
earlier in the year, we expect the balance of 2003 to be marked by relative
stability. Clearly, given the rapid price appreciation experienced during the
first half of the year, there generally remains minimal upside in existing loan
prices. Nonetheless, near-term performance should be underpinned by continued
improvement in credit and market conditions generally, and the continuation of a
reasonably sanguine attitude on the part of loan investors. Moreover, the
prospect of rising short-term rates in response to the now visible recovery in
the U.S. economy bodes well for the performance of adjustable rate senior loans.
As we move into the last part of 2003, we will continue to adhere to a
disciplined investment strategy that seeks to maintain a high degree of
diversification while attempting to take advantage of selective market
opportunities.
We thank you for your investment in ING Senior Income Fund.
/s/ Jeffrey A. Bakalar /s/ Daniel A. Norman
Jeffrey A. Bakalar Daniel A. Norman
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
CO-SENIOR PORTFOLIO MANAGER CO-SENIOR PORTFOLIO MANAGER
AELTUS INVESTMENT MANAGEMENT, INC. AELTUS INVESTMENT MANAGEMENT, INC.
ING Senior Income Fund
October 15, 2003
- ----------
(1) The distribution rate is calculated by dividing the total distributions
declared during the quarter by the Fund's net asset value at the end of the
period. The distribution rate is based solely on the actual dividends and
distributions, which are made at the discretion of management. The
distribution rate may or may not include all investment income and
ordinarily will not include capital gains or losses, if any.
(2) Source: As tracked by Standard & Poor's Leveraged Commentary & Portfolio
Management Data Group, a leading data provider to the Loan Market.
See accompanying index description on page 5.
3
<Page>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED AUGUST 31, 2003
----------------------------------------------
SINCE INCEPTION SINCE INCEPTION
OF CLASS A, B AND C OF CLASS Q
1 YEAR 4/2/01 12/15/00
------ ------------------- ---------------
Including Sales Charge:(1)
Class A 3.16% 3.57% --
Class B 4.62% 4.33% --
Class C 6.69% 5.13% --
Class Q 8.17% -- 5.59%
Excluding Sales Charge:
Class A 8.29% 5.69% --
Class B 7.62% 5.11% --
Class C 7.69% 5.13% --
Class Q 8.17% -- 5.59%
S&P/LSTA Leveraged Loan Index 8.15% 4.35%(2) 4.93%(2)
</Table>
The table above illustrates the total return of ING Senior Income Fund against
the S&P/LSTA Leveraged Loan Index. The Index has no cash in its portfolio,
imposes no sales charges and incurs no operating expenses. An investor cannot
invest directly in an index. The Fund's performance is shown both with and
without the imposition of sales charges.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three-year period. Total returns would have been lower
had there been no waiver to the fund.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
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 MANAGERS' VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.
FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY.
(1) Reflects deduction of the maximum Class A sales charge of 4.75%. Class B
maximum CDSC is 3% in the first year, declining to 1% in the fifth year and
eliminated thereafter. Class C maximum CDSC is 1% for the first year. Class
Q has no front-end sales charge or CDSC charges.
(2) Source: S&P/Loan Syndication Trading Association. Since Inception
performance for the index is shown from March 31, 2001 for Class A, B and C
and from December 31, 2000 for Class Q.
4
<Page>
YIELDS AND DISTRIBUTION RATES
AS OF AUGUST 31, 2003
<Table>
<Caption>
30-DAY SEC AVERAGE ANNUALIZED
YIELDS(1) DISTRIBUTION RATES(2)
---------- ---------------------
Class A 4.12% 4.63%
Class B 3.63% 4.13%
Class C 3.61% 4.13%
Class Q 4.18% 4.64%
</Table>
(1) Yield is calculated by dividing the Fund's net investment income per share
for the most recent thirty days by the net asset value. Yield calculations
do not include any commissions or sales charges, and are compounded for six
months and annualized for a twelve-month period to derive the Fund's yield
consistent with the SEC standardized yield formula for open-end investment
companies. If the Investment Manager had not waived certain Fund expenses,
the 30-Day SEC yield would have been 4.07% for Class A shares, 3.58% for
Class B, 3.57% for Class C shares and 4.13% for Class Q shares.
(2) Distribution Rates are calculated by annualizing dividends declared during
the period (I.E., divide the monthly dividend amount by the number of days
in the month and multiply by the number of days in the fiscal year) and
then dividing the resulting annualized dividend by the month-ending NAV.
PRINCIPAL RISK FACTOR(S): Loans in the Fund's portfolio will typically be below
investment grade credit quality. As a result, investment in the Fund involves
the risk that borrowers may default on obligations to pay principal or interest
when due and lenders may have difficulty liquidating the collateral securing the
loans or enforcing their rights under the terms of the loans, and that the
Fund's investment objective may not be realized.
INDEX DESCRIPTION
The S&P/LSTA LEVERAGED LOAN INDEX ("LLI") is a total return index that captures
accrued interest, repayments, and market value changes. It represents a broad
cross section of leveraged loans syndicated in the United States, including
dollar-denominated loans to overseas issuers. Standard & Poor's and the Loan
Syndications & Trading Association ("LSTA") conceived the LLI to establish a
performance benchmark for the syndicated leveraged loan industry. An index is
unmanaged. An investor cannot invest directly in an index.
5
<Page>
STATISTICS as of August 31, 2003
PORTFOLIO CHARACTERISTICS
<Table>
Net Assets $ 404,196,043
Assets Invested in Senior Loans $ 355,513,212
Senior Loans Represented 222
Average Amount Outstanding per Loan $ 1,601,411
Industries Represented 35
Average Loan Amount per Industry $ 10,157,520
Portfolio Turnover Rate 38%
Weighted Average Days to Interest Rate Reset 49 days
Average Loan Final Maturity 57 months
</Table>
TOP TEN INDUSTRY SECTORS AS A PERCENTAGE OF:
<Table>
<Caption>
NET ASSETS TOTAL ASSETS
Healthcare, Education and Childcare 7.7% 7.6%
Cable Television 7.0% 7.0%
Cellular Communications 5.8% 5.7%
Printing and Publishing 5.5% 5.4%
Containers, Packaging and Glass 5.1% 5.1%
Chemicals, Plastics and Rubber 4.9% 4.9%
Beverage, Food and Tobacco 4.7% 4.6%
Automotive 4.6% 4.6%
Radio and TV Broadcasting 3.5% 3.5%
Personal and Non Durable Consumer Products 3.2% 3.1%
</Table>
TOP TEN SENIOR LOAN ISSUERS AS A PERCENTAGE OF:
<Table>
<Caption>
NET ASSETS TOTAL ASSETS
Nextel Communications(1) 3.6% 3.5%
Safelite Glass Corporation 1.1% 1.1%
Playtex Products, Inc. 1.0% 1.0%
Graphic Packaging International, Inc. 1.0% 1.0%
Lamar Media Corporation 1.0% 1.0%
Community Health Systems, Inc. 1.0% 1.0%
Olympus Cable Holdings, LLC 0.9% 0.9%
Pegasus Media & Communications, Inc. 0.9% 0.9%
Crown Castle Operating Company 0.8% 0.8%
American Media Operations, Inc. 0.8% 0.8%
</Table>
- ----------
(1) INCLUDES NEXTEL FINANCE COMPANY AND NEXTEL OPERATIONS, INC.
See Accompanying Notes to Financial Statements
6
<Page>
STATEMENT OF ASSETS AND LIABILITIES as of August 31, 2003 (Unaudited)
<Table>
ASSETS:
Investments in securities at value (Cost $358,034,490) $ 359,866,610
Short-term investments at amortized cost 19,900,000
Cash 15,633,920
Receivables:
Fund shares sold 9,695,363
Interest 1,665,716
Other 1,224
Reimbursement due from Manager 13,719
Prepaid expenses 42,387
Prepaid arrangement fees on notes payable 296,755
---------------
Total assets 407,115,694
---------------
LIABILITIES:
Accrued interest payable 11,375
Deferred arrangement fees 1,421,964
Payable to affiliates 421,192
Income distribution payable 855,537
Other accrued expenses and liabilities 209,583
---------------
Total liabilities 2,919,651
---------------
NET ASSETS $ 404,196,043
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 401,966,187
Undistributed net investment income 359,434
Accumulated net realized gain on investments 38,302
Net unrealized appreciation of investments 1,832,120
---------------
NET ASSETS $ 404,196,043
===============
</Table>
See Accompanying Notes to Financial Statements
7
<Page>
<Table>
CLASS A:
Net assets $ 63,160,122
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 4,168,883
Net asset value and redemption price per share $ 15.15
Maximum offering price per share (4.75%)(1) $ 15.91
CLASS B:
Net assets $ 34,567,072
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 2,284,727
Net asset value and redemption price per share(2) $ 15.13
Maximum offering price per share $ 15.13
CLASS C:
Net assets $ 112,987,869
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 7,463,212
Net asset value and redemption price per share(2) $ 15.14
Maximum offering price per share $ 15.14
CLASS Q:
Net assets $ 193,480,980
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 12,814,788
Net asset value and redemption price per share $ 15.10
Maximum offering price per share $ 15.10
</Table>
(1) Maximum offering price is computed at 100/95.25 of net asset value. On
purchases of $50,000 or more, the offering price is reduced.
(2) Redemption price per share may be reduced for any applicable contingent
deferred sales charge.
See Accompanying Notes to Financial Statements
8
<Page>
STATEMENT OF OPERATIONS for the Six Months Ended August 31, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 9,262,245
Arrangement fees earned 293,709
Other 389,214
---------------
Total investment income 9,945,168
---------------
EXPENSES:
Investment management fees 1,403,783
Administration fees 175,473
Distribution and service fees:
Class A 35,909
Class B 117,219
Class C 223,052
Class Q 265,047
Transfer agent fees:
Class A 17,086
Class B 14,284
Class C 35,781
Class Q 131,668
Shareholder reporting expense 35,328
Interest expense 276,765
Custodian fees 59,800
Credit facility fees 46,813
Recordkeeping and pricing expense 6,131
Professional fees 100,096
Trustees' fees 5,520
Registration fees 29,079
Postage expense 11,776
Insurance expense 2,951
Miscellaneous expense 9,831
---------------
Total expenses 3,003,392
---------------
Less:
Net waived and reimbursed fees 150,089
---------------
Net expenses 2,853,303
---------------
Net investment income 7,091,865
---------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS:
Net realized gain on investments 3,148,933
Net change in unrealized appreciation of investments 3,317,298
---------------
Net realized and unrealized gain on investments 6,466,231
---------------
Increase in net assets resulting from operations $ 13,558,096
===============
</Table>
See Accompanying Notes to Financial Statements
9
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
AUGUST 31, FEBRUARY 28,
2003 2003
--------------- ---------------
(UNAUDITED)
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 7,091,865 $ 12,420,155
Net realized gain (loss) on investments 3,148,933 (1,013,477)
Net change in unrealized appreciation (depreciation)
of investments 3,317,298 (920,901)
--------------- ---------------
Net increase in net assets resulting from operations 13,558,096 10,485,777
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (639,982) (343,871)
Class B (478,528) (655,286)
Class C (1,192,722) (1,183,573)
Class Q (4,941,029) (10,232,636)
--------------- ---------------
Total distributions (7,252,261) (12,415,366)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 175,468,711 46,900,491
Dividends reinvested 4,245,296 11,601,350
--------------- ---------------
179,714,007 58,501,841
Cost of shares repurchased (58,566,089) (29,437,098)
--------------- ---------------
Net increase in net assets resulting from
capital share transactions 121,147,918 29,064,743
--------------- ---------------
Net increase in net assets 127,453,753 27,135,154
--------------- ---------------
NET ASSETS:
Beginning of period 276,742,290 249,607,136
--------------- ---------------
End of period $ 404,196,043 $ 276,742,290
=============== ===============
Undistributed net investment income at
end of period $ 359,434 $ 519,830
=============== ===============
</Table>
See Accompanying Notes to Financial Statements
10
<Page>
STATEMENT OF CASH FLOWS for the Six Months Ended August 31, 2003 (Unaudited)
<Table>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 7,968,029
Facility fees paid 40,772
Arrangement fee received 1,037,830
Other income received 387,990
Interest paid (337,342)
Other operating expenses paid (1,507,710)
Purchases of portfolio securities (861,594,689)
Proceeds from disposition of portfolio securities 809,093,184
-------------
Net cash used for operating activities (44,911,936)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to common shareholders (3,006,965)
Proceeds from capital shares sold 166,673,322
Disbursements for capital shares repurchased (58,566,089)
Net repayment of notes payable (47,000,000)
-------------
Net cash flows provided by financing activities 58,100,268
-------------
Net increase in cash 13,188,332
Cash at beginning of period 2,445,588
-------------
Cash at end of period $ 15,633,920
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 13,558,096
-------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used for operating activities:
Change in unrealized depreciation on investments (3,317,298)
Net accretion/amortization of discounts on investments (1,162,726)
Realized gain on sale of investments (3,148,933)
Purchases of investments (861,594,689)
Proceeds on sale of investments 809,093,184
Increase in interest receivable (131,490)
Increase in other assets (1,224)
Decrease in prepaid arrangement fees on notes payable 40,772
Increase in prepaid expenses (21,568)
Increase in deferred arrangement fees 744,121
Decrease in accrued interest payable (60,577)
Decrease in reimbursement due from Manager 33,630
Increase in payable to affiliate 128,486
Decrease in accrued trustees' fees (312)
Increase in other accrued expenses and liabilities 928,592
-------------
Total adjustments (58,470,032)
-------------
Net cash used for operating activities $ (44,911,936)
=============
NON CASH FINANCING ACTIVITIES
Receivable for shares sold $ 9,695,363
Reinvestment of dividends $ 4,245,296
</Table>
See Accompanying Notes to Financial Statements
11
<Page>
ING SENIOR INCOME FUND FINANCIAL HIGHLIGHTS
<Table>
<Caption>
CLASS A
---------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, FEB. 28, FEB. 28,
2003 2003 2002(1)
- --------------------------------------------------------------------------------------------------------
(UNAUDITED)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.83 14.92 15.00
Income from investment operations:
Net investment income $ 0.32 0.69 0.81
Net realized and unrealized gain (loss) on investments $ 0.35 (0.09) (0.09)
Total income from investment operations $ 0.67 0.60 0.72
Less distributions from:
Net investment income $ 0.35 0.69 0.80
Net asset value, end of period $ 15.15 14.83 14.92
TOTAL RETURN(2) % 4.56 4.15 4.92
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 63,160 11,106 2,411
Average borrowings (000's)(5) $ 27,109 17,655 19,797
RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) % 1.42 1.42 1.47
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) % 1.57 1.63 1.73
Net investment income(3)(4) % 4.40 4.88 5.58
RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) % 1.48 1.57 1.82
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) % 1.64 1.78 2.07
Net investment income(3)(4) % 4.34 4.73 5.26
Portfolio turnover rate % 38 60 65
Shares outstanding at end of period (000's) 4,169 749 162
<Caption>
CLASS B
---------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, FEB. 28, FEB. 28,
2003 2003 2002(1)
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period 14.82 14.92 15.00
Income from investment operations:
Net investment income 0.28 0.62 0.75
Net realized and unrealized gain (loss) on investments 0.34 (0.10) (0.10)
Total income from investment operations 0.62 0.52 0.65
Less distributions from:
Net investment income 0.31 0.62 0.73
Net asset value, end of period 15.13 14.82 14.92
TOTAL RETURN(2) 4.23 3.57 4.45
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) 34,567 17,648 12,776
Average borrowings (000's)(5) 27,109 17,655 19,797
RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) 1.92 1.91 1.96
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) 2.11 2.09 2.23
Net investment income(3)(4) 3.97 4.12 5.19
RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) 2.25 2.31 2.29
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) 2.44 2.49 2.54
Net investment income(3)(4) 3.65 3.72 4.89
Portfolio turnover rate 38 60 65
Shares outstanding at end of period (000's) 2,285 1,191 856
</Table>
<Table>
<Caption>
CLASS C
--------------------------------------------------
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, FEB. 28, FEB. 28,
2003 2003 2002(1)
- ---------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.82 14.92 15.00
Income from investment operations:
Net investment income $ 0.28 0.62 0.75
Net realized and unrealized gain (loss) on investments $ 0.35 (0.10) (0.10)
Total income from investment operations $ 0.63 0.52 0.65
Less distributions from:
Net investment income $ 0.31 0.62 0.73
Net asset value, end of period $ 15.14 14.82 14.92
TOTAL RETURN(2) % 4.30 3.57 4.45
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 112,988 32,647 19,391
Average borrowings (000's)(5) $ 27,109 17,655 19,797
RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) % 1.92 1.91 1.96
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) % 2.09 2.09 2.23
Net investment income(3)(4) % 3.93 4.19 5.20
RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) % 1.99 2.06 2.29
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) % 2.16 2.24 2.54
Net investment income(3)(4) % 3.87 4.04 4.89
Portfolio turnover rate % 38 60 65
Shares outstanding at end of period (000's) 7,463 2,202 1,300
</Table>
(1) Classes A, B and C commenced offering of shares on April 2, 2001.
(2) Total returns are not annualized for periods of less than one year.
(3) Annualized for periods less than one year.
(4) The investment manager has agreed to limit expenses excluding interest,
taxes, brokerage and extraordinary expenses.
(5) Based on the active days of borrowing.
See Accompanying Notes to Financial Statements
12
<Page>
<Table>
<Caption>
CLASS Q(5)
------------------------------------------------------
SIX MONTHS YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
AUG. 31, FEB. 28, FEB. 28, FEB. 28,
2003 2003 2002 2001(1)
- -------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.79 14.89 15.30 15.02
Income from investment operations:
Net investment income $ 0.35 0.69 0.81 0.14
Net realized and unrealized gain (loss) on investments $ 0.31 (0.10) (0.32) 0.14
Total income from investment operations $ 0.66 0.59 0.49 0.28
Less distributions from:
Net investment income $ 0.35 0.69 0.90 --
Net asset value, end of period $ 15.10 14.79 14.89 15.30
TOTAL RETURN(2) % 4.50 4.09 3.73 1.80
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 193,481 215,341 215,029 94,096
Average borrowings (000's)(6) $ 27,109 17,655 19,797 --
RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) % 1.43 1.41 1.43 --
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) % 1.65 1.59 1.63 1.85
Net investment income(3)(4) % 4.53 4.69 5.94 7.00
RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT:
Expenses (before interest and other fees related to revolving
credit facility)(3)(4) % 1.51 1.56 1.70 --
Expenses (with interest and other fees related to revolving
credit facility)(3)(4) % 1.73 1.74 1.90 1.85
Net investment income(3)(4) % 4.45 4.54 5.67 7.00
Portfolio turnover rate % 38 60 65 11
Shares outstanding at end of period (000's) 12,815 14,559 14,439 6,152
</Table>
(1) Class Q commenced operations on December 15, 2000.
(2) Total returns are not annualized for periods of less than one year.
(3) Annualized for periods less than one year.
(4) The investment manager has agreed to limit expenses excluding interest,
taxes, brokerage and extraordinary expenses.
(5) Effective March 30, 2001, the Management of the Fund effectuated a reverse
stock split of 0.6656 of a Share for one Share. Prior period amounts have
been restated to reflect the reverse stock split.
(6) Based on the active days of borrowing.
See Accompanying Notes to Financial Statements
13
<Page>
ING Senior Income Fund
NOTES TO FINANCIAL STATEMENTS as of August 31, 2003 (Unaudited)
NOTE 1 -- ORGANIZATION
ING Senior Income Fund (the "Fund"), a Delaware business trust, is registered
under the Investment Company Act of 1940 as amended, (the "1940 Act"), as a
continuously-offered, diversified, closed-end, investment management company.
During the period December 15, 2000 through March 30, 2001, the Fund issued
19,933,953 Class Q shares to Lion Connecticut Holdings, Inc., the indirect
parent company of the Fund's manager, ING Investments, LLC (the "Investment
Manager") in exchange for $200,000,000. Effective April 2, 2001, the Fund
commenced the offering of Class A, Class B, Class C and Class Q shares to the
public. Class A shares are subject to a sales charge of up to 4.75%. Class A
shares purchased in excess of $1,000,000 are subject to an Early Withdrawal
Charge ("EWC") of up to 1% over the two-year period after purchase. Class A
shares are available upon conversion of Class B shares eight years after
purchase or through an exchange of Class A shares of certain ING Funds. Class B
common shares are subject to an EWC of up to 3.0% over the five-year period
after purchase and Class C common shares are subject to an EWC of 1% during the
first year after purchase. The separate classes of shares differ principally in
the distribution fees and shareholder servicing fees. All shareholders bear the
common expenses of the Fund and earn income from all portfolios pro rata on the
average daily net assets of each class, without distinction between share
classes. Dividends for each class are 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 the per share dividend rates generally result
from the relative weighting of pro rata income and realized gains allocations
and from differences in separate class expenses, including distribution fees and
shareholder servicing fees. The Fund invests at least 80% of its assets in
senior loans which are exempt from registration under the Securities Act of 1933
as amended (the "'33 Act"), but contain certain restrictions on resale and
cannot be sold publicly. These loans bear interest (unless otherwise noted) at
rates that float periodically at a margin above the London Inter-Bank Offered
Rate ("LIBOR") and other short-term rates.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles in the
United States of America.
A. SENIOR LOAN AND OTHER SECURITY VALUATION. Loans are normally valued at the
mean of the means of one or more bid and asked quotations obtained from a
pricing service or other sources determined by the Board of Trustees to be
independent and believed to be reliable. Loans for which reliable market
value quotations are not readily available may be valued with reference to
another loan or a group of loans for which quotations are more readily
available and whose characteristics are comparable to the loan being
valued. Under this approach, the comparable loan or loans serve as a proxy
for changes in value of the loan being valued. The Fund has engaged an
independent pricing service to provide quotations from dealers in loans and
to calculate values under the proxy procedure described above. It is
expected that most of the loans held by the Fund will be valued with
reference to quotations from the independent pricing service or with
reference to the proxy procedure described above. As of August 31, 2003,
97.8% of total long-term investments were valued based on these procedures.
Prices from a pricing service may not be available for all loans and the
Investment Manager may believe that the price for a loan derived from
market quotations or the proxy procedure described above is not reliable or
accurate. Among other reasons, this may be the result of information about
a particular loan or borrower known to the Investment Manager that the
Investment Manager believes may not be known to the pricing service or
reflected in a price quote. In this event, the loan is valued at fair value
as determined in good faith under
14
<Page>
procedures established by the Fund's Board of Trustees and in accordance
with the provisions of the 1940 Act. Under these procedures, fair value is
determined by the Investment Manager and monitored by the Fund's Board of
Trustees through its Valuation Committee. In fair valuing a loan,
consideration is given to several factors, which may include, among others,
the following: (i) the characteristics of and fundamental analytical data
relating to the loan, including the cost, size, current interest rate,
period until the next interest rate reset, maturity and base lending rate
of the loan, the terms and conditions of the loan and any related
agreements, and the position of the loan in the borrower's debt structure;
(ii) the nature, adequacy and value of the collateral, including the Fund's
rights, remedies and interests with respect to the collateral; (iii) the
creditworthiness of the borrower and the cash flow coverage of outstanding
principal and interest, based on an evaluation of its financial condition,
financial statements and information about the borrower's business, cash
flows, capital structure and future prospects; (iv) information relating to
the market for the loan, including price quotations for, and trading in,
the loan and interests in similar loans and the market environment and
investor attitudes towards the loan and interests in similar loans; (v) the
reputation and financial condition of the agent for the loan and any
intermediate participants in the loan; (vi) the borrower's management; and
(vii) the general economic and market conditions affecting the fair value
of the loan. Securities other than senior loans for which reliable market
value quotations are not readily available and all other assets will be
valued at their respective fair values as determined in good faith by, or
under procedures established by, the Board of Trustees of the Fund.
Investments in securities maturing in less than 60 days from the date of
acquisition are valued at amortized cost. Short-term investments are
carried at amortized cost.
B. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated
investment companies" and to distribute all of its taxable income to its
shareholders. Therefore, no provision for Federal income taxes is required.
In addition, by distributing during each calendar year substantially all of
its net investment income, if any, the Fund intends not to be subject to
any federal excise tax.
C. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Loans are booked on a
settlement basis and security transactions are accounted for on trade date
(date the order to buy or sell is executed). Realized gains or losses are
reported on the basis of identified cost of securities delivered. Interest
income is recorded on an accrual basis at the then-current loan rate. The
accrual of interest on loans is discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to meet
payments as they become due. Upon such discontinuance, all unpaid accrued
interest is reversed. Cash collections on non-accrual senior loans are
generally applied as a reduction to the recorded investment of the loan.
Senior loans are returned to accrual status only after all past due amounts
have been received and the borrower has demonstrated sustained performance.
Premium amortization and discount accretion are determined by the effective
yield method over the shorter of four years or the actual term of the loan.
Arrangement fees on revolving credit facilities, which represent
non-refundable fees associated with the acquisition of loans, are deferred
and recognized using the effective yield method over the shorter of four
years or the actual term of the loan. No such fees are recognized on loans
which have been placed on non-accrual status. Arrangement fees associated
with all other loans, except revolving credit facilities, are treated as
discounts and are accreted as described above.
D. DISTRIBUTIONS TO SHAREHOLDERS. The Fund records distributions to its
shareholders on the ex-dividend date. The Fund declares and goes
ex-dividend daily and pays dividends monthly for net investment income.
Distributions from capital gains, if any, are declared on an annual basis.
15
<Page>
E. USE OF ESTIMATES. Management of the Fund has made certain estimates and
assumptions relating to the reporting of assets, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with accounting principles generally accepted in the United
States of America. Actual results could differ from these estimates.
NOTE 3 -- INVESTMENTS
For the six months ended August 31, 2003, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term
investments, totaled $164,358,528 and $129,108,184 respectively. At August 31,
2003, the Fund held senior loans valued at $355,513,212 representing 98.8% of
its total investments (excluding short-term investments). The market value of
these assets is established as set forth in Note 1.
The senior loans acquired by the Fund may take the form of a direct lending
relationship with the borrower or an assignment of a lender's interest in a
loan. The lead lender in a typical corporate loan syndicate administers the loan
and monitors collateral. In the event that the lead lender becomes insolvent,
enters FDIC receivership or, if not FDIC insured, enters into bankruptcy, the
Fund may incur certain costs and delays in realizing payment, or may suffer a
loss of principal and/or interest.
Warrants and shares of common stock held in the portfolio were acquired in
conjunction with senior loans held by the Fund. Certain of these shares and
warrants are restricted and may not be publicly sold without registration under
the '33 Act, or without an exemption under the '33 Act. In some cases, these
restrictions expire after a designated period of time after the issuance of the
stock. The Fund values portfolio securities by using the market value of the
securities when reliable market value quotations for the securities are readily
available. When reliable market value quotations are not readily available, the
Fund determines, in good faith, the fair value of the securities in accordance
with the Fund's fair valuation procedures as established by the Board of
Trustees.
Dates of acquisition and cost or assigned basis of restricted securities are as
follows:
<Table>
<Caption>
DATE OF COST OR
ACQUISITION ASSIGNED BASIS
----------- --------------
Decision One Corporation -- Common Shares 09/27/01 $ --
Murray's Discount Auto Stores, Inc. -- Escrow 08/11/03 155,087
Neoplan -- Common Shares 08/29/03 --
Neoplan -- Preferred B Shares 08/29/03 --
Neoplan -- Preferred C Shares 08/29/03 40,207
Neoplan -- Preferred D Shares 08/29/03 330,600
New World Restaurant Group, Inc. -- Warrants 02/20/02 20
Safelite Glass Corporation -- Common Shares 06/21/01 --
Safelite Realty -- Common Shares 06/21/01 --
Targus -- Warrants 03/11/03 --
--------------
Total restricted securities excluding senior loans (market value
of $1,549,510 was 0.38% of net assets at August 31, 2003) $ 525,914
==============
</Table>
NOTE 4 -- MANAGEMENT AND ADMINISTRATION AGREEMENT
The Fund has entered into an Investment Management Agreement with the Investment
Manager to provide advisory and management services. The Investment Management
Agreement compensates the Investment Manager with a fee, computed daily and
payable monthly, at an annual rate of 0.80% of the Fund's average daily gross
asset value, minus the sum of the Fund's accrued liabilities (other than
liabilities for the principal amount of any borrowings incurred, commercial
paper or notes issued by the Fund) ("Managed Assets"). Effective August 1, 2003,
the
16
<Page>
Fund is sub-advised by Aeltus Investment Management, Inc. ("ING Aeltus"). Under
the Sub-Advisory Agreement, ING Aeltus is responsible for managing the assets of
the Fund in accordance with its investment objective and policies, subject to
oversight by the Investment Manager. Both ING Aeltus and the Investment Manager
are indirect wholly owned subsidiaries of ING Groep N.V. and affiliates of each
other.
The Fund has also entered into an Administration Agreement with ING Funds
Services, LLC (the "Administrator") to provide administrative services. The
Administrator is compensated with a fee, computed daily and payable monthly, at
an annual rate of 0.10% of the Fund's Managed Assets.
NOTE 5 -- DISTRIBUTION AND SERVICE FEES
Each share class of the Fund has adopted a Plan pursuant to Rule 12b-1 under the
1940 Act (the "12b-1 Plans"), whereby ING Funds Distributor, LLC (the
"Distributor") is reimbursed or compensated (depending on the class of shares)
by the Fund for expenses incurred in the distribution of the Fund's shares
("Distribution Fees"). Pursuant to the 12b-1 Plans, the Distributor is entitled
to a payment each month for actual expenses incurred in the distribution and
promotion of the Fund's shares, including expenses incurred in printing
prospectuses and reports used for sales purposes, expenses incurred in preparing
and printing sales literature and other such distribution related expenses,
including any distribution or Shareholder Servicing Fees ("Service Fees") paid
to securities dealers who executed a distribution agreement with the
Distributor. Under the 12b-1 plans, each class of shares of the Fund pays the
Distributor a combined Distribution and Service Fee based on average daily net
assets at the following annual rates:
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS Q
------- ------- ------- -------
0.25% 1.00% 0.75% 0.25%
</Table>
During the six months ended August 31, 2003, the Distributor waived 0.25% of the
Service Fee on Class B only.
NOTE 6 -- EXPENSE LIMITATIONS
The Investment Manager has voluntarily agreed to limit expenses, excluding
interest, taxes, brokerage commissions, leverage expenses, other
investment-related costs and extraordinary expenses, to the following:
Class A -- 0.90% of Managed Assets plus 0.45% of average daily net assets
Class B -- 0.90% of Managed Assets plus 1.20% of average daily net assets
Class C -- 0.90% of Managed Assets plus 0.95% of average daily net assets
Class Q -- 0.90% of Managed Assets plus 0.45% of average daily net assets
As of August 31, 2003, the three-year cumulative amount of reimbursed fees that
are subject to possible recoupment by the Manager is $1,120,126.
NOTE 7 -- COMMITMENTS
The Fund has entered into a five-year revolving credit agreement, collateralized
by assets of the Fund, to borrow up to $100 million maturing June 13, 2006.
Borrowing rates under this agreement are based on a commercial paper pass
through rate plus 0.40% on the funded portion. A commitment fee of 0.10% is
charged on the unused portion of the facility. There was no amount of borrowings
outstanding at August 31, 2003. Average borrowings for the six months ended
August 31, 2003 was $27,108,696 and the average annualized cost of borrowings
was 2.37%.
17
<Page>
NOTE 8 -- SENIOR LOAN COMMITMENTS
At August 31, 2003, the Fund had unfunded loan commitments pursuant to the terms
of the following loan agreements:
<Table>
Amerco, Inc. $ 2,943,508
Centennial Cellular Operating Company 1,000,000
Cincinnati Bell, Inc. 977,392
Citadel Broadcasting Company 1,500,000
Fleming Companies, Inc. 962,221
Hercules, Inc. 1,000,000
Lyondell Chemical Company $ 1,000,000
Neoplan USA Corp. 192,962
Nextel Finance Company 1,832,793
Park Place Entertainment Corporation 990,394
Six Flags Theme Parks, Inc. 1,000,000
United Defense Industries, Inc. 2,000,000
--------------
$ 15,399,270
==============
</Table>
NOTE 9 -- TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
At August 31, 2003, the Fund had the following amounts recorded in payable to
affiliates on the accompanying Statement of Assets and Liabilities (see Notes 3
and 4):
<Table>
<Caption>
ACCRUED INVESTMENT ACCRUED ACCRUED DISTRIBUTION
MANAGEMENT FEES ADMINISTRATIVE FEES AND SERVICE FEES TOTAL
------------------ ------------------- -------------------- ---------
$ 255,168 $ 31,896 $ 134,128 $ 421,192
</Table>
At August 31, 2003, ING Life Insurance and Annuity Company and Equitable Life
Insurance Company of Iowa, wholly-owned indirect subsidiaries of ING Groep N.V.,
owned 10.6% and 31.2%, respectively, of the Fund. Investment activities of this
shareholder could have a material impact on the Fund.
The Fund has adopted a Retirement Policy covering all independent trustees of
the Fund 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.
NOTE 10 -- CUSTODIAL AGREEMENT
State Street Bank and Trust Company ("SSB") serves as the Fund's custodian and
recordkeeper. Custody fees paid to SSB may be reduced by earnings credits based
on the cash balances held by SSB for the Fund.
There were no earning credits for the six months ended August 31, 2003.
NOTE 11 -- SUBORDINATED LOANS AND UNSECURED LOANS
The primary risk arising from investing in subordinated loans or in unsecured
loans is the potential loss in the event of default by the issuer of the loans.
The Fund may invest up to 10% of its total assets, measured at the time of
investment, in subordinated loans and up to 10% of its total assets, measured at
the time of investment, in unsecured loans. As of August 31, 2003, the Fund held
1.3% of its total assets in subordinated loans and unsecured loans.
18
<Page>
NOTE 12 -- CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
<Table>
<Caption>
CLASS A SHARES CLASS B
------------------------------ ------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, FEBRUARY 28, AUGUST 31, FEBRUARY 28,
2003 2003 2003 2003
------------- ------------- ------------- -------------
NUMBER OF SHARES
Shares sold 3,549,081 697,541 1,178,958 529,384(1)
Dividends reinvested 29,861 18,011 17,206 22,777
Shares redeemed (158,859) (128,377) (102,310) (217,666)(1)
------------- ------------- ------------- -------------
Net increase in shares outstanding 3,420,083 587,175 1,093,854 334,495
============= ============= ============= =============
DOLLAR AMOUNT ($)
Shares sold $ 53,568,328 $ 10,303,765 $ 17,770,466 $ 7,862,602(2)
Dividends reinvested 450,784 265,212 258,980 336,436
Shares redeemed (2,392,563) (1,890,380) (1,536,266) (3,212,215)(2)
------------- ------------- ------------- -------------
Net increase $ 51,626,549 $ 8,678,597 $ 16,493,180 $ 4,986,823
============= ============= ============= =============
</Table>
<Table>
<Caption>
CLASS C CLASS Q
------------------------------ ------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, FEBRUARY 28, AUGUST 31, FEBRUARY 28,
2003 2003 2003 2003
------------- ------------- ------------- -------------
NUMBER OF SHARES
Shares sold 5,553,985 1,548,667 1,349,182 374,311
Dividends reinvested 60,428 63,192 175,987 682,409
Shares redeemed (353,456) (709,214) (3,269,406) (936,355)
------------- ------------- ------------- -------------
Net increase (decrease) in shares outstanding 5,260,957 902,645 (1,744,237) 120,365
============= ============= ============= =============
DOLLAR AMOUNT ($)
Shares sold $ 83,782,896 $ 22,961,598 $ 20,347,021 $ 5,582,887
Dividends reinvested 910,982 932,572 2,624,550 10,067,130
Shares redeemed (5,314,558) (10,428,994) (49,322,702) (13,715,870)
------------- ------------- ------------- -------------
Net increase (decrease) $ 79,379,320 $ 13,465,176 $ (26,351,131) $ 1,934,147
============= ============= ============= =============
</Table>
(1) Excludes 12,712 shares rescinded.
(2) Excludes $189,639 for shares rescinded.
NOTE 13 -- FEDERAL INCOME TAXES
Dividends paid by the Fund 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 six months ended August 31, 2003 and year
ended February 28, 2003 were as follows:
<Table>
<Caption>
ORDINARY LONG-TERM TAX RETURN
INCOME CAPITAL GAINS OF CAPITAL
-------------- ------------- ----------
August 31, 2003 $ 7,252,261 $ -- $ --
February 28, 2003 12,415,366 -- --
</Table>
The amount of distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains, foreign currency
transactions, organization costs and other temporary differences. To the extent
that these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassifications. To the extent
distributions exceed net investment income and/or net realized capital gains for
tax purposes, they are reported as distributions of paid-in capital.
19
<Page>
Capital loss carryforwards, which may be used to offset future realized capital
gains for federal income tax purposes were as follows at February 28, 2003:
<Table>
<Caption>
AMOUNT EXPIRATION DATES
------------ ----------------
$ 2,454,651 2010-2011
</Table>
NOTE 14 -- SUBSEQUENT EVENTS
DIVIDENDS DECLARED
Subsequent to August 31, 2003, the Fund declared the following dividends:
<Table>
<Caption>
PER SHARE AMOUNT TYPE DECLARATION DATE RECORD DATE PAYABLE DATE
- ---------------- ---- ---------------- ----------- -------------
$ 0.05025(A) NII Daily Daily 9/30/03
$ 0.04405(B) NII Daily Daily 9/30/03
</Table>
NII -- Net Investment Income
(A) For Class A and Q shares.
(B) For Class B and C shares.
RESCISSION OFFER
Certain of the Fund's Class A shares sold during the period of June 30, 2003 to
July 16, 2003 ("Rescission Period") were not registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended. During
the Rescission Period, up to 454,994 shares were sold without registration. On
October 10, 2003, the Fund filed a Registration Statement on Form N-2 offering
to repurchase the unregistered Class A shares sold during the Rescission Period
("Rescission Offer"). The Investment Manager has agreed to pay the costs of the
Rescission Offer (I.E., legal and accounting expenses and printing and mailing
expenses) and any net loss to the Fund resulting from the Rescission Offer.
20
<Page>
PORTFOLIO OF INVESTMENTS as of August 31, 2003 (Unaudited)
SENIOR LOANS*: 88.0%
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE: 1.9%
ALLIANT TECHSYSTEMS, INC. Ba2 BB-
$ 2,282,527 Term Loan, maturing April 20, 2009 $ 2,293,368
DRS TECHNOLOGIES, INC. Ba3 BB-
982,526 Term Loan, maturing September 30, 2008 991,122
TITAN CORPORATION Ba3 BB-
1,980,000 Term Loan, maturing June 30, 2009 1,985,981
UNITED DEFENSE INDUSTRIES, INC. Ba3 BB
2,502,128 Term Loan, maturing August 13, 2009 2,511,288
-------------
7,781,759
-------------
AUTOMOTIVE: 4.6%
AFTERMARKET TECHNOLOGY CORPORATION Ba2 BB-
560,720 Term Loan, maturing February 08, 2008 559,317
409,393 Term Loan, maturing February 08, 2008 410,160
COLLINS & AIKMAN PRODUCTS B1 B+
1,472,494 Term Loan, maturing December 31, 2005 1,461,450
(1) FEDERAL-MOGUL CORPORATION Ca D
1,500,000 Term Loan, maturing February 24, 2004 1,143,750
2,000,000 Term Loan, maturing February 24, 2005 1,514,000
GOODYEAR TIRE & RUBBER COMPANY Ba2 BB+
1,500,000 Term Loan, maturing March 31, 2006 1,496,250
HLI OPERATING COMPANY, INC. Ba3 BB-
1,500,000 Term Loan, maturing June 03, 2009 1,509,375
POLYPORE, INC. Ba3 BB-
1,481,250 Term Loan, maturing December 31, 2007 1,492,358
SAFELITE GLASS CORPORATION B3 B+
1,700,073 Term Loan, maturing September 30, 2007 1,674,571
2,734,289 Term Loan, maturing September 30, 2007 2,693,275
STONERIDGE, INC. Ba3 BB
287,500 Term Loan, maturing April 30, 2008 287,440
TRW AUTOMOTIVE ACQUISITIONS CORPORATION Ba2 BB
3,000,000 Term Loan, maturing February 28, 2011 3,012,500
UNITED COMPONENTS, INC. B1 BB-
1,500,000 Term Loan, maturing June 30, 2010 1,512,500
-------------
18,766,946
-------------
BEVERAGE, FOOD AND TOBACCO: 4.7%
AURORA FOODS, INC. B3 CC
1,937,526 Term Loan, maturing September 30, 2006 1,782,522
BIRDS EYE FOODS, INC. Ba3 B+
1,987,494 Term Loan, maturing June 30, 2008 1,995,775
COMMONWEALTH BRANDS, INC. Ba3 BB-
1,111,000 Term Loan, maturing August 28, 2007 1,114,470
CONSTELLATION BRANDS, INC. Ba1 BB
1,741,750 Term Loan, maturing November 30, 2008 1,759,820
COTT BEVERAGES, INC. Ba3 BB+
170,000 Term Loan, maturing December 31, 2006 170,530
CP KELCO APS B3 B
1,067,482 Term Loan, maturing March 31, 2008 1,067,481
354,937 Term Loan, maturing September 30, 2008 354,936
</Table>
See Accompanying Notes to Financial Statements
21
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD AND TOBACCO (CONTINUED)
DEAN FOODS COMPANY Ba1 BB+
$ 2,969,990 Term Loan, maturing July 15, 2008 $ 2,979,413
DEL MONTE CORPORATION Ba3 BB-
1,852,850 Term Loan, maturing December 20, 2010 1,870,915
(1) FLEMING COMPANIES, INC. B3 D
1,710,500 Revolver, maturing June 18, 2007 1,631,471
950,124 Term Loan, maturing June 18, 2008 904,992
INTERSTATE BRANDS CORPORATION Ba2 BBB-
961,272 Term Loan, maturing July 19, 2007 963,795
NATIONAL DAIRY HOLDINGS, L.P. Ba2 BB+
987,500 Term Loan, maturing April 30, 2009 987,911
SOUTHERN WINE & SPIRITS OF AMERICA, INC. Ba3 BBB-
1,237,500 Term Loan, maturing July 02, 2008 1,243,687
-------------
18,827,718
-------------
BUILDINGS AND REAL ESTATE: 0.9%
(1) AMERCO, INC. NR NR
56,492 Debtor in Possession Term Loan,
maturing August 13, 2004 56,208
BUILDING MATERIALS HOLDING CORPORATION Ba2 BB-
1,000,000 Term Loan, maturing August 21, 2010 1,003,750
MACERICH PARTNERSHIP, L.P. Ba2 NR
1,574,400 Term Loan, maturing July 26, 2005 1,580,303
WERNER HOLDINGS CO., INC. Ba3 B+
1,000,000 Term Loan, maturing June 11, 2009 1,013,332
-------------
3,653,593
-------------
CABLE TELEVISION: 7.0%
(1) ADELPHIA COMMUNICATIONS CORPORATION NR BBB
1,963,795 Debtor in Possession Term Loan,
maturing June 25, 2004 1,976,683
BRESNAN COMMUNICATIONS, LLC B1 BB-
2,000,000 Term Loan, maturing December 31, 2007 2,008,125
CC VI OPERATING COMPANY, LLC B2 CCC+
1,000,000 Term Loan, maturing November 12, 2008 901,000
CC VIII OPERATING, LLC B2 B-
2,955,000 Term Loan, maturing February 02, 2008 2,773,476
(1) CENTURY CABLE HOLDINGS, LLC Caa1 D
820,000 Revolver, maturing March 31, 2009 680,600
1,000,000 Term Loan, maturing December 31, 2009 823,000
CHARTER COMMUNICATIONS OPERATING, LLC B2 B
2,940,113 Term Loan, maturing March 18, 2008 2,763,523
COMCAST CABLE COMMUNICATIONS Ba1 BBB
2,000,000 Term Loan, maturing November 05, 2006 1,991,000
FALCON CABLE COMMUNICATIONS, LLC B2 BB
997,389 Term Loan, maturing December 31, 2007 910,116
(1) FRONTIERVISION OPERATING PARTNERS, L.P. B2 D
1,000,000 Revolver, maturing October 31, 2005 951,666
1,000,000 Term Loan, maturing March 31, 2006 951,666
1,136,364 Term Loan, maturing September 30, 2005 1,081,440
</Table>
See Accompanying Notes to Financial Statements
22
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
CABLE TELEVISION (CONTINUED)
(1) HILTON HEAD COMMUNICATIONS, L.P. Caa1 NR
$ 1,000,000 Revolver, maturing September 30, 2007 $ 813,000
INSIGHT MIDWEST HOLDINGS, LLC Ba3 BB+
3,000,000 Term Loan, maturing December 31, 2009 3,005,625
MCC IOWA MEDIACOM BROADBAND Ba3 BB+
3,000,000 Term Loan, maturing September 30, 2010 3,004,790
(1) OLYMPUS CABLE HOLDINGS, LLC B2 D
4,250,000 Term Loan, maturing September 30, 2010 3,713,438
-------------
28,349,148
-------------
CARGO TRANSPORT: 1.2%
(1) AMERICAN COMMERCIAL LINES, LLC Ba3 NR
1,000,000 Debtor in Possession Term Loan,
maturing July 31, 2004 997,500
NEOPLAN USA CORPORATION NR NR
510,500 Term Loan, maturing June 30, 2006 510,500
PACER INTERNATIONAL, INC. B1 BB-
1,394,118 Term Loan, maturing June 10, 2010 1,407,187
RAILAMERICA, INC. Ba3 BB
316,800 Term Loan, maturing May 22, 2009 317,790
264,000 Term Loan, maturing May 22, 2009 264,825
1,399,200 Term Loan, maturing May 22, 2009 1,403,573
-------------
4,901,375
-------------
CELLULAR COMMUNICATIONS: 5.8%
AIRGATE PCS, INC. B2 CCC-
234,680 Term Loan, maturing June 06, 2007 218,251
2,742,213 Term Loan, maturing September 30, 2008 2,550,258
CENTENNIAL CELLULAR OPERATING COMPANY B3 B
632,731 Term Loan, maturing November 30, 2006 607,949
CENTENNIAL PUERTO RICO OPERATIONS CORPORATION B3 B
632,731 Term Loan, maturing November 30, 2006 607,949
MICROCELL TELECOMMUNICATIONS, INC. NR CCC+
913,402 Term Loan, maturing March 01, 2006 819,017
NEXTEL FINANCE COMPANY Ba2 BB
167,207 Revolver, maturing December 31, 2007 160,561
9,575,742 Term Loan, maturing December 31, 2007 9,263,334
2,985,000 Term Loan, maturing March 31, 2009 2,971,941
NEXTEL OPERATIONS, INC. Ba2 BB
2,006,617 Term Loan, maturing February 10, 2007 2,023,880
RURAL CELLULAR CORPORATION B2 B-
2,000,000 Term Loan, maturing April 03, 2008 1,908,750
WESTERN WIRELESS CORPORATION B3 B-
2,291,667 Term Loan, maturing March 31, 2008 2,188,542
-------------
23,320,432
-------------
CHEMICALS, PLASTICS AND RUBBER: 4.9%
EQUISTAR CHEMICALS, L.P. Ba2 BB
1,239,116 Term Loan, maturing August 24, 2007 1,244,889
FMC CORPORATION Ba1 BBB-
995,000 Term Loan, maturing October 21, 2007 1,008,432
</Table>
See Accompanying Notes to Financial Statements
23
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER (CONTINUED)
GEO SPECIALTY CHEMICALS, INC. B3 CCC+
$ 830,101 Term Loan, maturing December 31, 2007 $ 751,241
HERCULES, INC. Ba1 BB
2,487,500 Term Loan, maturing May 15, 2007 2,499,938
HUNTSMAN, LLC B2 B+
1,142,063 Term Loan, maturing March 31, 2007 1,015,484
2,368,106 Term Loan, maturing March 31, 2007 2,105,641
HUNTSMAN INTERNATIONAL, LLC B1 B+
1,233,420 Term Loan, maturing June 30, 2007 1,238,046
1,233,314 Term Loan, maturing June 30, 2008 1,237,683
INEOS GROUP HOLDINGS, PLC Ba2 BB
2,355,012 Term Loan, maturing April 26, 2009 2,365,805
JOHNSONDIVERSEY, INC. Ba3 BB-
1,907,005 Term Loan, maturing November 03, 2009 1,917,732
NOVEON, INC. B1 BB-
3,000,000 Term Loan, maturing September 30, 2008 3,030,000
ROCKWOOD SPECIALTIES GROUP, INC. B1 B+
1,500,000 Term Loan, maturing July 23, 2010 1,515,626
-------------
19,930,517
-------------
CONTAINERS, PACKAGING AND GLASS: 5.1%
BERRY PLASTICS CORPORATION B1 B+
1,980,000 Term Loan, maturing July 22, 2010 1,993,364
CONSTAR INTERNATIONAL, INC. B1 BB-
1,985,000 Term Loan, maturing November 20, 2009 1,951,090
CROWN CORK & SEAL CO., INC. Ba3 BB
1,500,000 Term Loan, maturing September 15, 2008 1,510,688
GRAPHIC PACKAGING INTERNATIONAL, INC. B1 B+
4,000,000 Term Loan, maturing August 08, 2009 4,021,252
GREIF BROS. CORPORATION Ba3 BB
990,000 Term Loan, maturing August 23, 2009 995,445
JEFFERSON SMURFIT CORPORATION Ba3 B+
1,098,182 Term Loan, maturing March 31, 2007 1,102,758
KERR GROUP, INC. B1 BB-
1,500,000 Term Loan, maturing August 13, 2010 1,514,063
OWENS-ILLINOIS GROUP, INC. B1 BB
3,000,000 Term Loan, maturing April 01, 2008 3,010,626
SILGAN HOLDINGS, INC. Ba2 BB
1,995,000 Term Loan, maturing November 30, 2008 2,004,560
SMURFIT-STONE CONTAINER CANADA, INC. Ba3 B+
366,698 Term Loan, maturing June 30, 2009 368,394
STONE CONTAINER CORPORATION Ba3 B+
2,164,264 Term Loan, maturing June 30, 2009 2,174,274
-------------
20,646,514
-------------
DIVERSIFIED/CONGOMERATE MANUFACTURING: 2.2%
BRAND SERVICES, INC. B1 B+
995,000 Term Loan, maturing October 16, 2009 999,353
FLOWSERVE CORPORATION Ba3 BB-
2,806,835 Term Loan, maturing June 30, 2009 2,823,875
</Table>
See Accompanying Notes to Financial Statements
24
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGOMERATE MANUFACTURING (CONTINUED)
MUELLER GROUP, INC. B1 B+
$ 990,000 Term Loan, maturing May 31, 2008 $ 990,884
NEPTUNE TECHNOLOGY GROUP, INC. B1 B+
1,217,105 Term Loan, maturing March 31, 2010 1,230,798
SPX CORPORATION Ba2 BBB-
2,727,500 Term Loan, maturing September 30, 2009 2,742,842
-------------
8,787,752
-------------
DIVERSIFIED/CONGOMERATE SERVICE: 0.7%
IRON MOUNTAIN, INC. Ba3 BB
996,000 Term Loan, maturing February 15, 2008 1,002,403
US INVESTIGATIONS SERVICES, LLC B1 BB-
1,757,883 Term Loan, maturing January 10, 2009 1,760,081
-------------
2,762,484
-------------
ECOLOGICAL: 0.4%
ALLIED WASTE NORTH AMERICA, INC. Ba3 BB
1,500,000 Term Loan, maturing January 15, 2010 1,510,714
-------------
1,510,714
-------------
ELECTRONICS: 1.5%
DECISION ONE CORPORATION B3 CCC
2,842,000 Term Loan, maturing April 18, 2005 2,415,701
SEAGATE TECHNOLOGY HDD HOLDINGS, INC. Ba1 BB+
1,414,314 Term Loan, maturing May 13, 2007 1,421,132
SEAGATE TECHNOLOGY (US) HOLDINGS, INC. Ba1 BB+
565,686 Term Loan, maturing May 13, 2007 568,413
TRANSACTION NETWORK SERVICES, INC. Ba3 BB-
1,761,256 Term Loan, maturing April 03, 2007 1,753,551
-------------
6,158,797
-------------
FARMING AND AGRICULTURE: 0.7%
SCOTTS COMPANY Ba3 BB
2,777,638 Term Loan, maturing December 31, 2007 2,798,470
-------------
2,798,470
-------------
FINANCE: 0.5%
RENT-A-CENTER, INC. Ba2 BB
2,000,000 Term Loan, maturing May 28, 2009 2,015,834
-------------
2,015,834
-------------
GAMING: 3.0%
ALLIANCE GAMING CORPORATION B1 BB-
1,975,000 Term Loan, maturing December 31, 2006 1,989,402
AMERISTAR CASINOS, INC. Ba3 BB-
1,984,685 Term Loan, maturing December 20, 2006 1,993,864
ARGOSY GAMING COMPANY Ba2 BB
1,933,817 Term Loan, maturing July 31, 2008 1,944,695
ISLE OF CAPRI CASINOS, INC. Ba2 BB-
987,500 Term Loan, maturing April 26, 2008 991,280
MANDALAY RESORT GROUP Ba2 BB+
2,000,000 Term Loan, maturing August 21, 2006 1,994,166
</Table>
See Accompanying Notes to Financial Statements
25
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
GAMING (CONTINUED)
PARK PLACE ENTERTAINMENT CORPORATION Ba1 BBB-
$ 1,009,606 Revolver, maturing December 31, 2003 $ 996,776
PENN NATIONAL GAMING Ba3 B+
1,496,250 Term Loan, maturing September 01, 2007 1,503,918
UNITED AUBURN INDIAN COMMUNITY Ba3 BB-
783,784 Term Loan, maturing January 24, 2009 789,662
-------------
12,203,763
-------------
GROCERY: 0.5%
GIANT EAGLE, INC. Ba2 BB+
1,980,000 Term Loan, maturing August 02, 2009 1,987,425
-------------
1,987,425
-------------
HEALTHCARE, EDUCATION AND CHILDCARE: 7.7%
ALARIS MEDICAL SYSTEMS, INC. B1 BB
918,367 Term Loan, maturing June 30, 2009 927,780
ALLIANCE IMAGING, INC. B1 B+
778,626 Term Loan, maturing November 02, 2006 765,973
895,105 Term Loan, maturing June 10, 2008 872,055
AMERIPATH, INC. B1 B+
897,750 Term Loan, maturing March 27, 2010 899,994
APRIA HEALTHCARE GROUP, INC. Ba1 BBB-
1,965,000 Term Loan, maturing July 20, 2008 1,966,228
CAREMARK RX, INC. Ba2 BBB-
1,478,775 Term Loan, maturing March 31, 2006 1,482,935
COMMUNITY HEALTH SYSTEMS, INC. Ba3 BB-
2,977,500 Term Loan, maturing July 16, 2010 2,988,666
1,000,000 Term Loan, maturing January 16, 2011 1,003,750
DAVITA, INC. Ba3 BB-
3,000,000 Term Loan, maturing March 31, 2009 3,013,125
EXPRESS SCRIPTS, INC. Ba1 BBB-
769,231 Term Loan, maturing March 31, 2008 772,528
FISHER SCIENTIFIC INTERNATIONAL, INC. Ba3 BB+
1,496,250 Term Loan, maturing March 31, 2010 1,505,976
HCA, INC. Ba1 BBB-
1,275,000 Term Loan, maturing April 30, 2006 1,255,875
IASIS HEALTHCARE CORPORATION B1 B+
925,000 Term Loan, maturing February 09, 2009 931,475
KINETIC CONCEPTS, INC. B1 BB-
2,500,000 Term Loan, maturing August 05, 2010 2,518,750
MEDCO HEALTH Ba1 BBB
1,500,000 Term Loan, maturing June 30, 2010 1,500,938
OXFORD HEALTH PLANS, INC. Ba2 BB+
1,496,250 Term Loan, maturing April 25, 2009 1,502,485
PACIFICARE HEALTH SYSTEMS, INC. B1 BB-
1,000,000 Term Loan, maturing June 03, 2008 1,006,563
TRIAD HOSPITALS, INC. Ba3 BB
1,961,818 Term Loan, maturing September 30, 2008 1,976,198
VANGUARD HEALTH SYSTEMS, INC. Ba3 B+
1,492,500 Term Loan, maturing January 03, 2010 1,499,963
</Table>
See Accompanying Notes to Financial Statements
26
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED)
VICAR OPERATING, INC. B1 B+
$ 2,500,000 Term Loan, maturing June 30, 2009 $ 2,512,500
-------------
30,903,757
-------------
HOME AND OFFICE FURNISHING, HOUSEWARES: 0.8%
GLOBAL IMAGING SYSTEMS, INC. Ba3 BB-
500,000 Term Loan, maturing June 25, 2009 505,000
SEALY MATTRESS COMPANY B1 B+
445,517 Term Loan, maturing December 15, 2004 444,069
596,027 Term Loan, maturing December 15, 2005 594,090
762,051 Term Loan, maturing December 15, 2006 759,574
TEMPUR PEDIC B1 B+
1,000,000 Term Loan, maturing August 18, 2009 1,001,250
-------------
3,303,983
-------------
INSURANCE: 0.3%
INFINITY PROPERTY & CASUALTY Baa3 BBB
1,000,000 Term Loan, maturing June 30, 2010 1,007,500
-------------
1,007,500
-------------
LEISURE, AMUSEMENT AND ENTERTAINMENT: 3.1%
AMF BOWLING WORLDWIDE, INC. B1 B
822,481 Term Loan, maturing February 28, 2008 824,194
LOEWS CINEPLEX ENTERTAINMENT CORPORATION NR NR
1,870,432 Term Loan, maturing February 29, 2008 1,864,879
METRO-GOLDWYN-MAYER STUDIOS, INC. Ba3 BB-
3,000,000 Term Loan, maturing June 30, 2008 3,010,314
NEW JERSEY BASKETBALL, LLC B2 B-
1,000,000 Term Loan, maturing December 08, 2003 995,000
PURE FISHING NR NR
1,000,000 Term Loan, maturing December 31, 2009 1,001,875
SIX FLAGS THEME PARKS, INC. Ba2 BB-
3,000,000 Term Loan, maturing June 30, 2009 2,999,064
VIVENDI UNIVERSAL ENTERTAINMENT, LLP Ba2 BB+
2,000,000 Term Loan, maturing June 30, 2008 2,011,876
-------------
12,707,202
-------------
LODGING: 1.3%
EXTENDED STAY AMERICA, INC. Ba3 BB-
1,439,887 Term Loan, maturing January 15, 2008 1,449,015
GAYLORD ENTERTAINMENT COMPANY NR NR
2,000,000 Term Loan, maturing March 22, 2006 1,990,000
WYNDHAM INTERNATIONAL, INC. NR CCC+
916,312 Term Loan, maturing June 30, 2004 782,588
1,244,625 Term Loan, maturing June 30, 2006 1,039,884
-------------
5,261,487
-------------
MACHINERY: 1.3%
ALLIANCE LAUNDRY HOLDINGS, LLC B1 B
1,792,746 Term Loan, maturing August 02, 2007 1,786,396
NATIONAL WATERWORKS, INC. B1 BB-
1,500,000 Term Loan, maturing November 22, 2009 1,512,563
</Table>
See Accompanying Notes to Financial Statements
27
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
MACHINERY (CONTINUED)
REXNORD CORPORATION B1 B+
$ 1,916,667 Term Loan, maturing November 25, 2009 $ 1,932,638
-------------
5,231,597
-------------
MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.7%
PEABODY ENERGY CORPORATION Ba1 BB+
2,992,500 Term Loan, maturing March 21, 2010 3,021,177
-------------
3,021,177
-------------
OIL AND GAS: 2.2%
CITGO PETROLEUM CORPORATION Ba2 BB+
1,500,000 Term Loan, maturing February 27, 2006 1,550,625
PACIFIC ENERGY GROUP, LLC Ba2 BBB-
1,000,000 Term Loan, maturing July 26, 2009 1,006,563
PLAINS MARKETING, L.P. Ba1 BBB-
990,000 Term Loan, maturing September 21, 2007 995,775
PMC COMPANY Ba1 BBB-
1,840,000 Term Loan, maturing May 05, 2006 1,841,150
TESORO PETROLEUM CORPORATION Ba3 BB
831,250 Term Loan, maturing April 17, 2007 838,523
W-H ENERGY SERVICES, INC. B2 B+
1,466,263 Term Loan, maturing April 16, 2007 1,462,598
WILLIAMS PRODUCTION RMT COMPANY B1 BB
1,000,000 Term Loan, maturing May 30, 2007 1,008,750
-------------
8,703,984
-------------
OTHER BROADCASTING AND ENTERTAINMENT: 2.1%
AMERICAN MOVIE CLASSICS Ba1 BBB-
600,000 Term Loan, maturing March 14, 2009 601,937
DIRECTV HOLDINGS, LLC Ba2 BB-
2,000,000 Term Loan, maturing March 06, 2010 2,013,376
PEGASUS MEDIA & COMMUNICATIONS, INC. B3 B-
3,867,021 Term Loan, maturing April 30, 2005 3,635,000
RAINBOW MEDIA GROUP Ba2 BB+
2,400,000 Term Loan, maturing March 14, 2009 2,407,750
-------------
8,658,063
-------------
OTHER TELECOMMUNICATIONS: 0.8%
CINCINNATI BELL, INC. B1 B+
1,022,608 Revolver, maturing November 09, 2004 1,000,239
802,416 Term Loan, maturing November 09, 2004 807,766
GCI HOLDINGS, INC. Ba3 BB+
1,500,000 Term Loan, maturing October 15, 2004 1,511,250
-------------
3,319,255
-------------
PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 3.2%
ARMKEL, LLC Ba3 B+
849,447 Term Loan, maturing March 28, 2009 855,618
CHURCH & DWIGHT COMPANY, INC. Ba2 BB
1,098,576 Term Loan, maturing September 30, 2007 1,106,326
JOSTENS, INC. Ba3 BB-
2,000,000 Term Loan, maturing July 29, 2010 2,011,250
</Table>
See Accompanying Notes to Financial Statements
28
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
PERSONAL AND NON DURABLE CONSUMER PRODUCTS (CONTINUED)
NORWOOD PROMOTIONAL PRODUCTS, INC. NR NR
$ 2,138,807 Term Loan, maturing February 01, 2005 $ 2,138,807
1,772,402 (2) Term Loan, maturing February 01, 2005 788,719
452,744 (2) Term Loan, maturing February 01, 2005 --
PLAYTEX PRODUCTS, INC. B1 B+
4,104,167 Term Loan, maturing May 31, 2009 4,108,016
RAYOVAC CORPORATION Ba3 BB-
1,780,000 Term Loan, maturing September 30, 2009 1,783,708
-------------
12,792,444
-------------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 1.8%
AFC ENTERPRISES, INC. B1 B
1,405,155 Term Loan, maturing May 23, 2009 1,402,345
COINMACH CORPORATION B1 BB-
980,000 Term Loan, maturing July 25, 2009 984,594
DOMINO'S, INC. B1 BB-
2,754,098 Term Loan, maturing June 25, 2010 2,779,918
OTIS SPUNKMEYER, INC. B1 B+
1,930,165 Term Loan, maturing February 20, 2009 1,932,979
-------------
7,099,836
-------------
PRINTING AND PUBLISHING: 5.5%
ADAMS OUTDOOR ADVERTISING, L.P. B1 B+
1,770,506 Term Loan, maturing February 08, 2008 1,778,252
AMERICAN MEDIA OPERATIONS, INC. Ba3 B+
30,244 Term Loan, maturing April 01, 2006 30,187
3,120,508 Term Loan, maturing April 01, 2007 3,143,911
DEX MEDIA EAST, LLC Ba3 BB-
2,195,122 Term Loan, maturing May 08, 2009 2,232,558
HOLLINGER INTERNATIONAL PUBLISHING, INC. Ba2 BB-
992,500 Term Loan, maturing September 30, 2009 1,008,628
LAMAR MEDIA CORPORATION Ba2 BB-
4,000,000 Term Loan, maturing June 30, 2010 4,019,584
MOORE CORPORATION Ba2 BB+
2,000,000 Term Loan, maturing March 15, 2010 2,012,812
R.H. DONNELLEY, INC. Ba3 BB
1,932,697 Term Loan, maturing June 30, 2010 1,971,888
READER'S DIGEST ASSOCIATIONS, INC. Ba1 BB+
2,799,647 Term Loan, maturing May 20, 2008 2,779,899
TRANSWESTERN PUBLISHING COMPANY Ba3 BB-
1,255,413 Term Loan, maturing June 27, 2008 1,261,495
ZIFF DAVIS MEDIA, INC. B3 CCC
2,000,000 Term Loan, maturing March 31, 2007 1,832,500
-------------
22,071,714
-------------
RADIO AND TV BROADCASTING: 3.5%
CITADEL BROADCASTING COMPANY Ba2 B+
138,222 Term Loan, maturing June 26, 2008 138,222
CUMULUS MEDIA, INC. Ba3 B+
1,995,000 Term Loan, maturing March 28, 2010 2,013,081
</Table>
See Accompanying Notes to Financial Statements
29
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
RADIO AND TV BROADCASTING (CONTINUED)
EMMIS OPERATING COMPANY Ba2 B+
$ 853,275 Term Loan, maturing February 28, 2009 $ 855,027
1,692,932 Term Loan, maturing August 31, 2009 1,703,865
FISHER BROADCASTING, INC. Ba3 B+
995,000 Term Loan, maturing February 28, 2010 993,134
GRAY TELEVISION, INC. Ba3 B+
2,000,000 Term Loan, maturing December 31, 2010 2,017,084
LIN TELEVISION CORPORATION Ba2 BB
525,714 Term Loan, maturing December 31, 2007 528,562
SINCLAIR BROADCAST GROUP, INC. Ba2 BB
971,800 Term Loan, maturing December 31, 2009 977,830
1,943,600 Term Loan, maturing December 31, 2009 1,957,571
SUSQUEHANNA MEDIA COMPANY Ba1 BB-
2,468,750 Term Loan, maturing June 30, 2008 2,481,094
TELEVICENTRO OF PUERTO RICO, LLC Ba2 BB
474,286 Term Loan, maturing December 31, 2007 476,756
-------------
14,142,226
-------------
RETAIL: 2.0%
ADVANCE STORES COMPANY, INC. Ba3 BB-
2,141,081 Term Loan, maturing November 30, 2007 2,154,462
CH OPERATING, LLC B2 B+
725,045 Term Loan, maturing June 21, 2007 725,952
CSK AUTO, INC. Ba3 BB-
500,000 Term Loan, maturing February 15, 2006 505,000
PANTRY, INC. B1 B+
990,119 Term Loan, maturing March 31, 2007 997,544
PETCO ANIMAL SUPPLIES, INC. Ba3 BB-
731,266 Term Loan, maturing October 26, 2008 735,837
RITE AID CORPORATION B1 BB
2,000,000 Term Loan, maturing April 30, 2008 2,021,250
SHOPPERS DRUG MART CORPORATION Baa3 BBB+
811,765 Term Loan, maturing February 04, 2009 813,879
-------------
7,953,924
-------------
TELECOMMUNICATIONS EQUIPMENT: 2.5%
AMERICAN TOWER, L.P. B2 B
2,939,325 Term Loan, maturing June 30, 2007 2,918,200
CROWN CASTLE OPERATING COMPANY Ba3 B-
3,391,500 Term Loan, maturing March 15, 2008 3,400,281
PINNACLE TOWERS, INC. B1 D
2,000,000 Term Loan, maturing October 31, 2005 1,990,834
SPECTRASITE COMMUNICATIONS, INC. B1 B+
1,903,317 Term Loan, maturing December 31, 2007 1,915,808
-------------
10,225,123
-------------
TEXTILES AND LEATHER: 1.2%
LEVI STRAUSS & COMPANY B1 BB
974,196 Term Loan, maturing July 31, 2006 967,195
TARGUS GROUP, INC. NR NR
2,355,845 Term Loan, maturing August 31, 2006 2,084,922
</Table>
See Accompanying Notes to Financial Statements
30
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- -------------------------------------------------------------------------------------------------------------
TEXTILES AND LEATHER (CONTINUED)
WILLIAM CARTER COMPANY Ba3 BB
$ 1,944,040 Term Loan, maturing September 08, 2008 $ 1,954,571
-------------
5,006,688
-------------
UTILITIES: 2.4%
CALPINE CONSTRUCTION FINANCE COMPANY, L.P. NR B+
2,000,000 Term Loan, maturing February 26, 2009 2,035,000
CALPINE CORPORATION Ba3 B
3,000,000 Term Loan, maturing July 16, 2007 3,005,625
MICHIGAN ELECTRIC TRANSMISSION COMPANY Baa2 BB+
990,000 Term Loan, maturing May 01, 2007 993,300
PIKE ELECTRIC, INC. Ba3 BB-
1,647,059 Term Loan, maturing April 18, 2010 1,658,898
SOUTHERN CALIFORNIA EDISON COMPANY Ba2 BB
2,000,000 Term Loan, maturing March 01, 2005 2,007,188
-------------
9,700,011
-------------
TOTAL SENIOR LOANS
(COST $354,710,654) 355,513,212
-------------
OTHER CORPORATE DEBT: 0.5%
FINANCE: 0.5%
VALUE ASSET MANAGEMENT, INC. B3 B
$ 2,000,000 Senior Subordinated Bridge Note,
maturing August 31, 2005 $ 1,920,000
-------------
TOTAL OTHER CORPORATE DEBT
(COST $1,990,000) 1,920,000
-------------
EQUITIES AND OTHER ASSETS: 0.6%
<Caption>
SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------------------------------------------------
(@), (R) Decision One Corporation (92,638 Common Shares) --
(@) Microcell Telecommunications, Inc.
(908 1st Preferred Voting Shares) 10,058
(@) Microcell Telecommunications, Inc.
(92,980 1st Preferred Non-Voting Shares) 669,276
(@) Microcell Telecommunications, Inc.
(19,547 2nd Preferred Non-Voting Shares) 204,554
(@), (R) Murray's Discount Auto Stores, Inc. (Escrow) 155,087
(@), (R) Neoplan U.S.A. Corporation (1,627 Common Shares) --
(@), (R) Neoplan U.S.A. Corporation (170,180 Preferred B Shares) --
(@), (R) Neoplan U.S.A. Corporation (101,690 Preferred C Shares) 40,207
(@), (R) Neoplan U.S.A. Corporation (330,600 Preferred D Shares) 330,600
(@), (R) New World Restaurant Group, Inc.
(Warrants for 2,244 Common Shares,
Expires June 15, 2006) 34,636
</Table>
See Accompanying Notes to Financial Statements
31
<Page>
<Table>
<Caption>
SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------------------------------------------------
(@), (R) Safelite Glass Corporation
(99,495 Common Shares) $ 988,980
(@), (R) Safelite Realty (6,716 Common Shares) --
(@), (R) Targus Group, Inc. (Warrants for 47,931 Common Shares,
Expires June 12, 2006) --
-------------
TOTAL FOR EQUITIES AND OTHER ASSETS
(COST $1,333,836) 2,433,398
-------------
TOTAL LONG-TERM INVESTMENTS
(COST $358,034,490) $ 359,866,610
-------------
SHORT-TERM INVESTMENTS: 4.9%
<Caption>
PRINCIPAL AMOUNT SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------------------------------------------------
$ 19,900,000 State Street Repurchase Agreement
dated 08/29/03, 0.850% due 09/02/03,
$19,901,879 due upon repurchase
(Collateralized by $19,565,000 FNMA, 4.500%,
Market Value $20,298,688 due 08/15/04) 19,900,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $19,900,000) 19,900,000
-------------
TOTAL INVESTMENTS (COST $377,934,490)** 94.0% $ 379,766,610
OTHER ASSETS AND LIABILITIES - NET 6.0 24,429,433
------ -------------
NET ASSETS 100.0% $ 404,196,043
====== =============
</Table>
- ----------
* Senior loans, while exempt from registration under the Securities Act of
1933, as amended, contain certain restrictions on resale and cannot be
sold publicly. These senior loans bear interest (unless otherwise noted)
at rates that float periodically at a margin above the London Inter-Bank
Offered Rate ("LIBOR") and other short-term rates.
+ Bank Loans rated below Baa by Moody's Investor Services, Inc. or BBB
by Standard & Poor's Group are considered to be below investment grade.
(1) The borrower filed for protection under Chapter 11 of the U.S. Federal
Bankruptcy code.
(2) Loan is on non-accrual basis.
NR Not Rated
(@) Non-income producing security.
(R) Restricted security.
** For federal income tax purposes, cost of investments (excluding
short-term investments) is $358,034,490 and net unrealized appreciation
consists of the following:
<Table>
Gross Unrealized Appreciation $ 6,022,672
Gross Unrealized Depreciation (4,190,552)
------------
Net Unrealized Appreciation $ 1,832,120
============
</Table>
See Accompanying Notes to Financial Statements
32
<Page>
SHAREHOLDER MEETING INFORMATION (Unaudited)
A special meeting of shareholders of the ING Senior Income Fund held July 22,
2003, at the offices of ING Funds, 7337 East Doubletree Ranch Road, Scottsdale,
AZ 85258.
A brief description of each matter voted upon as well as the results are
outlined below:
1. To approve a Sub-Advisory Agreement between ING Investments, LLC and
Aeltus Investment Management, Inc., with no change in the Adviser, the
portfolio manager(s), or the overall management fee paid by the Fund.
3. To transact such other business, not currently contemplated, that may
properly come before the Special Meeting or any adjournment(s) thereof in
the discretion of the proxies or their substitutes.
<Table>
<Caption>
SHARES SHARES VOTED SHARES BROKER TOTAL
PROPOSAL VOTED FOR AGAINST OR WITHHELD ABSTAINED NON-VOTE SHARES VOTED
----------------------------------------------------------------------------------
1 18,971,635 21,316 39,876 -- 19,032,827
3 18,793,853 33,065 205,909 -- 19,032,827
</Table>
33
<Page>
TRUSTEE AND OFFICER INFORMATION (Unaudited)
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees. A trustee who is not an interested person of the Fund,
as defined in the 1940 Act, is an independent trustee ("Independent Trustee").
The Trustees of the Fund are listed below. The Statement of Additional
Information includes additional information about trustees of the Registrant and
is available, without charge, upon request at 1-800-992-0180.
<Table>
<Caption>
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) HELD TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS WITH THE AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
- ---------------------------- ---------------- --------------- ---------------------------- ------------- ---------------------
NON-INTERESTED TRUSTEES:
Paul S. Doherty(2) Trustee January 2001 - Mr. Doherty is President and 116 None
7337 E. Doubletree Ranch Rd. present Partner, Doherty, Wallace,
Scottsdale, Arizona 85258 Pillsbury and Murphy, P.C.,
Born: 1934 Attorneys (1996 - present);
Director, Tambrands, Inc.
(1993 - 1998); and Trustee
of each of the funds managed
by Northstar Investment
Management Corporation
(1993 - 1999).
J. Michael Earley(3) Trustee February 2002 - President and Chief 116 None
7337 E. Doubletree Ranch Rd. present Executive Officer, Bankers
Scottsdale, Arizona 85258 Trust Company, N.A. (1992 -
Born: 1945 present).
R. Barbara Gitenstein(2) Trustee February 2002 - President, College of New 116 None
7337 E. Doubletree Ranch Rd. present Jersey (1999 - present).
Scottsdale, Arizona 85258 Formerly, Executive Vice
Born: 1948 President and Provost, Drake
University (1992 - 1998).
Walter H. May(2) Trustee January 2001 - Retired. Formerly, Managing 116 Best Prep Charity
7337 E. Doubletree Ranch Rd. present Director and Director of (1991 - present).
Scottsdale, Arizona 85258 Marketing, Piper Jaffray,
Born: 1936 Inc.; Trustee of each of the
funds managed by Northstar
Investment Management
Corporation (1996 - 1999).
Jock Patton(2) Trustee January 2001 - Private Investor (June 1997 116 Director, Hypercom,
7337 E. Doubletree Ranch Rd. present - present). Formerly Inc. (January 1999 -
Scottsdale, Arizona 85258 Director and Chief Executive present); JDA
Born: 1945 Officer, Rainbow Multimedia Software Group, Inc.
Group, Inc. (January 1999 - (January 1999 -
December 2001); Director of present); Buick of
Stuart Entertainment, Inc.; Scottsdale, Inc.;
Director of Artisoft, Inc. National Airlines,
(1994 - 1998). Inc.
</Table>
34
<Page>
<Table>
<Caption>
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) HELD TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS WITH THE AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
- ---------------------------- ---------------- --------------- ---------------------------- ------------- ---------------------
David W.C. Putnam(3) Trustee January 2001 - President and Director, F.L. 116 Trustee, ING
7337 E. Doubletree Ranch Rd. present Putnam Securities Company, Investors Trust,
Scottsdale, Arizona 85258 Inc. and its affiliates; Anchor International
Born: 1939 President, Secretary and Bond (December 2000 -
Trustee, The Principled present); F.L. Putnam
Equity Market Fund. Foundation;
Formerly, Trustee, Trust Progressive Capital
Realty Corp.; Anchor Accumulation Trust
Investment Trust; Bow Ridge (August 1998 -
Mining Company and each of present); Principled
the F.L. Putnam funds Equity Market Fund
managed by Northstar (November 1996 -
Investment Foundation present), Mercy
Management Corporation Endowment Foundation
(1994 - 1999). (1995 - present);
Director, F.L. Putnam
Investment Management
Company (December
2001 - present);
Asian American Bank
and Trust Company
(June 1992 -
present); and Notre
Dame Health Care
Center (1991 -
present) F.L. Putnam
Securities Company,
Inc. (June 1978 -
present); and an
Honorary Trustee,
Mercy Hospital (1973
- present).
Blaine E. Rieke(3) Trustee February 2001 - General Partner, Huntington 116 Morgan Chase Trust
7337 E. Doubletree Ranch Rd. present Partners (January 1997 - Co. (January 1998 -
Scottsdale, Arizona 85258 present). Chairman of the present).
Born: 1933 Board and Trustee of each of
the funds managed by ING
Investment Management Co.
LLC (November 1998 -
February 2001).
Roger B. Vincent(3) Trustee February 2002 - President, Springwell 116 Director, AmeriGas
7337 E. Doubletree Ranch Rd. present Corporation (1989 - Propane, Inc. (1998 -
Scottsdale, Arizona 85258 present). Formerly, present).
Born: 1945 Director, Tatham Offshore,
Inc. (1996 - 2000).
Richard A. Wedemeyer(3) Trustee February 2001 - Retired. Mr. Wedemeyer was 116 Touchstone Consulting
7337 E. Doubletree Ranch Rd. present formerly Vice President - Group (1997 -
Scottsdale, Arizona 85258 Finance and Administration, present).
Born: 1936 Channel Corporation (June
1996 - April 2002).
Formerly, Trustee, First
Choice Funds (1997 - 2001);
and Trustee of each of the
funds managed by ING
Investment Management Co.
LLC (1998 - 2001).
</Table>
35
<Page>
<Table>
<Caption>
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) HELD TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS WITH THE AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
- ---------------------------- ---------------- --------------- ---------------------------- ------------- ---------------------
INTERESTED TRUSTEES:
Thomas J. McInerney(4) Trustee February 2001 - Chief Executive Officer, ING 170 Director, Hemisphere,
7337 E. Doubletree Ranch Rd. present U.S. Financial Services Inc. (May 2003 -
Scottsdale, Arizona 85258 (September 2001 - present); present). Director,
Born: 1956 General Manager and Chief Equitable Life
Executive Officer, ING U.S. Insurance Co., Golden
Worksite Financial Services American Life
(December 2000 - present); Insurance Co., Life
Member, ING Americas Insurance Company of
Executive Committee (2001 - Georgia, Midwestern
present); President, Chief United Life Insurance
Executive Officer and Co., ReliaStar Life
Director of Northern Life Insurance Co.,
Insurance Company (2001 - Security Life of
present), ING Aeltus Holding Denver, Security
Company, Inc. (2000 - Connecticut Life
present), ING Retail Holding Insurance Co.,
Company (1998 - present). Southland Life
Formerly, ING Life Insurance Insurance Co., USG
and Annuity Company (1997 - Annuity and Life
November 2002), ING Company, and United
Retirement Holdings, Inc. Life and Annuity
(1997 - March 2003); General Insurance Co. Inc
Manager and Chief Executive (March 2001 -
Officer, ING Worksite present); Trustee,
Division (December 2000 - Ameribest Life
October 2001), President, Insurance Co., (2001
ING-SCI, Inc. (August 1997 - - 2003); Trustee,
December 2000); President, First Columbine Life
Aetna Financial Services Insurance Co., (2001
(August 1997 - December - 2002); Member of
2000); and has held a the Board, National
variety of line and Commission on
corporate staff positions Retirement Policy,
since 1978. Competitiveness and
Technology of
Connecticut,
Connecticut Business
and Industry
Association,
Bushnell; Connecticut
Forum; Metro Hartford
Chamber of Commerce;
and Chairman,
Concerned Citizens
for Effective
Government.
John G. Turner(5) Trustee January 2001 - Chairman, Hillcrest Capital 116 Director, Hormel
7337 E. Doubletree Ranch Rd. present Partners (May 2002 - Foods Corporation
Scottsdale, Arizona 85258 present); President, Turner (March 2000 -
Born: 1939 Investment Company (January present); Shopko
2002 - present). Mr. Turner Stores, Inc. (August
was formerly Vice Chairman 1999 - present); and
of ING Americas (2000 - M.A. Mortenson
2002); Chairman and Chief Company (March 2002 -
Executive Officer of present).
ReliaStar Financial Corp.
</Table>
- ----------
(1) Trustees serve until their successors are duly elected and qualified,
subject to the Board's retirement policy.
(2) Valuation Committee member.
(3) Audit Committee member.
(4) 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.
(5) Mr. Turner is an "interested person," as defined by the 1940 Act, because
of his affiliation with ING Americas , an affiliate of ING Investments,
LLC.
36
<Page>
<Table>
<Caption>
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
- ---------------------------- ---------------------------- ---------------------------- ----------------------------------------
OFFICERS:
James M. Hennessy Chief Executive Officer, December 2000 - present President and Chief Executive Officer of
7337 E. Doubletree Ranch Rd. President and Chief ING Capital Corporation, LLC, ING Funds
Scottsdale, Arizona 85258 Operating Officer Services, LLC, ING Advisors, Inc., ING
Born: 1949 Investments, LLC, Lexington Funds
Secretary January 2001 - February 2001 Distributor, Inc., Express America T.C.
Inc. and EAMC Liquidation Corp. (since
December 2001); Executive Vice President
and Chief Operating Officer of ING Funds
Distributor, LLC (since June 2000).
Michael J. Roland Executive Vice President and February 2002 - present Executive Vice President, Chief
7337 E. Doubletree Ranch Rd. Assistant Secretary Financial Officer and Treasurer of ING
Scottsdale, Arizona 85258 Funds Services, LLC, ING Funds
Born: 1958 Chief Financial Officer January 2001 - present Distributor, LLC, ING Advisors, Inc.,
ING Investments, LLC (December 2001 -
present), Lexington Funds Distributor,
Inc., Express America T.C. Inc. and EAMC
Liquidation Corp. (since December 2001).
Formerly, Executive Vice President,
Chief Financial Officer and Treasurer of
ING Quantitative Management, Inc.
(December 2001 - October 2002); and
Senior Vice President, ING Funds
Services, LLC, ING Investments, LLC, and
ING Funds Distributor, LLC (June 1998 -
December 2001).
Stanley D. Vyner Executive Vice President December 2000 - present Executive Vice President of ING
7337 E. Doubletree Ranch Rd. Advisors, Inc. and ING Investments, LLC
Scottsdale, Arizona 85258 (July 2000 - present) and Chief
Born: 1950 Investment Officer of the International
Portfolios, ING Investments, LLC (July
1996 - present). Formerly, President and
Chief Executive Officer of ING
Investments, LLC (August 1996 - August
2002).
Daniel Norman Senior Vice President and December 2000 - present Senior Vice President, ING Investments,
7337 E. Doubletree Ranch Rd. Treasurer LLC (since December 1994); ING Funds
Scottsdale, Arizona 85258 Distributor, LLC (since December 1995);
Born: 1957 has served as an officer of other
affiliates of ING since February 1992.
Jeffrey A. Bakalar Senior Vice President January 2001 - present Senior Vice President, ING Investments,
7337 E. Doubletree Ranch Rd. LLC (since November 1999). Formerly Vice
Scottsdale, Arizona 85258 President and Assistant Portfolio
Born: 1959 Manager, ING Investments, LLC (February
1998 - November 1999).
Elliot Rosen Senior Vice President May 2002 - present Senior Vice President, ING Investments,
7337 E. Doubletree Ranch Rd. LLC (since February 1999). Formerly,
Scottsdale, Arizona 85258 Senior Vice President IPS-Sendero (May
Born: 1953 1997 - February 1999).
Robert S. Naka Senior Vice President and January 2001 - present Senior Vice President and Assistant
7337 E. Doubletree Ranch Rd. Assistant Secretary Secretary of ING Funds Services, LLC,
Scottsdale, Arizona 85258 ING Funds Distributor, LLC, ING
Born: 1963 Advisors, Inc., ING Investments, LLC
(October 2001 - present) and Lexington
Funds Distributor, Inc. (since December
2001). Formerly, Senior Vice President
and Assistant Secretary for ING
Quantitative Management, Inc. (October
2001 - October 2002); Vice President,
ING Investments, LLC (April 1997 -
October 1999) and ING Funds Services,
LLC (February 1997 - August 1999).
</Table>
37
<Page>
<Table>
<Caption>
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
- ---------------------------- ---------------------------- ---------------------------- ----------------------------------------
William H. Rivoir III Senior Vice President and January 2001 - present Senior Vice President and Secretary of
7337 E. Doubletree Ranch Rd. Assistant Secretary ING Capital Corporation, LLC and ING
Scottsdale, Arizona 85258 Funds Services, LLC (since February
Born: 1951 2001), ING Funds Distributor, LLC, ING
Advisors, Inc., ING Investments, LLC,
Lexington Funds Distributor, Inc., ING
Pilgrim Funding, Inc., Pilgrim America
Financial, Inc., Express America TC,
Inc. and EAMC Liquidation Corp. (since
December 2001). Formerly, Senior Vice
President and Assistant Secretary of ING
Quantitative Management, Inc. (December
2001 to October 2002) and ING Funds
Services, LLC (since June 1998), ING
Investments, LLC, and Pilgrim America
Financial, Inc. (since February 1999),
Senior Vice President of ING
Investments, LLC (since December 1998)
and Assistant Secretary of ING Funds
Distributor, LLC (since February 1999),
America TC, Inc. and EAMC Liquidation
Corp. (since December 2001). Formerly,
Senior Vice President and Assistant
Secretary of ING Investments LLC and
Pilgrim America Financial, Inc. (since
February 1999), Senior Vice President of
ING Investments, LLC (since December
1998) and Assistant Secretary of ING
Funds Distributor, LLC (since February
1999).
Curtis F. Lee Senior Vice President and February 2002 - present Senior Vice President and Chief Credit
7337 E. Doubletree Ranch Rd. Chief Credit Officer Officer of Senior Loans of ING
Scottsdale, Arizona 85258 Investments, LLC (since August 1999).
Born: 1955 Formerly, held a series of positions
with Standard Chartered Bank in the
credit approval and problem loan
management functions (August 1992 - June
1999).
Kimberly A. Anderson Vice President January 2001 - present Vice President and Assistant Secretary
7337 E. Doubletree Ranch Rd. of ING Funds Services, LLC, ING Funds
Scottsdale, Arizona 85258 Secretary February 2001 - August 2003 Distributor, LLC, ING Advisors, Inc.,
Born: 1964 ING Investments, LLC (since October
Assistant Secretary January 2001 - February 2001 2001) and Lexington Funds Distributor,
Inc. (since December 2001). Formerly,
Vice President for ING Quantitative
Management, Inc. (October 2001 - October
2002); Assistant Vice President of ING
Funds Services, LLC (November 1999 -
January 2001) and has held various other
positions with ING Funds Services, LLC
for more than the last five years.
Robyn L. Ichilov Vice President January 2001 - present Vice President of ING Funds Services,
7337 E. Doubletree Ranch Rd. LLC (October 2001 - present) and ING
Scottsdale, Arizona 85258 Investments, LLC (August 1997 -
Born: 1967 present); Accounting Manager, ING
Investments, LLC (November 1995 -
present).
</Table>
38
<Page>
<Table>
<Caption>
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE
AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
- ---------------------------- ---------------------------- ---------------------------- ----------------------------------------
J. David Greenwald Vice President August 2003 - present Vice President of Mutual Fund Compliance
7337 E. Doubletree Ranch Rd. of ING Funds Services, LLC (May 2003 -
Scottsdale, Arizona 85258 present). Formerly Assistant Treasurer
Born: 1957 and Director of Mutual Fund Compliance
and Operations of American Skandia, A
Prudential Financial Company (October
1996 - May 2003).
Lauren D. Bensinger Vice President March 2003 - present Vice President and Chief Compliance
7337 E. Doubletree Ranch Rd. Officer, ING Funds Distributor, LLC.
Scottsdale, Arizona 85258 (July 1995 - present); Vice President
Born: 1954 (February 1996 - present) and Chief
Compliance Officer (October 2001 -
present) ING Investments, LLC; Vice
President and Chief Compliance Officer,
ING Advisors, Inc. (July 2000 -
present), Vice President and Chief
Compliance Officer, ING Quantitative
Management, Inc. (July 2000 - September
2002), and Vice President, ING Fund
Services, LLC (July 1995 - present).
Huey P. Falgout Secretary August 2003 - present Counsel, ING U.S. Financial Services
7337 E. Doubletree Ranch Rd. (November 2002 - present). Formerly,
Scottsdale, Arizona 85258 Associate General Counsel of AIG
Born: 1963 American General (January 1999 -
November 2002) and Associate General
Counsel of Van Kampen, Inc. (April 1992
- January 1999).
Todd Modic Vice President August 2003 - present Vice President of Financial Reporting -
7337 E. Doubletree Ranch Rd. Assistant Vice President February 2002 - August 2003 Fund Accounting of ING Funds Services,
Scottsdale, Arizona 85258 LLC (September 2002 - present). Director
Born: 1967 of Financial Reporting of ING
Investments, LLC (March 2001 - September
2002). Formerly, Director of Financial
Reporting, Axient Communications, Inc.
(May 2000 - January 2001) and Director
of Finance, Rural/Metro Corporation
(March 1995 - May 2000).
Susan P. Kinens Assistant Vice President and February 2003 - present Assistant Vice President and Assistant
7337 E. Doubletree Ranch Rd. Assistant Secretary Secretary, ING Funds Services, LLC
Scottsdale, Arizona 85258 (December 2002 - present); and has held
Born: 1976 various other positions with ING Funds
Services, LLC for more than the last
five years.
Maria M. Anderson Assistant Vice President February 2002 - present Assistant Vice President of ING Funds
7337 E. Doubletree Ranch Rd. Services, LLC (since October 2001).
Scottsdale, Arizona 85258 Formerly, Manager of Fund Accounting and
Born: 1958 Fund Compliance, ING Investments, LLC
(September 1999 - November 2001); and
Section Manager of Fund Accounting,
Stein Roe Mutual Funds (July 1998 -
August 1999).
</Table>
- ----------
(1) The officers hold office until the next annual meeting of the Trustees and
until their successors have been elected and qualified.
39
<Page>
INVESTMENT MANAGER
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
ADMINISTRATOR
ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
INSTITUTIONAL INVESTORS AND ANALYSTS
Call ING Senior Income Fund
1-800-336-3436
DISTRIBUTOR
ING Funds Distributor, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-334-3444
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 219368
Kansas City, Missouri 64141-9368
CUSTODIAN
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert LLP
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, California 90071
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
ING Senior Income Fund
c/o ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for account
or other information, at 1-800-992-0180
A prospectus containing more complete information regarding the Fund, including
charges and expenses, may be obtained by calling ING Funds Distributor, LLC,
Distributor, at 1-800-992-0180. Please read the prospectus carefully before you
invest or send money. The Form N-PX (Proxy Voting Record) will be available
without charge, upon request, by calling 800-992-0180 on or about 8/31/04; and
on the fund's website at www.ingfunds.com; and on the SEC's website www.sec.gov.
[ING FUNDS LOGO] SIFSAR0803-102903
<Page>
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) Based on our evaluation conducted within 90 days of the filing date,
hereof, the design and operation of the registrant's disclosure controls and
procedures are effective to ensure that material information relating to the
registrant is made known to the certifying officers by others within the
appropriate entities, particularly during the period in which Forms N-CSR are
being prepared, and the registrant's disclosure controls and procedures allow
timely preparation and review of the information for the registrant's Form N-CSR
and the officer certifications of such Form N-CSR.
(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) Not applicable.
(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 EX-99.CERT. The officer
certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 are
attached hereto as EX-99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ING SENIOR INCOME FUND
By /s/ James M. Hennessy
-----------------------------------------------------------------------------
James M. Hennessy
President and Chief Executive Officer
Date November 6, 2003
--------------------------------------------------
<Page>
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 November 6, 2003
---------------------------------------------------------------------------
By /s/ Michael J. Roland
-----------------------------------------------------------------------------
Michael J. Roland
Executive Vice President and Chief Financial Officer
Date November 6, 2003
---------------------------------------------------------------------------