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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
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ING Senior Income Fund
----------------------
(Exact name of registrant as specified in charter)
7337 E. Doubletree Ranch Rd., Scottsdale, AZ 85258
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(Address of principal executive offices) (Zip code)
The Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-992-0180
--------------
Date of fiscal year end: February 29
-----------
Date of reporting period: February 29, 2004
-----------------
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):
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ANNUAL REPORT
ANNUAL REPORT
FEBRUARY 29, 2004
ING SENIOR INCOME FUND
[GRAPHIC]
[ING FUNDS LOGO]
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ING Senior Income Fund
ANNUAL REPORT
February 29, 2004
Table of Contents
<Table>
Portfolio Managers' Report 2
Independent Auditors' Report 7
Statement of Assets and Liabilities 8
Statement of Operations 10
Statements of Changes in Net Assets 11
Statement of Cash Flows 12
Financial Highlights 13
Notes to Financial Statements 15
Portfolio of Investments 22
Shareholder Meeting information 37
Tax Information 38
Trustee and Officer Information 39
</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.
PORTFOLIO CHARACTERISTICS
AS OF FEBRUARY 29, 2004
<Table>
Net Assets $ 668,726,889
Total Assets $ 671,566,455
Assets Invested in Senior Loans $ 638,242,547
Senior Loans Represented 308
Average Amount Outstanding per Loan $ 2,072,216
Industries Represented 37
Average Loan Amount per Industry $ 17,249,799
Portfolio Turnover Rate 72%
Weighted Average Days to Interest Rate Reset 43 days
Average Loan Final Maturity 57 months
</Table>
PERFORMANCE SUMMARY
During the fiscal year ended February 29, 2004, the Fund's Class A and Q shares
each distributed total dividends from income of $0.64, resulting in an average
annualized distribution rate of 4.24%(1) and 4.25%(1), respectively. During the
same period, the Fund's Class B and C shares each distributed total dividends
from income of $0.57, representing an average annualized distribution rate of
3.74%(1). This represents a spread of 3.06%, 3.07%, 2.56% and 2.56%, for Class
A, B, C and Q, respectively, over the average 30-day LIBOR for the period under
review.
The Fund's total return for the fiscal year, for each of the share classes,
excluding sales charges, ranged from 8.93% on Class A to 8.33% on Class B. The
Fund ran slightly behind the S&P/LSTA Leveraged Loan Index, which posted a total
return of 9.40%(2), as the Fund did not meaningfully participate in the final
stages of a rally in the more speculative sub-sector of the non-investment grade
loan market. As is consistent with our investment philosophy since inception, we
remain committed to minimizing share price volatility and thus are reluctant to
sacrifice credit discipline in search of extraordinary returns.
MARKET OVERVIEW
The non-investment grade loan market closed out the twelve-month period ended
February 29, 2004 in robust fashion, driven by bullish investor sentiment and
the continuation of several positive trends, both macroeconomic and specific to
credit markets. Although sustained job creation still appears elusive at this
point, revitalization of the U.S. economy has clearly taken hold, as evidenced
by above-consensus gross domestic product numbers during recent quarters, and
stronger than expected corporate earnings across many key industry sectors.
Importantly, an improved economic outlook played a significant role in the
effective re-opening of debt capital markets to a broader spectrum of
non-investment grade borrowers. At the corporate level, although top-line
revenue growth remains difficult to come by during this period of muted pricing
power and intense global competition, in general, corporate executives continue
to do the right things, i.e., lower production costs, improve productivity, and
address liquidity concerns via renewed access to capital. These factors, taken
as a whole, propelled the leveraged loan market to record returns during 2003
with continued momentum into the first quarter of 2004.
- ----------
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.
2
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PORTFOLIO SPECIFICS
In general, our management approach continues to emphasize three consistent
themes: 1) top-down research designed to distinguish industry sectors that
provide the best investment opportunity; 2) identification of those individual
credits that offer strong performance relative to expected return given the
underlying risk; and 3) sufficient diversification at both the issuer and
industry level. On the latter point, the Fund remains well diversified. During
the fiscal year, one in which net assets increased in excess of 140% (to $669
million at fiscal year end), the Fund's average amount outstanding per loan
declined to approximately 0.32% of assets invested in senior loans, from 0.48%
at the end of the prior fiscal year. During the same period, the average amount
invested in any one industry decreased to 2.70% of assets invested in senior
loans from 3.03%.
TOP TEN INDUSTRY SECTORS AS OF
FEBRUARY 29, 2004 AS A
PERCENTAGE OF:
<Table>
<Caption>
TOTAL NET
ASSETS ASSETS
------ ------
Cable Television 12.7% 12.7%
Cellular Communications 8.3% 8.4%
Printing and Publishing 7.3% 7.4%
Healthcare, Education and Childcare 7.0% 7.1%
Automobile 4.8% 4.8%
Beverage, Food and Tobacco 4.4% 4.4%
Chemicals, Plastics and Rubber 4.3% 4.3%
Containers, Packaging and Glass 3.7% 3.8%
Radio and TV Broadcasting 3.5% 3.5%
Telecommunications 3.1% 3.1%
</Table>
TOP TEN SENIOR LOAN ISSUERS
AS OF FEBRUARY 29, 2004
AS A PERCENTAGE OF:
<Table>
<Caption>
TOTAL NET
ASSETS ASSETS
------ ------
Charter Communications Operating LLC 3.2% 3.2%
Nextel Finance Company 3.0% 3.0%
General Growth Properties 1.5% 1.5%
Hilton Head Communications, L.P. 1.4% 1.4%
MCC Iowa LLC 1.4% 1.4%
Qwest Communications International, Inc. 1.4% 1.4%
Paxson Communications Corporation 1.0% 1.0%
Federal-Mogul Corporation 1.0% 1.0%
Insight Midwest Holdings LLC 1.0% 1.0%
Olympus Cable Holdings, LLC 1.0% 1.0%
</Table>
Clearly, industry and credit selection continued to be an important determinant
of performance during fiscal 2004. Against the backdrop of an increasingly
strong loan market, we again focused on industries and individual loan positions
that offered value. Cable television and cellular communications finished out
the fiscal year as the Fund's top two industry sectors, largely on the basis of
offering attractive returns for the underlying risk. During the fiscal year,
several of the Fund's larger individual holdings from these two sectors
benefited from fundamental credit improvement. Specifically, Charter
Communications Operating, LLC reported several quarters in which it met or
exceeded analyst expectations, and in doing so, the third largest cable
television provider in the U.S. has effectively regained access to much needed
capital in order to address specific balance sheet issues. Charter's resurgence
also directly impacted, in a favorable manner, the loans of Adelphia
Communications and its subsidiaries, the country's fifth largest cable operator.
Although Adelphia continues to work through a very complex Chapter 11 bankruptcy
proceeding, the market value of the company's debt obligations continue to point
to a full recovery to lenders upon exit from bankruptcy. We continue to monitor
this situation closely. Similarly, Nextel Communications, the bellwether issuer
in the non-investment grade wireless sector, turned in a succession of very
strong quarters during the period
3
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under review and, during the Fund's fourth fiscal quarter, refinanced it's
sizeable credit facility at attractive borrowing rates. As in the recent past,
Nextel's operational strength and capital markets activity has provided a
catalyst to improved sentiment across the overall wireless sector, historically
one of the Fund's largest.
Importantly, the level of non-performing loans in the Fund (classified as those
not currently paying interest and/or principal as contractually stipulated)
remained negligible. As of February 29, 2004, non-performing assets consisted of
two separate loan tranches (purchased well below par, packaged with a performing
tranche from the same issuer) accounting for only 0.13% of the Fund's net
assets.
USE OF LEVERAGE
The Fund seeks to prudently utilize financial leverage in order to increase the
yield to the holders of common shares. As of February 29, 2004, the Fund did not
have any borrowings outstanding under a $100.0 million revolving credit
facility.
The use of leverage for investment purposes increases both investment
opportunity and investment risk.
OUTLOOK
As we move more deeply into 2004, loan investors, when analyzing their options,
will likely continue to balance the prospects of an improving domestic economy
with a supply/demand picture still heavily in favor of loan issuers. On one
hand, the current environment has distinctly impacted existing loan prices in a
favorable manner. On the other, it has also ushered in a period of unprecedented
spread tightening, and made uncovering value a difficult proposition. While
there is likely little upside left in loan prices at this point, fortunately,
absent any significant external economic or geopolitical shocks, the downside
also appears limited, at least for the foreseeable future. Default levels
continue to drift lower, and a generational low in corporate borrowing rates,
combined with historically strong investor demand for higher-yielding
investments, has enabled many corporations to shore up balance sheets and
thereby improve cash flow. Over the next few months, all eyes will be on the
Federal Reserve as they determine when it is appropriate to increase short-term
interest rates. Given the ultra-short duration of floating rate loans, an upward
move in short-term rates should prove positive for the Fund's distributable
yield.
We thank you for your continued confidence and encourage your questions and
comments.
/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
April 15, 2004
4
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[CHART]
<Table>
<Caption>
ING SENIOR INCOME FUND CLASS B ING SENIOR INCOME FUND CLASS B S&P/LSTA LEVERAGED
WITH EARLY WITHDRAWAL CHARGE(1) WITHOUT EARLY WITHDRAWAL CHARGE(2) LOAN INDEX(3)
4/2/2001 $ 10,000 $ 10,000 $ 10,000
2/28/2002 $ 10,146 $ 10,445 $ 10,228
2/28/2003 $ 10,571 $ 10,818 $ 10,571
2/29/2004 $ 11,519(1) $ 11,719(2) $ 11,566(3)
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED FEBRUARY 29, 2004
------------------------------------------------------
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 3.76% 4.42% --
Class B 5.33% 4.98% --
Class C 7.40% 5.63% --
Class Q 8.82% -- 6.05%
Excluding Sales Charge:
Class A 8.93% 6.18% --
Class B 8.33% 5.60% --
Class C 8.40% 5.63% --
Class Q 8.82% -- 6.05%
S&P/LSTA Leveraged Loan Index(2) 9.40% 5.11% 5.41%
</Table>
Based on a $10,000 initial investment, the graph and table above illustrate 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. THE FUND'S CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE
DATA SHOWN. PLEASE LOG ON TO www.ingfunds.com OR CALL (800) 992-0180 TO GET
PERFORMANCE TO THE MOST RECENT MONTH END.
THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING"
STATEMENTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY
THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE 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 Early Withdrawal Charge ("EWC") is 3% in the first year, declining
to 1% in the fifth year and eliminated thereafter. Class C maximum EWC is
1% for the first year. Class Q has no front-end sales charge or EWC
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.
5
<Page>
YIELDS AND DISTRIBUTIONS RATES
<Table>
<Caption>
30-DAY SEC YIELDS(1) AVERAGE ANNUALIZED DISTRIBUTION RATES(2)
-------------------------------------- ----------------------------------------
CLASS A CLASS B CLASS C CLASS Q CLASS A CLASS B CLASS C CLASS Q
-------------------------------------- ----------------------------------------
February 29, 2004(3) 3.08% 2.73% 2.73% 3.21% 4.24% 3.74% 3.74% 4.25%
August 31, 2003(4) 4.12% 3.63% 3.61% 4.18% 4.63% 4.13% 4.13% 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.
(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.
(3) If the Investment Manager had not waived certain Fund expenses, the 30-Day
SEC yield would have been 3.00% for Class A shares, 2.66% for Class B and
Class C shares and 3.13% for Class Q shares.
(4) 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
shares, 3.57% for Class C shares and 4.13% for Class Q shares.
PRINCIPAL RISK FACTOR(S): This closed-end Fund may invest in below investment
grade senior loans. Investment in the Fund involves the risk that borrowers may
default on obligations, or that lenders may have difficulty liquidating the
collateral securing the loans or enforcing their rights under the terms of the
senior loans. Senior loans are subject to credit risks and the potential for
non-payment of scheduled principal or interest payments, which may result in a
reduction of the Fund's NAV. The use of leverage for investment purposes
increases both investment opportunity and investment risk. In the event of a
default on one or more loans or other interest-bearing instruments held by the
Fund, the use of leverage, would exaggerate the loss to the Fund and may
exaggerate the effect on the Fund's NAV.
INTEREST RATE RISK: Changes in market interest rates will effect the yield on
the Fund's Common Shares. If market interest rates fall, the yield on the Fund's
Common Shares will also fall. In addition, changes in market interest rates may
cause the Fund's NAV to experience moderate volatility because of the lag
between changes in market rates and the resetting of the floating rates on
assets in the Fund's portfolio. Finally, to the extent that market interest rate
changes are reflected as a change in the market spreads for loans of the type
and quality in which the Fund invests, the value of the Fund's portfolio may
decrease in response to an increase in such spreads.
INDEX DESCRIPTION
The S&P/LSTA LEVERAGED LOAN INDEX ("LLI") is an unmanaged 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 investor cannot invest directly in an index.
6
<Page>
ING Senior Income Fund
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees
ING Senior Income Fund:
We have audited the accompanying statement of assets and liabilities of the ING
Senior Income Fund (the "Fund"), including the portfolio of investments, as of
February 29, 2004, and the related statements of operations and cash flows for
the year then ended, and the statement of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the three-year period then ended and the period from December
15, 2000 (inception) to February 28, 2001. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of February 29, 2004, by correspondence with the custodian
and other appropriate audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ING
Senior Income Fund as of February 29, 2004, the results of its operations and
cash flows for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the three-year period then ended and the period from
December 15, 2000 to February 28, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
April 19, 2004
Los Angeles, California
7
<Page>
ING Senior Income Fund
STATEMENT OF ASSETS AND LIABILITIES as of February 29, 2004
<Table>
ASSETS:
Investments in securities at value (Cost $630,549,133) $ 641,584,738
Short-term investments at amortized cost 11,000,000
Cash 3,782,848
Receivables:
Fund shares sold 11,924,047
Interest 2,732,171
Reimbursement due from Manager 96,078
Prepaid expenses 201,911
Prepaid arrangement fees on notes payable 244,662
---------------
Total assets 671,566,455
---------------
LIABILITIES:
Accrued interest payable 8,303
Deferred arrangement fees 1,145,183
Payable to affiliates 718,757
Income distribution payable 658,765
Accrued trustee fees 2,873
Other accrued expenses and liabilities 305,685
---------------
Total liabilities 2,839,566
---------------
NET ASSETS $ 668,726,889
===============
NET ASSETS CONSIST OF:
Paid-in capital $ 655,938,082
Undistributed net investment income 109,395
Undistributed net realized gain on investments 1,643,807
Net unrealized appreciation of investments 11,035,605
---------------
NET ASSETS $ 668,726,889
===============
</Table>
See Accompanying Notes to Financial Statements
8
<Page>
<Table>
CLASS A:
Net assets $ 172,974,605
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 11,179,657
Net asset value and redemption price per share $ 15.47
Maximum offering price per share (4.75%)(1) $ 16.24
CLASS B:
Net assets $ 62,851,915
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 4,067,839
Net asset value and redemption price per share(2) $ 15.45
Maximum offering price per share $ 15.45
CLASS C:
Net assets $ 275,849,040
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 17,841,252
Net asset value and redemption price per share(2) $ 15.46
Maximum offering price per share $ 15.46
CLASS Q:
Net assets $ 157,051,329
Shares authorized unlimited
Par value $ 0.01
Shares outstanding 10,188,399
Net asset value and redemption price per share $ 15.41
Maximum offering price per share $ 15.41
</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 Early
Withdrawal Charge.
See Accompanying Notes to Financial Statements
9
<Page>
STATEMENT OF OPERATIONS for the Year Ended February 29, 2004
<Table>
INVESTMENT INCOME:
Interest $ 21,820,176
Arrangement fees earned 640,210
Dividends 36,938
Other 921,993
--------------
Total investment income 23,419,317
--------------
EXPENSES:
Investment management fees 3,534,357
Administration fees 441,795
Distribution and service fees:
Class A 179,130
Class B 357,927
Class C 943,130
Class Q 482,448
Transfer agent fees:
Class A 58,976
Class B 32,243
Class C 106,268
Class Q 197,999
Shareholder reporting expense 70,272
Interest expense 353,687
Custodian fees 210,400
Credit facility fees 93,342
Recordkeeping and pricing expense 11,695
Professional fees 316,622
Trustees' fees 15,980
Registration fees 107,548
Postage expense 74,080
Insurance expense 3,598
Miscellaneous expense 22,191
--------------
Total expenses 7,613,688
--------------
Less:
Net waived and reimbursed fees 486,243
--------------
Net expenses 7,127,445
--------------
Net investment income 16,291,872
--------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS:
Net realized gain on investments 5,249,490
Net change in unrealized depreciation of investments 12,520,783
--------------
Net realized and unrealized gain on investments 17,770,273
--------------
Increase in net assets resulting from operations $ 34,062,145
==============
</Table>
See Accompanying Notes to Financial Statements
10
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR YEAR
ENDED ENDED
FEBRUARY 29, FEBRUARY 28,
2004 2003
---- ----
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 16,291,872 $ 12,420,155
Net realized gain (loss) on investments 5,249,490 (1,013,477)
Net change in unrealized appreciation (depreciation) of
investments 12,520,783 (920,901)
-------------- ---------------
Net increase in net assets resulting from operations 34,062,145 10,485,777
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (2,804,728) (343,871)
Class B (1,277,656) (655,286)
Class C (4,349,387) (1,183,573)
Class Q (8,270,536) (10,232,636)
Net realized gain on investments:
Class A (107,928) --
Class B (46,487) --
Class C (181,082) --
Class Q (159,555) --
-------------- ---------------
Total distributions (17,197,359) (12,415,366)
-------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 585,241,477 46,900,491
Dividends reinvested 9,503,996 11,601,350
-------------- ---------------
594,745,473 58,501,841
Cost of shares repurchased (219,625,660) (29,437,098)
-------------- ---------------
Net increase in net assets resulting from capital share
transactions 375,119,813 29,064,743
-------------- ---------------
Net increase in net assets 391,984,599 27,135,154
-------------- ---------------
NET ASSETS:
Beginning of year 276,742,290 249,607,136
-------------- ---------------
End of year $ 668,726,889 $ 276,742,290
============== ===============
Undistributed net investment income at end of year $ 109,395 $ 519,830
============== ===============
</Table>
See Accompanying Notes to Financial Statements
11
<Page>
STATEMENT OF CASH FLOWS for Year Ended February 29, 2004
<Table>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 17,976,628
Facility fees paid (477)
Arrangement fee received 1,107,550
Other income received 921,993
Interest paid (417,336)
Other operating expenses paid (5,653,703)
Purchases of portfolio securities (3,466,129,041)
Proceeds from disposition of portfolio securities 3,153,633,265
------------------
Net cash used for operating activities (298,561,121)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to common shareholders (7,693,363)
Proceeds from capital shares sold 574,217,404
Disbursements for capital shares repurchased (219,625,660)
Net repayment of notes payable (47,000,000)
------------------
Net cash flows provided by financing activities 299,898,381
------------------
Net increase in cash 1,337,260
Cash at beginning of year 2,445,588
------------------
Cash at end of year $ 3,782,848
==================
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 $ 34,062,145
------------------
Adjustments to reconcile net increase in net assets resulting from operations to
net cash used for operating activities:
Change in unrealized depreciation on investments (12,520,783)
Net accretion/amortization of discounts on investments (2,682,541)
Realized gain on sale of investments (5,249,490)
Purchases of investments (3,466,129,041)
Proceeds on sale of investments 3,153,633,265
Increase in interest receivable (1,197,945)
Decrease in prepaid arrangement fees on notes payable 92,865
Increase in prepaid expenses (181,092)
Increase in deferred arrangement fees 467,340
Decrease in accrued interest payable (63,649)
Increase in reimbursement due from Manager (48,729)
Increase in payable to affiliate 426,051
Increase in accrued trustees' fees 2,561
Increase in income distribution payable 658,765
Increase in accrued expenses 169,157
------------------
Total adjustments (332,623,266)
------------------
Net cash used for operating activities $ (298,561,121)
==================
NON CASH FINANCING ACTIVITIES
Receivable for shares sold $ 11,924,047
Reinvestment of dividends $ 9,503,996
</Table>
See Accompanying Notes to Financial Statements
12
<Page>
ING SENIOR INCOME FUND FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS A CLASS B
--------------------------------- --------------------------------
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
FEB. 29, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28,
2004 2003 2002(1) 2004 2003 2002(1)
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.83 14.92 15.00 14.82 14.92 15.00
Income from investment operations:
Net investment income $ 0.61 0.69 0.81 0.53 0.62 0.75
Net realized and unrealized gain (loss) on investments $ 0.69 (0.09) (0.09) 0.69 (0.10) (0.10)
Total income from investment operations $ 1.30 0.60 0.72 1.22 0.52 0.65
Less distributions from:
Net investment income $ 0.64 0.69 0.80 0.57 0.62 0.73
Net realized gain on investments $ 0.02 -- -- 0.02 -- --
Total distributions $ 0.66 0.69 0.80 0.59 0.62 0.73
Net asset value, end of period $ 15.47 14.83 14.92 15.45 14.82 14.92
TOTAL INVESTMENT RETURN(2) % 8.93 4.15 4.92 8.33 3.57 4.45
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 172,975 11,106 2,411 62,852 17,648 12,776
Average borrowings (000's)(5) $ 20,771 17,655 19,797 20,771 17,655 19,797
Asset coverage ratio % --* 689 3,220 --* 689 3,220
RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT:
Expenses (before interest and other fees related to
revolving credit facility)(3)(4) % 1.36 1.42 1.47 1.87 1.91 1.96
Expenses (with interest and other fees related to
revolving credit facility)(3)(4) % 1.43 1.63 1.73 1.97 2.09 2.23
Net investment income(3)(4) % 3.84 4.88 5.58 3.47 4.12 5.19
RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT:
Expenses (before interest and other fees related to
revolving credit facility)(3)(4) % 1.46 1.57 1.82 2.22 2.31 2.29
Expenses (with interest and other fees related to
revolving credit facility)(3)(4) % 1.53 1.78 2.07 2.31 2.49 2.54
Net investment income(3)(4) % 3.74 4.73 5.26 3.13 3.72 4.89
Portfolio turnover rate % 72 60 65 72 60 65
Shares outstanding at end of period (000's) 11,180 749 162 4,068 1,191 856
<Caption>
CLASS C
----------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
FEB. 29, 2004 FEB. 28, 2003 FEB. 28, 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 $ 0.53 0.62 0.75
Net realized and unrealized gain (loss) on investments $ 0.70 (0.10) (0.10)
Total income from investment operations $ 1.23 0.52 0.65
Less distributions from:
Net investment income $ 0.57 0.62 0.73
Net realized gain on investments $ 0.02 -- --
Total distributions $ 0.59 0.62 0.73
Net asset value, end of period $ 15.46 14.82 14.92
TOTAL INVESTMENT RETURN(2) % 8.40 3.57 4.45
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 275,849 32,647 19,391
Average borrowings (000's)(5) $ 20,771 17,655 19,797
Asset coverage ratio % --* 689 3,220
RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT:
Expenses (before interest and other fees related to
revolving credit facility)(3)(4) % 1.86 1.91 1.96
Expenses (with interest and other fees related to
revolving credit facility)(3)(4) % 1.94 2.09 2.23
Net investment income(3)(4) % 3.38 4.19 5.20
RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT:
Expenses (before interest and other fees related to
revolving credit facility)(3)(4) % 1.96 2.06 2.29
Expenses (with interest and other fees related to
revolving credit facility)(3)(4) % 2.04 2.24 2.54
Net investment income(3)(4) % 3.28 4.04 4.89
Portfolio turnover rate % 72 60 65
Shares outstanding at end of period (000's) 17,841 2,202 1,300
</Table>
(1) Classes A, B and C commenced offering of shares on April 2, 2001.
(2) Total investment returns are not annualized for periods of less than one
year and do not include sales load.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses excluding interest,
taxes, brokerage commissions, leverage expenses, other investment related
costs and extraordinary expenses, subject to possible recoupment by the
Investment Manager within three years.
(5) Based on the active days of borrowing.
* There were no loans outstanding at year end.
See Accompanying Notes to Financial Statements
13
<Page>
Selected data for a share of beneficial interest outstanding throughout each
period.
<Table>
<Caption>
CLASS Q(5)
--------------------------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
FEB. 29, FEB. 28, FEB. 28, FEB. 28,
2004 2003 2002 2001(1)
- -------------------------------------------------------------------------------------------------------------------
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 $ 0.63 0.69 0.81 0.14
Net realized and unrealized gain (loss) on investments $ 0.65 (0.10) (0.32) 0.14
Total income from investment operations $ 1.28 0.59 0.49 0.28
Less distributions from:
Net investment income $ 0.64 0.69 0.90 --
Net realized gain on investments $ 0.02 -- -- --
Total distributions $ 0.66 0.69 0.90 --
Net asset value, end of period $ 15.41 14.79 14.89 15.30
TOTAL INVESTMENT RETURN(2) % 8.82 4.09 3.73 1.80
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 157,051 215,341 215,029 94,096
Average borrowings (000's)(6) $ 20,771 17,655 19,797 --
Asset coverage ratio % --* 689 3,220 --*
RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT:
Expenses (before interest and other fees related to
revolving credit facility)(3)(4) % 1.40 1.41 1.43 --
Expenses (with interest and other fees related to
revolving credit facility)(3)(4) % 1.54 1.59 1.63 1.85
Net investment income(3)(4) % 4.17 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) % 1.48 1.56 1.70 --
Expenses (with interest and other fees related to
revolving credit facility)(3)(4) % 1.62 1.74 1.90 1.85
Net investment income(3)(4) % 4.09 4.54 5.67 7.00
Portfolio turnover rate % 72 60 65 11
Shares outstanding at end of period (000's) 10,188 14,559 14,439 6,152
</Table>
(1) Class Q commenced operations on December 15, 2000.
(2) Total investment returns are not annualized for periods of less than one
year and do not include sales load.
(3) Annualized for periods less than one year.
(4) The Investment Manager has agreed to limit expenses excluding interest,
taxes, brokerage commissions, leverage expenses, other investment related
costs and extraordinary expenses, subject to possible recoupment by the
Investment Manager within three years.
(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.
* There were no loans outstanding at period end.
See Accompanying Notes to Financial Statements
14
<Page>
ING Senior Income Fund
NOTES TO FINANCIAL STATEMENTS as of February 29, 2004
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.
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. During the period December 15, 2000 through March 30, 2001, the Fund
issued 19,933,953 Class Q shares to an affiliate 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. The Fund currently offers four classes
of shares; A, B, C and Q. 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. To maintain a measure of liquidity, the Fund offers
to repurchase between 5% and 25% of its outstanding common shares on a monthly
basis. This is a fundamental policy that can not be changed without shareholder
approval. The Fund currently anticipates offerings to repurchase 5% of its
outstanding common shares each month. The Fund may not repurchase more than 25%
in any calendar quarter. Other than these monthly repurchases, no market for the
Fund's common shares is expected to exist. 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.
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 February 29, 2004,
98.9% of total long-term investments were valued based on these procedures.
15
<Page>
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 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, and 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.
B. DISTRIBUTIONS TO SHAREHOLDERS. The Fund declares and goes ex-dividend daily
and pays dividends monthly for net investment income. Distributions from
capital gains, if any, are declared and paid annually. The Fund may make
additional distributions to comply with the distribution requirements of
the Internal Revenue Code. The character and amounts of income and gains to
be distributed are determined in accordance with federal income tax
regulations, which may differ from accounting principles generally accepted
in the United States of America for investment companies. 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 Fund records distributions to its
shareholders on the ex-dividend date.
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 sold. 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 loans are generally
applied as a reduction to the recorded investment of the loan. 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
16
<Page>
yield method over the shorter of four years or the actual term of the loan.
Arrangement fees received on revolving credit facilities, which represent
non-refundable fees or purchase discounts 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.
Dividend income is recorded on the ex-dividend date.
D. FEDERAL INCOME TAXES. It is the Fund's policy to comply with subchapter M
of the Internal Revenue Code and related excise tax provisions applicable
to regulated investment companies and to distribute substantially all of
its net investment income and net realized capital gains to its
shareholders. Therefore, no federal income tax provision is required. No
capital gain distributions shall be made until any capital loss
carryforwards have been fully utilized or expire.
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 year ended February 29, 2004, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term
investments, totaled $607,222,305 and $303,669,266 respectively. At February 29,
2004, the Fund held senior loans valued at $638,242,547 representing 99.5% of
its total investments (excluding short-term investments). The market value of
these assets is established as set forth in Note 2.
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 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.
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 08/11/03 133,153
Neoplan -- Common Shares 08/29/03 --
Neoplan -- Preferred B Shares 08/29/03 --
Neoplan -- Preferred C Shares 08/29/03 40,208
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 $1,822,338 was 0.3% of net assets at February 29, 2004) $ 503,981
=========
</Table>
17
<Page>
NOTE 4 -- MANAGEMENT AND ADMINISTRATION AGREEMENTS
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 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. The members of the portfolio
management team became employees of ING Aeltus. The same persons will therefore
manage the Fund, but as employees of ING Aeltus, not as employees of 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 year ended February 29, 2004, 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 Febuary 29, 2004, the three-year cumulative amount of reimbursed fees that
are subject to possible recoupment by the Investment Manager is $1,401,116.
18
<Page>
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 February 29, 2004. Average borrowings for the year ended February
29, 2004 was $20,770,909 and the average annualized interest rate was 2.15%
excluding other fees related to the unused portion of the facilities, and other
fees.
NOTE 8 -- SENIOR LOAN COMMITMENTS
At February 29, 2004, the Fund had unfunded loan commitments pursuant to the
terms of the following loan agreements:
<Table>
Amerco, Inc. $ 2,445,000
Atlantic Broadband Finance, LLC 2,000,000
Cincinnati Bell, Inc. 1,911,102
Federal-Mogul Corporation 171,662
Fleming Companies, Inc. 423,322
Georgia-Pacific Corporation 5,200,000
Hercules, Inc. 612,661
IESI Corporation 993,125
Insight Health Services Corporation 750,000
Lyondell Chemical Company $ 1,000,000
Nextel Finance Company 1,891,892
Nutrasweet Acquisition Corporation 670,608
Pinnacle Entertainment 866,667
Rural Cellular Corporation 401,413
SBA Senior Finance, Inc. 461,538
Six Flags Theme Parks, Inc. 583,333
United Defense Industries, Inc. 2,000,000
United Rentals (North America), Inc. 1,111,111
------------
$ 23,493,434
============
</Table>
NOTE 9 -- TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
At February 29, 2004, the Fund had the following amounts recorded in payable to
affiliates on the accompanying Statement of Assets and Liabilities (see Notes 4
and 5):
<Table>
<Caption>
ACCRUED INVESTMENT ACCRUED ACCRUED DISTRIBUTION
MANAGEMENT FEES ADMINISTRATIVE FEES AND SERVICE FEES TOTAL
------------------ ------------------- -------------------- -----
$ 411,574 $ 51,447 $ 255,736 $ 718,757
</Table>
At February 29, 2004, Equitable Life Insurance Company of Iowa ("ELI"), a
wholly-owned indirect subsidiary of ING Groep N.V., owned 8.5% of the Fund.
Investment activities of this shareholder in the Fund could have a material
impact on the Fund. It is the intention of ELI to tender for repurchase all of
their shares through the normal monthly offers to repurchase made by 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 year ended February 29, 2004.
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 February 29, 2004, the Fund
held 0.5% of its total assets in subordinated loans and unsecured loans.
19
<Page>
NOTE 12 -- CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
<Table>
<Caption>
CLASS A SHARES CLASS B
------------------------------- -------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2004 2003 2004 2003
---- ---- ---- ----
NUMBER OF SHARES
Shares sold 11,471,958 697,541 3,176,454 529,384(1)
Dividends reinvested 128,609 18,011 50,168 22,777
Shares redeemed (1,169,710) (128,377) (349,656) (217,666)(1)
------------- ------------- ------------- ------------
Net increase in shares outstanding 10,430,857 587,175 2,876,966 334,495
============= ============= ============= ============
DOLLAR AMOUNT ($)
Shares sold $ 175,247,213 $ 10,303,765 $ 48,393,642 $ 7,862,602(2)
Dividends reinvested 1,970,610 265,212 765,311 336,436
Shares redeemed (17,948,478) (1,890,380) (5,333,591) (3,212,215)(2)
------------- ------------- ------------- ------------
Net increase $ 159,269,345 $ 8,678,597 $ 43,825,362 $ 4,986,823
============= ============= ============= ============
<Caption>
CLASS C CLASS Q
------------------------------- -------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2004 2003 2004 2003
---- ---- ---- ----
NUMBER OF SHARES
Shares sold 16,799,564 1,548,667 6,897,835 374,311
Dividends reinvested 219,973 63,192 226,785 682,409
Shares redeemed (1,380,540) (709,214) (11,495,246) (936,355)
------------- ------------- ------------- ------------
Net increase (decrease) in shares
outstanding 15,638,997 902,645 (4,370,626) 120,365
============= ============= ============= ============
DOLLAR AMOUNT ($)
Shares sold $ 256,292,793 $ 22,961,598 $ 105,307,829 $ 5,582,887
Dividends reinvested 3,363,842 932,572 3,404,233 10,067,130
Shares redeemed (21,108,863) (10,428,994) (175,234,728) (13,715,870)
------------- ------------- -------------- ------------
Net increase (decrease) $ 238,547,772 $ 13,465,176 $ (66,522,666) $ 1,934,147
============= ============= ============== ============
</Table>
(1) Excludes 12,712 shares rescinded.
(2) Excludes $189,639 for shares rescinded.
NOTE 13 -- FEDERAL INCOME TAXES
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 accounting principles generally accepted in the United States of
America for investment companies. These book/tax differences may be either
temporary or permanent. Permanent differences are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences are not reclassified. Key differences include the treatment of
short-term capital gains, organizational and offering expenses, and wash sale
deferrals. Distributions in excess of net investment income and/or net realized
capital gains for tax purposes are reported as distributions of paid-in capital.
The tax composition of dividends and distributions to shareholders was as
follows:
<Table>
<Caption>
YEAR ENDED FEBRUARY 29, 2004 YEAR ENDED FEBRUARY 28, 2003
------------------------------------ ----------------------------
LONG-TERM
ORDINARY INCOME CAPITAL GAIN ORDINARY INCOME
--------------- ------------ ---------------
$ 16,702,307 $ 495,052 $ 12,415,366
</Table>
20
<Page>
The tax-basis components of distributable earnings and the expiration dates of
the capital loss carryforwards which may be used to offset future realized
capital gains for federal income tax purposes as of February 29, 2004 were:
<Table>
<Caption>
UNDISTRIBUTED UNREALIZED POST-OCTOBER CAPITAL
UNDISTRIBUTED LONG-TERM APPRECIATION/ CAPITAL LOSSES LOSS EXPIRATION
ORDINARY INCOME CAPITAL GAINS (DEPRECIATION) DEFERRED CARRYFORWARDS DATES
--------------- ------------- -------------- -------------- ------------- ----------
$ 2,239,630 $ 194,558 $ 11,020,385 $ -- $ -- --
</Table>
NOTE 14 -- 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 net loss including interest of $1,029 to the Fund resulting from
the Rescission Offer.
NOTE 15 -- SUBSEQUENT EVENTS
DIVIDENDS DECLARED
Subsequent to February 29, 2004, the Fund declared the following dividends:
<Table>
<Caption>
PER SHARE AMOUNT TYPE DECLARATION DATE RECORD DATE PAYABLE DATE
- ---------------- ---- ---------------- ----------- ------------
$ 0.04842(A) NII Daily Daily April 1, 2004
$ 0.04187(B) NII Daily Daily April 1, 2004
</Table>
NII -- Net Investment Income
(A) For Class A and Q shares.
(B) For Class B and C shares.
21
<Page>
ING Senior Income Fund
PORTFOLIO OF INVESTMENTS as of February 29, 2004
SENIOR LOANS*: 95.5%
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- --------------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE: 1.0%
ALLIANT TECHSYSTEMS, INC. Ba2 BB-
$ 2,270,970 Term Loan, maturing April 20, 2009 $ 2,296,341
TITAN CORPORATION Ba3 BB-
1,970,000 Term Loan, maturing June 30, 2009 1,970,000
UNITED DEFENSE INDUSTRIES, INC. Ba2 BB
2,502,128 Term Loan, maturing August 13, 2009 2,518,660
-------------
6,785,001
-------------
AUTOMOBILE: 4.8%
AFTERMARKET TECHNOLOGY CORPORATION Ba3 BB-
314,905 Term Loan, maturing February 08, 2008 315,918
431,310 Term Loan, maturing February 08, 2008 430,231
COLLINS & AIKMAN PRODUCTS B1 B+
1,298,246 Term Loan, maturing December 31, 2005 1,295,000
701,754 Term Loan, maturing December 31, 2005 710,526
(1) FEDERAL-MOGUL CORPORATION Ca NR
3,328,338 Revolver, maturing February 24, 2004 3,014,226
1,500,000 Term Loan, maturing February 24, 2004 1,359,375
2,620,000 Term Loan, maturing February 24, 2005 2,376,557
GOODYEAR TIRE & RUBBER COMPANY
2,500,000 Term Loan, maturing March 31, 2006 B2 B+ 2,488,282
1,500,000 Term Loan, maturing March 31, 2006 B1 BB+ 1,513,125
HLI OPERATING COMPANY, INC. Ba3 BB-
1,439,167 Term Loan, maturing June 03, 2009 1,468,849
KEYSTONE AUTOMOTIVE INDUSTRIES, INC. B1 B+
1,000,000 Term Loan, maturing October 30, 2009 1,015,000
METALDYNE COMPANY, LLC B2 BB-
1,764,210 Term Loan, maturing December 31, 2009 1,782,293
PLASTECH, INC. Ba3 BB-
1,500,000 Term Loan, maturing February 12, 2010 1,525,782
POLYPORE, INC. Ba3 BB-
1,473,750 Term Loan, maturing December 31, 2007 1,487,873
SAFELITE GLASS CORPORATION B3 B+
2,734,289 Term Loan, maturing September 30, 2007 2,693,275
1,700,073 Term Loan, maturing September 30, 2007 1,683,072
TENNECO AUTOMOTIVE, INC. B1 B
1,380,000 Term Loan, maturing December 12, 2010 1,405,300
620,000 Term Loan, maturing December 12, 2010 631,625
TRW AUTOMOTIVE ACQUISITIONS CORPORATION Ba2 BB+
1,600,000 Term Loan, maturing February 28, 2009 1,616,125
2,000,000 Term Loan, maturing February 28, 2011 2,037,322
UNITED COMPONENTS, INC. B1 BB-
1,485,000 Term Loan, maturing June 30, 2010 1,505,419
-------------
32,355,175
-------------
</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
- --------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD AND TOBACCO: 4.4%
B & G FOODS, INC. B1 B+
$ 997,500 Term Loan, maturing August 31, 2009 $ 1,007,891
BIRDS EYE FOODS, INC. Ba3 B+
1,880,389 Term Loan, maturing June 30, 2008 1,900,957
COMMONWEALTH BRANDS, INC. Ba3 BB-
979,392 Term Loan, maturing August 28, 2007 990,410
CONSTELLATION BRANDS, INC. Ba1 BB
1,250,000 Term Loan, maturing November 30, 2008 1,267,858
CP KELCO APS B3 B
970,260 Term Loan, maturing March 31, 2008 977,739
317,899 Term Loan, maturing September 30, 2008 320,350
DEAN FOODS COMPANY Ba1 BB+
1,850,000 Term Loan, maturing July 15, 2007 1,863,366
2,238,738 Term Loan, maturing July 15, 2008 2,275,118
DEL MONTE CORPORATION Ba3 BB-
1,739,122 Term Loan, maturing December 20, 2010 1,767,927
DR. PEPPER BOTTLING COMPANY OF TEXAS B1 BB-
2,958,904 Term Loan, maturing December 19, 2010 3,005,137
DS WATERS ENTERPRISES, L.P. B1 B+
2,500,000 Term Loan, maturing November 07, 2009 2,539,452
(1) FLEMING COMPANIES, INC. B3 D
438,008 Revolver, maturing June 18, 2007 435,453
779,904 Term Loan, maturing June 18, 2008 776,980
INTERSTATE BRANDS CORPORATION Ba2 B+
1,500,000 Term Loan, maturing July 19, 2007 1,500,703
956,368 Term Loan, maturing July 19, 2007 960,193
MICHAEL FOODS, INC. B1 B+
2,992,500 Term Loan, maturing November 21, 2010 3,043,465
NATIONAL DAIRY HOLDINGS, L.P. B1 BB+
982,500 Term Loan, maturing April 30, 2009 985,161
NUTRASWEET ACQUISITION CORPORATION Ba3 NR
405,679 Term Loan, maturing May 24, 2005 387,423
1,165,385 Term Loan, maturing May 25, 2009 1,154,459
SOUTHERN WINE & SPIRITS OF AMERICA, INC. Ba3 BB+
2,228,789 Term Loan, maturing July 02, 2008 2,254,792
-------------
29,414,834
-------------
BUILDINGS AND REAL ESTATE: 3.0%
(1) AMERCO, INC. NR NR
555,000 Debtor In Possession Term Loan,
maturing August 13, 2004 552,225
ASSOCIATED MATERIALS, INC. Ba3 B+
736,842 Term Loan, maturing August 02, 2010 746,053
ATRIUM COMPANIES, INC. B1 B+
2,000,000 Term Loan, maturing December 10, 2008 2,027,550
BUILDING MATERIALS HOLDING CORPORATION Ba2 BB-
995,000 Term Loan, maturing August 21, 2010 998,731
GENERAL GROWTH PROPERTIES Ba1 BBB-
3,000,000 Term Loan, maturing April 16, 2006 3,000,000
7,000,000 Term Loan, maturing April 16, 2006 7,000,000
</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
- --------------------------------------------------------------------------------------------------------------
BUILDINGS AND REAL ESTATE: (CONTINUED)
MACERICH PARTNERSHIP, L.P. Ba2 NR
$ 1,574,400 Term Loan, maturing July 26, 2005 $ 1,582,272
ST. MARYS CEMENT, INC. B1 BB-
3,000,000 Term Loan, maturing December 04, 2009 3,033,750
WERNER HOLDINGS COMPANY, INC. B1 B
958,333 Term Loan, maturing June 11, 2009 926,588
-------------
19,867,169
-------------
CABLE TELEVISION: 12.7%
(1) ADELPHIA COMMUNICATIONS CORPORATION NR BBB
1,955,580 Debtor In Possession Term Loan,
maturing June 25, 2004 1,973,914
BRESNAN COMMUNICATIONS, LLC B1 BB-
2,000,000 Term Loan, maturing December 31, 2007 2,019,750
CC VI OPERATING COMPANY, LLC B2 CCC+
4,505,058 Term Loan, maturing November 12, 2008 4,376,100
CC VIII OPERATING, LLC B2 B-
5,066,450 Term Loan, maturing February 02, 2008 4,996,787
CEBRIDGE CONNECTIONS, INC. NR NR
3,500,000 Term Loan, maturing February 04, 2009 3,500,000
1,500,000 Term Loan, maturing February 23, 2009 1,500,000
(1) CENTURY CABLE HOLDINGS, LLC Caa1 NR
820,000 Revolver, maturing March 31, 2009 764,650
500,000 Term Loan, maturing June 30, 2009 479,479
3,500,000 Term Loan, maturing December 31, 2009 3,323,908
CHARTER COMMUNICATIONS OPERATING, LLC B2 B
8,000,000 Term Loan, maturing September 18, 2007 7,749,168
13,892,257 Term Loan, maturing March 18, 2008 13,546,882
FALCON CABLE COMMUNICATIONS, LLC B2 BB
3,460,183 Term Loan, maturing December 31, 2007 3,370,796
2,200,377 Term Loan, maturing November 01, 2008 2,137,116
(1) FRONTIERVISION OPERATING PARTNERS, L.P. B2 NR
1,000,000 Revolver, maturing October 31, 2005 998,750
1,136,364 Term Loan, maturing September 30, 2005 1,130,208
1,000,000 Term Loan, maturing March 31, 2006 994,583
(1) HILTON HEAD COMMUNICATIONS, L.P. Caa1 NR
3,000,000 Revolver, maturing September 30, 2007 2,883,750
7,000,000 Term Loan, maturing March 31, 2008 6,755,000
INSIGHT MIDWEST HOLDINGS, LLC Ba3 BB+
1,500,000 Term Loan, maturing June 30, 2009 1,493,437
3,000,000 Term Loan, maturing December 31, 2009 3,020,418
2,000,000 Term Loan, maturing December 31, 2009 2,016,250
MCC IOWA MEDIACOM BROADBAND, LLC Ba3 BB+
4,000,000 Term Loan, maturing March 31, 2010 3,978,752
5,500,000 Term Loan, maturing September 30, 2010 5,547,746
(1) OLYMPUS CABLE HOLDINGS, LLC B2 NR
2,000,000 Term Loan, maturing June 30, 2010 1,893,750
</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
- --------------------------------------------------------------------------------------------------------------
CABLE TELEVISION: (CONTINUED)
$ 4,750,000 Term Loan, maturing September 30, 2010 $ 4,525,862
-------------
84,977,056
-------------
CELLULAR COMMUNICATIONS: 8.4%
AIRGATE PCS, INC. B3 CC
200,616 Term Loan, maturing June 06, 2007 199,780
3,494,333 Term Loan, maturing September 30, 2008 3,479,772
CENTENNIAL CELLULAR OPERATING COMPANY B2 B-
4,000,000 Term Loan, maturing February 09, 2011 4,022,084
DOBSON CELLULAR SYSTEMS, INC. Ba3 B-
2,992,500 Term Loan, maturing March 31, 2010 3,021,357
HORIZON PERSONAL COMMUNICATIONS, INC. NR D
4,500,000 Term Loan, maturing September 26, 2008 4,258,125
1,500,000 Term Loan, maturing March 31, 2009 1,408,125
MICROCELL TELECOMMUNICATIONS, INC. NR CCC+
4,827,115 Term Loan, maturing December 31, 2008 4,812,030
NEXTEL FINANCE COMPANY Ba2 BB
167,207 Revolver, maturing December 31, 2007 166,079
15,259,336 Term Loan, maturing December 31, 2007 15,171,915
5,000,000 Term Loan, maturing December 15, 2010 5,050,940
RURAL CELLULAR CORPORATION B2 B-
5,175,537 Term Loan, maturing April 03, 2008 5,169,068
US UNWIRED, INC. B2 CCC-
2,342,452 Term Loan, maturing September 30, 2007 2,266,322
1,627,318 Term Loan, maturing March 31, 2008 1,574,430
WESTERN WIRELESS CORPORATION B2 B-
1,000,000 Revolver, maturing March 31, 2008 996,042
2,291,667 Term Loan, maturing March 31, 2008 2,287,608
2,000,000 Term Loan, maturing September 30, 2008 2,011,250
-------------
55,894,927
-------------
CHEMICALS, PLASTICS AND RUBBER: 4.3%
FMC CORPORATION Ba1 BBB-
990,000 Term Loan, maturing October 21, 2007 1,002,622
GEO SPECIALTY CHEMICALS, INC. Caa1 CC
830,101 Term Loan, maturing December 31, 2007 738,790
HERCULES, INC. Ba1 BB
2,475,000 Term Loan, maturing May 15, 2007 2,495,109
HUNTSMAN INTERNATIONAL, LLC B1 B
2,532,970 Term Loan, maturing June 30, 2007 2,557,772
2,533,024 Term Loan, maturing June 30, 2008 2,559,937
HUNTSMAN, LLC B2 B
2,398,353 Term Loan, maturing March 31, 2007 2,336,895
1,799,153 Term Loan, maturing March 31, 2007 1,751,551
INEOS GROUP HOLDINGS, PLC Ba2 BB
2,335,982 Term Loan, maturing April 26, 2009 2,361,288
JOHNSONDIVERSEY, INC. Ba3 BB-
1,615,150 Term Loan, maturing November 03, 2009 1,634,779
</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
- --------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER: (CONTINUED)
KRATON POLYMERS B1 BB-
$ 2,000,000 Term Loan, maturing December 23, 2010 $ 2,035,834
NALCO COMPANY B1 BB-
5,000,000 Term Loan, maturing November 04, 2010 5,056,250
NOVEON, INC. B1 BB-
3,000,000 Term Loan, maturing December 31, 2009 3,033,750
ROCKWOOD SPECIALTIES GROUP, INC. B1 B+
1,492,500 Term Loan, maturing July 23, 2010 1,504,627
-------------
29,069,204
-------------
CONTAINERS, PACKAGING AND GLASS: 3.8%
BERRY PLASTICS CORPORATION B1 B+
1,000,000 Term Loan, maturing July 22, 2010 1,002,500
1,970,063 Term Loan, maturing August 31, 2010 1,990,380
CONSTAR INTERNATIONAL, INC. B2 BB-
1,642,508 Term Loan, maturing November 20, 2009 1,660,730
CROWN CORK & SEAL COMPANY, INC. Ba3 BB-
1,425,000 Term Loan, maturing September 15, 2008 1,447,414
GRAPHIC PACKAGING INTERNATIONAL, INC. B1 B+
3,980,000 Term Loan, maturing August 09, 2010 4,043,847
GREIF BROS. CORPORATION Ba3 BB
751,667 Term Loan, maturing August 23, 2009 757,398
JEFFERSON SMURFIT CORPORATION Ba3 B+
1,098,182 Term Loan, maturing March 31, 2007 1,108,340
KERR GROUP, INC. B1 BB-
1,469,477 Term Loan, maturing August 13, 2010 1,481,722
OWENS-ILLINOIS GROUP, INC. B1 BB-
4,000,000 Term Loan, maturing April 01, 2008 4,034,584
SILGAN HOLDINGS, INC. Ba3 BB
4,944,925 Term Loan, maturing November 30, 2008 5,027,599
SMURFIT-STONE CONTAINER CANADA, INC. Ba3 B+
363,256 Term Loan, maturing June 30, 2009 366,662
STONE CONTAINER CORPORATION Ba3 B+
2,143,951 Term Loan, maturing June 30, 2009 2,172,536
-------------
25,093,712
-------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 1.6%
BRAND SERVICES, INC. B1 B+
1,000,000 Term Loan, maturing October 16, 2008 1,008,750
951,635 Term Loan, maturing October 16, 2009 957,583
FLOWSERVE CORPORATION Ba3 BB-
2,510,228 Term Loan, maturing June 30, 2009 2,537,123
MUELLER GROUP, INC. B1 B+
985,000 Term Loan, maturing May 31, 2008 992,002
ROPER INDUSTRIES, INC. Ba2 BB+
2,000,000 Term Loan, maturing December 29, 2008 2,026,250
SENSUS METERING SYSTEMS, INC. B2 B+
869,565 Term Loan, maturing December 17, 2010 877,174
130,435 Term Loan, maturing December 17, 2010 131,576
</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
- --------------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: (CONTINUED)
SPX CORPORATION Ba2 BBB-
$ 2,227,500 Term Loan, maturing September 30, 2009 $ 2,245,251
-------------
10,775,709
-------------
DIVERSIFIED/CONGLOMERATE SERVICE: 0.5%
IRON MOUNTAIN, INC. B1 BB
800,000 Term Loan, maturing February 15, 2008 808,000
US INVESTIGATIONS SERVICES, LLC B1 BB-
2,424,530 Term Loan, maturing December 31, 2008 2,423,015
-------------
3,231,015
-------------
DIVERSIFIED/NATURAL RESOURCES: 0.3%
GEORGIA-PACIFIC CORPORATION Ba2 BB+
800,000 Revolver, maturing November 03, 2005 795,562
1,250,000 Term Loan, maturing November 03, 2005 1,252,735
-------------
2,048,297
-------------
ECOLOGICAL: 0.9%
ALLIED WASTE NORTH AMERICA, INC. Ba3 BB
1,000,000 Term Loan, maturing January 15, 2010 1,017,708
1,481,250 Term Loan, maturing January 15, 2010 1,506,554
GREAT LAKES DREDGE & DOCK CORPORATION B1 B+
1,000,000 Term Loan, maturing December 22, 2010 1,010,000
IESI CORPORATION B1 B+
256,875 Revolver, maturing September 30, 2008 253,985
997,500 Term Loan, maturing September 30, 2010 1,011,216
WASTE CONNECTIONS, INC. Ba2 BB+
1,000,000 Term Loan, maturing October 22, 2010 1,005,313
-------------
5,804,776
-------------
ELECTRONICS: 1.1%
ANTEON CORPORATION Ba3 BB
1,000,000 Term Loan, maturing December 31, 2010 1,011,458
DECISION ONE CORPORATION B3 CCC
2,807,000 Term Loan, maturing April 18, 2005 2,049,110
SEAGATE TECHNOLOGY (US) HOLDINGS, INC. Ba1 BB+
1,970,000 Term Loan, maturing May 13, 2007 1,996,103
TRANSACTION NETWORK SERVICES, INC. Ba3 BB-
2,605,253 Term Loan, maturing April 03, 2007 2,605,253
-------------
7,661,924
-------------
FARMING AND AGRICULTURE: 0.9%
AGCO CORPORATION Ba1 BB+
4,000,000 Term Loan, maturing March 31, 2006 4,050,000
SCOTTS COMPANY Ba1 BB
2,000,000 Term Loan, maturing September 30, 2010 2,028,572
-------------
6,078,572
-------------
FINANCE: 0.3%
RENT-A-CENTER, INC. Ba2 BB
1,990,000 Term Loan, maturing May 28, 2009 2,015,870
-------------
2,015,870
-------------
</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
- --------------------------------------------------------------------------------------------------------------
GAMING: 2.1%
ALLIANCE GAMING CORPORATION B1 BB-
$ 4,000,000 Term Loan, maturing September 04, 2009 $ 4,046,252
AMERISTAR CASINOS, INC. Ba3 BB-
1,974,475 Term Loan, maturing December 20, 2006 1,986,507
ARGOSY GAMING COMPANY Ba2 BB
1,923,950 Term Loan, maturing July 31, 2008 1,938,380
GREEN VALLEY RANCH GAMING, LLC B1 B+
1,000,000 Term Loan, maturing December 22, 2010 1,015,000
ISLE OF CAPRI CASINOS, INC. Ba2 BB-
982,500 Term Loan, maturing April 26, 2008 994,255
PENN NATIONAL GAMING B1 BB-
1,000,532 Term Loan, maturing September 01, 2007 1,011,288
PINNACLE ENTERTAINMENT B1 B+
1,633,333 Term Loan, maturing December 17, 2009 1,653,410
UNITED AUBURN INDIAN COMMUNITY Ba3 BB-
1,060,489 Term Loan, maturing January 24, 2009 1,065,791
-------------
13,710,883
-------------
GROCERY: 0.4%
GIANT EAGLE, INC. Ba2 BB+
1,914,667 Term Loan, maturing August 02, 2009 1,934,413
1,000,000 Term Loan, maturing August 06, 2009 1,009,375
-------------
2,943,788
-------------
HEALTHCARE, EDUCATION AND CHILDCARE: 7.1%
ALARIS MEDICAL SYSTEMS, INC. Ba3 BB
709,286 Term Loan, maturing June 30, 2009 717,886
ALLIANCE IMAGING, INC. B1 B+
585,401 Term Loan, maturing November 02, 2006 575,888
APRIA HEALTHCARE GROUP, INC. Ba1 BBB-
1,955,000 Term Loan, maturing July 20, 2008 1,970,843
CAREMARK RX, INC. Baa3 BBB-
1,471,288 Term Loan, maturing March 31, 2006 1,481,035
COLGATE MEDICAL, LTD. Ba3 BB-
3,000,000 Term Loan, maturing December 30, 2008 3,024,375
COMMUNITY HEALTH SYSTEMS, INC. Ba3 BB-
2,962,500 Term Loan, maturing July 16, 2010 3,015,825
997,500 Term Loan, maturing January 16, 2011 1,007,787
DAVITA, INC. Ba3 BB
4,978,437 Term Loan, maturing March 31, 2009 5,044,222
DJ ORTHOPEDICS, LLC B1 B+
1,000,000 Term Loan, maturing May 15, 2009 1,011,875
EMPI CORPORATION B1 B+
1,500,000 Term Loan, maturing November 24, 2009 1,518,750
EXPRESS SCRIPTS, INC. Ba1 BBB
1,000,000 Term Loan, maturing February 13, 2010 1,007,500
FISHER SCIENTIFIC INTERNATIONAL, INC. Ba3 BB+
2,370,342 Term Loan, maturing March 31, 2010 2,386,638
FRESENIUS MEDICAL CARE HOLDINGS, INC. Ba1 BB+
2,985,000 Term Loan, maturing February 21, 2010 3,025,112
</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
- --------------------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE: (CONTINUED)
HCA, INC. Ba1 BBB-
$ 1,125,000 Term Loan, maturing April 30, 2006 $ 1,125,117
IASIS HEALTHCARE CORPORATION B1 B+
920,000 Term Loan, maturing February 09, 2009 929,631
INSIGHT HEALTH SERVICES CORPORATION B1 B+
1,933,333 Term Loan, maturing October 07, 2008 1,935,750
150,000 Term Loan, maturing October 07, 2008 150,188
664,965 Term Loan, maturing October 17, 2008 669,121
KINETIC CONCEPTS, INC. B1 BB-
2,487,500 Term Loan, maturing August 11, 2010 2,524,813
MAGELLAN HEALTH SERVICES, INC. B1 B+
833,333 Term Loan, maturing August 15, 2008 848,958
666,667 Term Loan, maturing August 15, 2008 679,167
MEDCO HEALTH Ba1 BBB
1,496,250 Term Loan, maturing June 30, 2010 1,499,055
OXFORD HEALTH PLANS, INC. Ba2 BB+
2,451,325 Term Loan, maturing April 25, 2009 2,465,881
PACIFICARE HEALTH SYSTEMS, INC. Ba3 BB+
995,000 Term Loan, maturing June 03, 2008 1,006,609
SOLA INTERNATIONAL, INC. Ba3 BB-
2,000,000 Term Loan, maturing December 11, 2009 2,030,000
TRIAD HOSPITALS, INC. Ba3 BB
1,496,414 Term Loan, maturing September 30, 2008 1,518,396
VANGUARD HEALTH SYSTEMS, INC. Ba3 B+
1,485,000 Term Loan, maturing January 03, 2010 1,499,850
VICAR OPERATING, INC. B1 B+
2,487,374 Term Loan, maturing June 30, 2009 2,520,020
-------------
47,190,292
-------------
HOME AND OFFICE FURNISHING, HOUSEWARES: 1.2%
GLOBAL IMAGING SYSTEMS, INC. Ba3 BB-
497,500 Term Loan, maturing June 25, 2009 504,963
SEALY MATTRESS COMPANY B1 B+
445,517 Term Loan, maturing December 15, 2004 447,606
596,027 Term Loan, maturing December 15, 2005 598,821
762,051 Term Loan, maturing December 15, 2006 765,623
SIMMONS COMPANY B2 B+
5,500,000 Term Loan, maturing December 19, 2011 5,571,615
-------------
7,888,628
-------------
INSURANCE: 0.9%
CONSECO, INC. Caa1 B-
4,615,385 Term Loan, maturing September 10, 2009 4,644,231
1,384,615 Term Loan, maturing September 10, 2010 1,393,269
-------------
6,037,500
-------------
LEISURE, AMUSEMENT AND ENTERTAINMENT: 2.7%
FITNESS HOLDINGS WORLDWIDE, INC. B1 B
3,000,000 Term Loan, maturing July 01, 2009 3,039,375
LOEWS CINEPLEX ENTERTAINMENT CORPORATION NR NR
1,397,327 Term Loan, maturing February 29, 2008 1,401,693
</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
- --------------------------------------------------------------------------------------------------------------
LEISURE, AMUSEMENT AND ENTERTAINMENT: (CONTINUED)
NEW JERSEY BASKETBALL, LLC NR NR
$ 3,500,000 Term Loan, maturing July 16, 2004 $ 3,513,125
PURE FISHING NR NR
975,000 Term Loan, maturing December 31, 2009 979,266
REGAL CINEMAS, INC. Ba2 BB-
2,922,581 Term Loan, maturing June 30, 2009 2,963,070
SIX FLAGS THEME PARKS, INC. Ba2 B+
300,000 Revolver, maturing June 30, 2008 291,000
4,000,000 Term Loan, maturing June 30, 2009 4,052,500
VIVENDI UNIVERSAL ENTERTAINMENT, LLP Ba2 BB+
2,000,000 Term Loan, maturing June 30, 2008 2,015,938
-------------
18,255,967
-------------
LODGING: 0.5%
EXTENDED STAY AMERICA, INC. Ba3 BB-
1,439,887 Term Loan, maturing January 15, 2008 1,459,685
WYNDHAM INTERNATIONAL, INC. NR NR
844,953 Term Loan, maturing April 01, 2006 833,109
1,186,915 Term Loan, maturing June 30, 2006 1,158,513
-------------
3,451,307
-------------
MACHINERY: 1.3%
ALLIANCE LAUNDRY HOLDINGS, LLC B1 B
1,626,943 Term Loan, maturing August 02, 2007 1,634,400
NATIONAL WATERWORKS, INC. B1 BB-
1,469,388 Term Loan, maturing November 22, 2009 1,488,979
REXNORD CORPORATION B1 B+
1,838,889 Term Loan, maturing November 25, 2009 1,853,256
UNITED RENTALS (NORTH AMERICA), INC. Ba3 BB
3,055,556 Term Loan, maturing February 17, 2011 3,055,556
833,333 Term Loan, maturing August 31, 2011 833,333
-------------
8,865,524
-------------
MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.4%
PEABODY ENERGY CORPORATION Ba1 BB+
2,977,500 Term Loan, maturing March 21, 2010 3,006,965
-------------
3,006,965
-------------
OIL AND GAS: 1.1%
CITGO PETROLEUM CORPORATION Ba2 BB+
1,500,000 Term Loan, maturing February 27, 2006 1,560,000
PACIFIC ENERGY GROUP, LLC Ba2 BBB-
1,000,000 Term Loan, maturing July 26, 2009 1,006,563
W-H ENERGY SERVICES, INC. B2 B+
2,487,500 Term Loan, maturing April 16, 2007 2,512,375
1,458,777 Term Loan, maturing April 16, 2007 1,473,365
WILLIAMS PRODUCTION RMT COMPANY B2 BB
995,000 Term Loan, maturing May 30, 2007 1,003,706
-------------
7,556,009
-------------
</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
- --------------------------------------------------------------------------------------------------------------
OTHER BROADCASTING AND ENTERTAINMENT: 2.4%
DIRECTV HOLDINGS, LLC Ba2 BB
$ 3,500,000 Term Loan, maturing March 06, 2010 $ 3,541,125
LIBERTY MEDIA CORPORATION Baa3 BBB-
6,000,000 Floating Rate Note,
maturing September 17, 2006 6,079,026
PEGASUS MEDIA & COMMUNICATIONS, INC. B3 B-
1,098,695 Term Loan, maturing April 30, 2005 1,080,383
RAINBOW MEDIA GROUP Ba2 BB+
4,987,491 Term Loan, maturing March 31, 2009 5,050,728
-------------
15,751,262
-------------
PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 2.4%
ARMKEL, LLC Ba3 BB-
716,106 Term Loan, maturing March 28, 2009 724,290
BUHRMANN U.S., INC. Ba3 BB-
2,000,000 Term Loan, maturing December 31, 2010 2,029,062
CHURCH & DWIGHT CO., INC. Ba2 BB
1,147,125 Term Loan, maturing September 30, 2007 1,162,181
JARDEN CORPORATION Ba3 B+
997,500 Term Loan, maturing April 24, 2008 1,007,267
JOSTENS, INC. Ba3 B+
1,895,551 Term Loan, maturing July 29, 2010 1,916,166
NORWOOD PROMOTIONAL PRODUCTS, INC. NR NR
3,588,404 Term Loan, maturing February 01, 2005 3,588,404
1,916,163(2) Term Loan, maturing February 01, 2005 852,693
452,744(2) Term Loan, maturing February 01, 2005 --
PAINT SUNDRY BRANDS CORPORATION B1 B
3,000,000 Term Loan, maturing July 28, 2010 3,037,500
RAYOVAC CORPORATION B1 B+
1,443,091 Term Loan, maturing September 30, 2009 1,454,215
-------------
15,771,778
-------------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 1.8%
AFC ENTERPRISES, INC. B1 B
1,070,892 Term Loan, maturing May 23, 2009 1,073,971
ALDERWOODS GROUP, INC. B1 BB-
1,322,245 Term Loan, maturing September 29, 2008 1,341,666
COINMACH CORPORATION B1 BB-
980,000 Term Loan, maturing July 25, 2009 990,657
DOMINO'S, INC. B1 B+
2,611,538 Term Loan, maturing June 25, 2010 2,653,323
JACK IN THE BOX, INC. Ba2 BB
4,000,000 Term Loan, maturing January 09, 2010 4,062,500
OTIS SPUNKMEYER, INC. B1 B+
1,884,749 Term Loan, maturing February 20, 2009 1,898,885
WEIGHT WATCHERS INTERNATIONAL, INC. Ba1 BB
300,721 Term Loan, maturing March 31, 2010 303,540
-------------
12,324,542
-------------
</Table>
See Accompanying Notes to Financial Statements
31
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- --------------------------------------------------------------------------------------------------------------
PRINTING AND PUBLISHING: 7.4%
ADAMS OUTDOOR ADVERTISING, L.P. B1 B+
$ 1,760,500 Term Loan, maturing February 08, 2008 $ 1,771,503
AMERICAN MEDIA OPERATIONS, INC. Ba3 B+
25,923 Term Loan, maturing April 01, 2006 25,891
3,104,546 Term Loan, maturing April 01, 2007 3,148,786
AMERICAN REPROGRAPHICS COMPANY
2,500,000 Term Loan, maturing June 18, 2009 B1 BB 2,537,500
1,000,000 Term Loan, maturing December 18, 2009 B3 B 1,015,000
CANWEST MEDIA, INC. Ba3 B+
5,969,231 Term Loan, maturing May 15, 2009 6,033,895
DEX MEDIA EAST, LLC B1 BB-
1,807,363 Term Loan, maturing November 08, 2008 1,828,072
1,983,691 Term Loan, maturing May 08, 2009 2,008,900
DEX MEDIA WEST, LLC B1 BB-
5,661,111 Term Loan, maturing March 09, 2010 5,746,617
HOLLINGER INTERNATIONAL PUBLISHING, INC. Ba2 B+
1,960,038 Term Loan, maturing September 30, 2009 1,989,438
LAMAR MEDIA CORPORATION Ba2 BB-
2,000,000 Term Loan, maturing June 30, 2009 2,001,666
3,200,000 Term Loan, maturing June 30, 2010 3,242,000
MEDIANEWS GROUP, INC. Ba3 BB
2,000,000 Term Loan, maturing December 30, 2010 2,025,000
PRIMEDIA, INC. B3 B
5,329,235 Term Loan, maturing June 30, 2009 5,276,608
R.H. DONNELLEY, INC. Ba3 BB
1,980,173 Term Loan, maturing June 30, 2010 2,008,761
READER'S DIGEST ASSOCIATIONS, INC. Ba1 BB
2,647,757 Term Loan, maturing May 20, 2008 2,669,064
TRANSWESTERN PUBLISHING COMPANY B2 B
3,000,000 Term Loan, maturing February 25, 2012 3,000,000
ZIFF DAVIS MEDIA, INC. B3 CCC
2,911,712 Term Loan, maturing March 31, 2007 2,881,381
-------------
49,210,082
-------------
RADIO AND TV BROADCASTING: 3.5%
CUMULUS MEDIA, INC. Ba3 B+
1,985,000 Term Loan, maturing March 28, 2010 2,014,775
EMMIS OPERATING COMPANY Ba2 B+
817,010 Term Loan, maturing February 28, 2009 820,657
1,688,700 Term Loan, maturing August 31, 2009 1,711,450
FISHER BROADCASTING, INC. Ba3 B+
652,845 Term Loan, maturing February 28, 2010 654,477
GRAY TELEVISION, INC. Ba2 B+
2,000,000 Term Loan, maturing December 31, 2010 2,022,750
LIN TELEVISION CORPORATION Ba2 BB
515,714 Term Loan, maturing December 31, 2007 521,470
MISSION BROADCASTING, INC. Ba3 B+
897,436 Term Loan, maturing December 31, 2010 906,410
</Table>
See Accompanying Notes to Financial Statements
32
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- --------------------------------------------------------------------------------------------------------------
RADIO AND TV BROADCASTING: (CONTINUED)
NEXSTAR BROADCASTING Ba3 B+
$ 352,564 Term Loan, maturing December 31, 2010 $ 356,090
PAXSON COMMUNICATIONS CORPORATION B1 B+
7,000,000 Floating Rate Note,
maturing January 15, 2010 6,965,000
SINCLAIR BROADCAST GROUP, INC. Ba2 BB
921,800 Term Loan, maturing December 31, 2009 932,664
1,843,600 Term Loan, maturing December 31, 2009 1,865,329
SPANISH BROADCASTING SYSTEMS B1 B+
1,750,000 Term Loan, maturing October 30, 2009 1,772,969
SUSQUEHANNA MEDIA COMPANY Ba1 BB-
2,456,250 Term Loan, maturing June 30, 2008 2,480,812
TELEVICENTRO OF PUERTO RICO, LLC Ba2 BB
464,286 Term Loan, maturing December 31, 2007 469,468
-------------
23,494,321
-------------
RETAIL: 2.0%
ADVANCE STORES COMPANY, INC. Ba3 BB
500,000 Term Loan, maturing November 30, 2006 505,469
2,008,940 Term Loan, maturing November 30, 2007 2,033,425
ALIMENTATION COUCHE-TARD, INC. Ba2 BB
1,000,000 Term Loan, maturing December 17, 2010 1,008,125
CH OPERATING, LLC B2 B+
554,446 Term Loan, maturing June 21, 2007 554,446
CSK AUTO, INC. Ba3 B+
1,500,000 Term Loan, maturing June 19, 2009 1,508,907
ORIENTAL TRADING COMPANY, INC.
1,974,684 Term Loan, maturing August 06, 2010 B1 B+ 1,987,025
1,000,000 Term Loan, maturing January 08, 2011 B2 B- 1,024,583
THE PANTRY, INC. B1 B+
843,222 Term Loan, maturing March 31, 2007 853,762
860,527 Term Loan, maturing March 31, 2007 871,284
PETCO ANIMAL SUPPLIES, INC. Ba3 BB-
727,597 Term Loan, maturing October 26, 2008 736,692
RITE AID CORPORATION Ba3 BB
2,000,000 Term Loan, maturing April 30, 2008 2,043,750
-------------
13,127,468
-------------
SATELLITE: 0.9%
ECHOSTAR DBS CORPORATION Ba3 BB-
5,000,000 Floating Rate Note,
maturing October 01, 2008 5,200,000
PANAMSAT CORPORATION Ba2 BB
538,462 Term Loan, maturing September 30, 2010 547,211
-------------
5,747,211
-------------
TELECOMMUNICATIONS: 3.0%
CINCINNATI BELL, INC. B1 B+
90,812 Revolver, maturing November 09, 2004 90,097
4,987,500 Term Loan, maturing June 30, 2008 5,058,572
</Table>
See Accompanying Notes to Financial Statements
33
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- --------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: (CONTINUED)
GCI HOLDINGS, INC. Ba3 BB+
$ 1,394,858 Term Loan, maturing October 31, 2007 $ 1,410,550
QWEST COMMUNICATIONS INTERNATIONAL, INC. B3 CCC+
10,000,000 Floating Rate Note,
maturing February 15, 2009 9,450,000
TIME WARNER TELECOM HOLDINGS B1 B
4,000,000 Floating Rate Note,
maturing February 15, 2011 3,970,000
-------------
19,979,219
-------------
TELECOMMUNICATIONS EQUIPMENT: 2.6%
AMERICAN TOWER, L.P. B1 B
3,546,843 Term Loan, maturing June 30, 2007 3,567,681
CROWN CASTLE OPERATING COMPANY B1 B-
1,299,578 Term Loan, maturing September 15, 2007 1,309,975
4,870,792 Term Loan, maturing September 30, 2010 4,966,854
SBA SENIOR FINANCE, INC. B2 CCC+
2,538,462 Term Loan, maturing October 31, 2008 2,562,788
SPECTRASITE COMMUNICATIONS, INC. B1 B+
1,792,366 Term Loan, maturing December 31, 2007 1,803,382
2,997,272 Term Loan, maturing December 31, 2007 3,036,075
-------------
17,246,755
-------------
TEXTILES AND LEATHER: 0.8%
(1) GALEY & LORD, INC. Caa2 NR
877,508 Term Loan, maturing April 02, 2005 377,328
622,492 Term Loan, maturing April 01, 2006 267,672
TARGUS GROUP, INC. NR NR
3,178,880 Term Loan, maturing August 31, 2006 3,147,092
WILLIAM CARTER COMPANY Ba3 BB
1,641,036 Term Loan, maturing September 08, 2008 1,658,131
-------------
5,450,223
-------------
TRANSPORTATION: 1.6%
(1) AMERICAN COMMERCIAL LINES, LLC Ba3 NR
880,000 Debtor In Possession Term Loan,
maturing July 31, 2004 877,800
BAKER TANKS, INC. B1 B+
1,000,000 Term Loan, maturing January 30, 2011 1,007,813
NEOPLAN USA CORPORATION NR NR
507,948 Term Loan, maturing June 30, 2006 507,947
PACER INTERNATIONAL, INC. B1 BB-
1,241,176 Term Loan, maturing June 10, 2010 1,254,752
RAILAMERICA, INC. Ba3 BB
226,265 Term Loan, maturing May 22, 2009 228,726
316,239 Term Loan, maturing May 22, 2009 319,678
1,396,721 Term Loan, maturing May 22, 2009 1,411,910
TEREX CORPORATION B1 BB-
2,853,156 Term Loan, maturing July 03, 2009 2,859,696
</Table>
See Accompanying Notes to Financial Statements
34
<Page>
<Table>
<Caption>
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
- --------------------------------------------------------------------------------------------------------------
TRANSPORTATION: (CONTINUED)
YELLOW ROADWAY CORPORATION Baa3 BBB
$ 1,090,909 Term Loan, maturing June 11, 2008 $ 1,099,773
909,091 Term Loan, maturing June 11, 2008 916,477
-------------
10,484,572
-------------
UTILITIES: 1.4%
CALPINE CONSTRUCTION FINANCE COMPANY, L.P. NR B+
995,000 Term Loan, maturing February 26, 2009 1,066,516
CALPINE CORPORATION B2 B
3,980,000 Term Loan, maturing July 16, 2007 4,039,700
CENTERPOINT ENERGY, INC. Ba1 BBB-
1,994,595 Term Loan, maturing October 07, 2006 2,045,291
NRG ENERGY, INC. B1 BB-
312,500 Term Loan, maturing June 23, 2010 321,924
558,125 Term Loan, maturing June 23, 2010 574,956
PIKE ELECTRIC, INC. Ba3 BB-
1,611,765 Term Loan, maturing April 18, 2010 1,626,623
-------------
9,675,010
-------------
TOTAL SENIOR LOANS
(COST $628,488,454) $ 638,242,547
-------------
OTHER CORPORATE DEBT: 0.2%
FINANCE: 0.2%
VALUE ASSET MANAGEMENT, INC. B3 B
1,558,824 Senior Subordinated Bridge Note,
maturing August 31, 2005 1,519,853
-------------
TOTAL OTHER CORPORATE DEBT
(COST $1,556,698) 1,519,853
-------------
EQUITIES AND OTHER ASSETS: 0.3%
<Caption>
SECURITY DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------
(@), (R) Decision One Corporation (92,638 Common Shares) --
(@), (R) Murray's Discount Auto Stores, Inc. (Escrow) 133,153
(@), (R) Neoplan USA Corporation (1,627 Common Shares) --
(@), (R) Neoplan USA Corporation (170 Preferred B Shares) --
(@), (R) Neoplan USA Corporation (102 Preferred C Shares) 40,207
(@), (R) Neoplan USA Corporation (331 Preferred D Shares) 330,600
(@), (R) New World Restaurant Group, Inc. (Warrants for 2,244
Common Shares, Expires June 15, 2006) 30,788
(@), (R) Safelite Glass Corporation (99,495 Common Shares) 1,250,652
</Table>
See Accompanying Notes to Financial Statements
35
<Page>
<Table>
<Caption>
SECURITY DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------
(@), (R) Safelite Realty (6,716 Common Shares) $ 36,938
(@), (R) Targus Group, Inc. (Warrants for 47,931 Common Shares) --
-------------
TOTAL FOR EQUITIES AND OTHER ASSETS
(COST $503,981) 1,822,338
-------------
TOTAL LONG-TERM INVESTMENTS
(COST $630,549,133) 641,584,738
-------------
SHORT-TERM INVESTMENTS: 1.6%
<Caption>
PRINCIPAL AMOUNT SECURITY DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------
$ 11,000,000 State Street Repurchase Agreement dated 02/27/04, 0.7500%
due 03/01/04, $11,000,688 due upon repurchase (Collateralized
by $11,145,000 FNMA, 1.500%, Market Value $11,223,472
due 10/01/04) 11,000,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $11,000,000) 11,000,000
-------------
TOTAL INVESTMENTS
(COST $641,549,133)** 97.6% $ 652,584,738
OTHER ASSETS AND LIABILITIES -- NET 2.4 16,142,151
----- -------------
NET ASSETS 100.0% $ 668,726,889
===== =============
</Table>
- ----------
* Senior loans, while exempt from registration under the Securites 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 $641,564,353 and net unrealized appreciation consists of
the following:
<Table>
Gross Unrealized Appreciation $ 12,826,788
Gross Unrealized Depreciation (1,806,403)
-------------
Net Unrealized Appreciation $ 11,020,385
=============
</Table>
See Accompanying Notes to Financial Statements
36
<Page>
ING Senior Income Fund
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:
MATTERS:
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.
2. Proposal 2 pertains to a Fund not included in this annual report.
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.
RESULTS:
<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>
37
<Page>
ING Senior Income Fund
TAX INFORMATION (Unaudited)
Dividends paid during the year ended February 29, 2004 were as follows:
<Table>
<Caption>
PER SHARE
FUND NAME TYPE AMOUNT
- --------- ---- ------
Class A NII $ 0.6441
Class B NII $ 0.5683
Class C NII $ 0.5683
Class Q NII $ 0.6441
Class A LTCG $ 0.0152
Class B LTCG $ 0.0152
Class C LTCG $ 0.0152
Class Q LTCG $ 0.0152
</Table>
- ----------
NII - Net investment income
LTCG - Long term capital gain
Of the ordinary distributions made during the fiscal year ended February 29,
2004, 0.20% qualifies for the dividends received deduction to corporate
shareholders.
For the fiscal year ended February 29, 2004, 0.20% of ordinary dividends paid by
the Fund are designated as qualifying dividend income subject to reduced income
tax rates for individuals.
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and gains under accounting principles
generally accepted in the United States of America (book) and Internal Revenue
Service (tax) purposes.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investments in the Fund. In January 2004,
shareholders, excluding corporate shareholders, received an IRS 1099-DIV
regarding the federal tax status of the dividends and distributions received by
them in calendar year 2003.
38
<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 ("Non-Interested
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) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
NON-INTERESTED TRUSTEES:
Paul S. Doherty(2) Trustee January President and Partner, 122 None
7337 E. Doubletree Ranch Rd. 2001 - present Doherty, Wallace, Pillsbury
Scottsdale, Arizona 85258 and Murphy, P.C., Attorneys
Born: 1934 (1996 - Present); and Trustee
of each of the funds managed
by Northstar Investment
Management Corporation (1993
- 1999).
J. Michael Earley(3) Trustee February President and Chief 122 None
7337 E. Doubletree Ranch Rd. 2002 - present Executive Officer, Bankers
Scottsdale, Arizona 85258 Trust Company, N.A. (1992 -
Born: 1945 Present).
R. Barbara Gitenstein(2) Trustee February President, College of New 122 None
7337 E. Doubletree Ranch Rd. 2002 - present Jersey (1999 - Present).
Scottsdale, Arizona 85258
Born: 1948
Walter H. May(2) Trustee January Retired. Formerly, Managing 122 Best Prep Charity
7337 E. Doubletree Ranch Rd. 2001 - 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 Private Investor (June 1997 - 122 Director, Hypercom,
7337 E. Doubletree Ranch Rd. 2001 - present Present). Formerly Director Inc. (January 1999
Scottsdale, Arizona 85258 and Chief Executive Officer, - Present); JDA
Born: 1945 Rainbow Multimedia Group, Software Group,
Inc. (January 1999 - Inc. (January
December 2001). 1999 - Present).
</Table>
39
<Page>
<Table>
<Caption>
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
David W.C. Putnam(3) Trustee January President and Director, F.L. 122 Anchor
7337 E. Doubletree Ranch Rd. 2001 - present Putnam Securities Company, International Bond
Scottsdale, Arizona 85258 Inc. and its affiliates; (December 2000 -
Born: 1939 President, Secretary and Present);
Trustee, The Principled Progressive Capital
Equity Market Fund. Formerly, Accumulation Trust
Trustee, Trust Realty Corp.; (August 1998 -
Anchor Investment Trust; Bow Present);
Ridge Mining Company and each Principled Equity
of the F.L. Putnam funds Market Fund
managed by Northstar (November 1996 -
Investment Foundation Present), Mercy
Management Corporation (1994 Endowment
- 1999). Foundation (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 Trustee February General Partner, Huntington 122 Morgan Chase Trust
7337 E. Doubletree Ranch Rd. 2001 - 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 Trustee February President, Springwell 122 Director, AmeriGas
7337 E. Doubletree Ranch Rd. 2002 - present Corporation (1989 - present). Propane, Inc.
Scottsdale, Arizona 85258 Formerly, Director, Tatham (1998 - present).
Born: 1945 Offshore, Inc. (1996 - 2000).
Richard A. Wedemeyer(2)(3) Trustee February Retired. Formerly Vice 122 Touchstone
7337 E. Doubletree Ranch Rd. 2001 - present President - Finance and Consulting Group
Scottsdale, Arizona 85258 Administration, Channel (1997 - present).
Born: 1936 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>
40
<Page>
<Table>
<Caption>
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
INTERESTED TRUSTEES:
Thomas J. McInerney(4) Trustee February Chief Executive Officer, ING 175 Director,
7337 E. Doubletree Ranch Rd. 2001 - present U.S. Financial Services Hemisphere, Inc.
Scottsdale, Arizona 85258 (September 2001 to present); (May 2003 -
Born: 1956 General Manager and Chief present). Director,
Executive Officer, ING U.S. Equitable Life
Worksite Financial Services Insurance Co.,
(December 2000 to present); Golden American Life
Member, ING Americas Insurance Co., Life
Executive Committee (2001 to Insurance Company of
present); President, Chief Georgia, Midwestern
Executive Officer and United Life
Director of Northern Life Insurance Co.,
Insurance Company (2001 to ReliaStar Life
present), ING Aeltus Holding Insurance Co.,
Company, Inc. (2000 to Security Life of
present), ING Retail Holding Denver, Security
Company (1998 to present). Connecticut Life
Formerly, ING Life Insurance Insurance Co.,
and Annuity Company (1997 to Southland Life
November 2002), ING Insurance Co., USG
Retirement Holdings, Inc. Annuity and Life
(1997 to March 2003); General Company, and United
Manager and Chief Executive Life and Annuity
Officer, ING Worksite Insurance Co. Inc
Division (December 2000 to (March 2001 -
October 2001), President, present); Member of
ING-SCI, Inc. (August 1997 to the Board, National
December 2000); President, Commission on
Aetna Financial Services Retirement Policy,
(August 1997 to December Competitiveness and
2000); and has held a variety Technology of
of line and corporate staff Connecticut,
positions since 1978. 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 Chairman, Hillcrest Capital 122 Director, Hormel
7337 E. Doubletree Ranch Rd. 2001 - present Partners (May 2002 - Foods Corporation
Scottsdale, Arizona 85258 Present); President, Turner (March 2000 -
Born: 1939 Investment Company present); Shopko
(January 2002 - Present). Stores, Inc. (August
Mr. Turner was formerly Vice 1999 - present); and
Chairman of ING Americas M.A. Mortenson
(2000 - 2002); Chairman and Company (March 2002
Chief 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 and Proxy Voting Committee (formerly the Valuation Committee)
member.
(3) Audit Committee member.
(4) Mr. McInerney is an "interested person," as defined by the 1940 Act,
because of an affiliation with ING Groep N.V., the parent corporation of
the Investment Manager, ING Investments, LLC and the Distributor, ING Funds
Distributor, LLC.
(5) Mr. Turner is an "interested person," as defined by the 1940 Act, because
of his affiliation with ING Groep N.V., the parent corporation of the
Investment Manager, ING Investments, LLC and the Distributor, ING Funds
Distributor, LLC.
41
<Page>
<Table>
<Caption>
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- -------------- -------------- ---------------
OFFICERS:
James M. Hennessy Chief Executive Officer and February 2001 - Present President and Chief Executive Officer,
7337 E. Doubletree Ranch Rd. Chief Operating Officer ING Investments, LLC(2) and certain of
Scottsdale, Arizona 85258 its affiliates (December 2001 -
Born: 1949 President January 2001 - Present Present). Formerly, Senior Executive
Vice President and Chief Operating
Officer, ING Investments, LLC(2) and
certain of its affiliates (June 2000 -
December 2000); Executive Vice
President, ING Investments, LLC(2) and
certain of its affiliates (April 1998
- June 2000); and Senior Vice
President, ING Investments, LLC(2) and
certain of its affiliates (April 1995
- April 1998).
Michael J. Roland Executive Vice President February 2002 - Present Executive Vice President, Chief
7337 E. Doubletree Ranch Rd. and Assistant Secretary Financial Officer and Treasurer, ING
Scottsdale, Arizona 85258 Investments, LLC(2) and certain of its
Born: 1958 Chief Financial Officer January 2001 - Present affiliates (December 2001 - Present).
Formerly, Senior Vice President, ING
Investments, LLC(2) and certain of its
affiliates (June 1998 - December
2001).
Stanley D. Vyner Executive Vice President August 2003 - Present Executive Vice President, ING
7337 E. Doubletree Ranch Rd. Investments, LLC(2) and certain of its
Scottsdale, Arizona 85258 affiliates (July 2000 - Present); and
Born: 1950 Chief Investment Officer of the
International Portfolios, ING
Investments, LLC(2) (July 1996 -
Present). Formerly, President and
Chief Executive Officer, ING
Investments, LLC(2) (August 1996 -
August 2000).
Robert S. Naka Senior Vice President and January 2001 - Present Senior Vice President and Assistant
7337 E. Doubletree Ranch Rd. Assistant Secretary Secretary, ING Investments, LLC(2) and
Scottsdale, Arizona 85258 certain of its affiliates (October 2001
Born: 1963 - Present). Formerly, Vice President
and Assistant Secretary, ING Funds
Services, LLC(3) (February 1997 -
August 1999).
Daniel A. Norman Senior Vice President and January 2001 - Present Senior Vice President and Co-Senior
7337 E. Doubletree Ranch Rd. Treasurer Portfolio Manager, ING Investments,
Scottsdale, Arizona 85258 LLC(2) and certain of its affiliates
Born: 1957 (November 1999 - Present). Formerly,
Senior Vice President and Portfolio
Manager, ING Investments, LLC(2) and
certain of its affiliates (April 1995
- November 1999).
Jeffrey A. Bakalar Senior Vice President January 2001 - Present Senior Vice President and Co-Senior
7337 E. Doubletree Ranch Rd. Portfolio Manager, ING Investments,
Scottsdale, Arizona 85258 LLC(2) (November 1999 - Present).
Born: 1959 Formerly, Vice President and Portfolio
Manager, ING Investments, LLC(2)
(February 1998 - November 1999).
Elliot Rosen Senior Vice President May 2002 - Present Senior Vice President, ING
7337 E. Doubletree Ranch Rd. Investments, LLC(2) (February 1999 -
Scottsdale, Arizona 85258 Present).
Born: 1953
William H. Rivoir III Senior Vice President and January 2001 - Present Vice President of ING Investment
7337 E. Doubletree Ranch Rd. Assistant Secretary Management Co. (January 2004 -
Scottsdale, Arizona 85258 Present). Formerly, Counsel, ING USFS
Born: 1951 Law Department (January 2003 -
December 2003); and Senior Vice
President, ING Investments, LLC(2) and
certain of its affiliates (June 1998 -
December 2002).
Curtis F. Lee Senior Vice President and February 2001 - Present Senior Vice President and Chief Credit
7337 E. Doubletree Ranch Rd. Chief Credit Officer Officer of Senior Loans, ING
Scottsdale, Arizona 85258 Investments, LLC(2) (August 1999 -
Born: 1955 Present).
</Table>
42
<Page>
<Table>
<Caption>
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- -------------- -------------- ---------------
Kimberly A. Anderson Senior Vice President November 2003 - Present Senior Vice President, ING
7337 E. Doubletree Ranch Rd. Investments, LLC(2) and certain of its
Scottsdale, Arizona 85258 affiliates (October 2003 - Present).
Born: 1964 Formerly, Vice President, ING
Investments, LLC(2) and certain of its
affiliates (October 2001 - October
2003); Secretary, ING Investments,
LLC(2) and certain of its affiliates
(October 2001 - August 2003);
Assistant Vice President, ING Funds
Services, LLC(3) (November 1999 -
January 2001); and has held various
other positions with ING Funds
Services, LLC(3) for more than the
last five years.
Robyn L. Ichilov Vice President January 2001 - Present Vice President, ING Funds Services,
7337 E. Doubletree Ranch Rd. LLC(3) (October 2001 - Present) and
Scottsdale, Arizona 85258 ING Investments, LLC(2) (August 1997 -
Born: 1967 Present).
J. David Greenwald Vice President August 2003 - Present Vice President of Mutual Fund
7337 E. Doubletree Ranch Rd. Compliance, ING Funds Services, LLC(3)
Scottsdale, Arizona 85258 (May 2003 - Present). Formerly,
Born: 1957 Assistant Treasurer and Director of
Mutual Fund Compliance and Operations,
American Skandia, a Prudential
Financial Company (October 1996 - May
2003).
Lauren D. Bensinger Vice President August 2003 - Present Vice President and Chief Compliance
7337 E. Doubletree Ranch Rd. Officer, ING Funds Distributor, LLC(4)
Scottsdale, Arizona 85258 (July 1995 - Present); Vice President
Born: 1954 (February 1996 - Present) and Chief
Compliance Officer (October 2001 -
Present), ING Investments, LLC(2).
Huey P. Falgout Secretary August 2003 - Present Chief Counsel, ING U.S. Financial
7337 E. Doubletree Ranch Rd. Services (November 2003 - Present).
Scottsdale, Arizona 85258 Formerly, Counsel, ING U.S. Financial
Born: 1963 Services (November 2002 - November
2003); Associate General Counsel, AIG
American General (January 1999 -
November 2002).
Todd Modic Vice President August 2003 - Present Vice President of Financial Reporting -
7337 E. Doubletree Ranch Rd. Fund Accounting of ING Fund Services,
Scottsdale, Arizona 85258 LLC(3) (September 2002 - Present).
Born: 1967 Formerly, Director of Financial
Reporting, ING Investments, LLC(2)
(March 2001 - September 2002);
Director of Financial Reporting,
Axient Communications, Inc. (May 2000
- January 2001); and Director of
Finance, Rural/Metro Corporation
(March 1995 - May 2000).
Theresa Kelety Assistant Secretary August 2003 - Present Counsel, ING U.S. Financial Services
7337 E. Doubletree Ranch Rd. (April 2003 - Present). Formerly, Senior
Scottsdale, Arizona 85258 Associate with Shearman & Sterling
Born: 1963 (February 2000 - April 2003); and
Associate with Sutherland Asbill &
Brennan (1996 - February 2000).
Susan P. Kinens Assistant Vice President February 2003 - Present Assistant Vice President and Assistant
7337 E. Doubletree Ranch Rd. and Assistant Secretary Secretary, ING Funds Services, LLC(3)
Scottsdale, Arizona 85258 (December 2002 - Present); and has
Born: 1976 held various other positions with ING
Funds Services, LLC(3) for over the
last five years.
</Table>
43
<Page>
<Table>
<Caption>
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- -------------- -------------- ---------------
Maria M. Anderson Assistant Vice President August 2001 - Present Assistant Vice President, ING Funds
7337 E. Doubletree Ranch Rd. Services, LLC(3) (October 2001 -
Scottsdale, Arizona 85258 Present). Formerly, Manager of Fund
Born: 1958 Accounting and Fund Compliance,
ING Investments, LLC(2) (September
1999 - November 2001).
</Table>
- ----------
(1) The officers hold office until the next annual meeting of the Trustees and
until their successors have been elected and qualified.
(2) ING Investments, LLC was previously named ING Pilgrim Investments, LLC. ING
Pilgrim Investments, LLC is the sucessor in interest to ING Pilgrim
Investments, Inc., which was previously known as Pilgrim Investments, Inc.
and before that was known as Pilgrim America Investments, Inc.
(3) ING Funds Services, LLC was previously named ING Pilgrim Group, LLC. ING
Pilgrim Group, LLC is the sucessor in interest to ING Pilgrim Group, Inc.,
which was previously known as Pilgrim Group, Inc. and before that was known
as Pilgrim America Group, Inc.
(4) ING Funds Distributor, LLC is the sucessor in interest to ING Funds
Distributor, Inc., which was previously known as ING Pilgrim Securities,
Inc., and before that was known as Pilgrim Securities, Inc., and before
that was known as Pilgrim America Securities, Inc.
44
<Page>
INVESTMENT MANAGER
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
SUB-ADVISER
Aeltus Investment Management, Inc.
10 State House Square
Hartford, Connecticut 06103-3602
ADMINISTRATOR
ING Funds 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 I Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, California 90071-1568
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 callling ING Funds Distributor Customer
Service Desk at 1-800-992-0180. Please read the prospectus carefully before you
invest or send money. The Fund's proxy voting record will be available without
charge on or about August 31, 2004 on the Fund's website at www.ingfunds.com and
on the SEC's website at www.sec.gov.
[ING FUNDS LOGO] PRAR-SIF (0204-042904)
<Page>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Registrant had adopted a
code of ethics, as defined in Item 2 of Form N-CSR, that applies to the
Registrant's principal executive officer and principal financial officer. There
were no amendments to the Code during the period covered by the report. The
Registrant did not grant any waivers, including implicit waivers, from any
provisions of the Code during the period covered by this report. The code of
ethics is filed herewith pursuant to Item 10(a)(1), Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that David Putnam is an audit committee
financial expert, as defined in Item 3 of Form N-CSR. Mr. Putnam is
"independent" for purposes of Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES: The aggregate fees billed for each of the last two fiscal
years for professional services rendered by KPMG LLP ("KPMG"), the
principal accountant for the audit of the registrant's annual financial
statements, for services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for
those fiscal years were $47,793 for year ended February 29, 2004 and
$28,400 for year ended February 28, 2003.
(b) AUDIT-RELATED FEES: The aggregate fees billed in each of the last two
fiscal years for assurance and related services by KPMG that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item.
None
(c) TAX FEES: The aggregate fees billed in each of the last two fiscal years
for professional services rendered by KPMG for tax compliance, tax
advice, and tax planning were $4,000 in the year ended February 29, 2004
and $6,725 in the year ended February 28, 2003. Such services included
review of excise distribution calculations (if applicable), preparation
of the Funds' federal, state and excise tax returns, tax services
related to mergers and routine consulting.
(d) ALL OTHER FEES: The aggregate fees billed in each of the last two fiscal
years for products and services provided by KPMG, other than the
services reported in paragraphs (a) through (c) of this Item.
None
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
MODEL AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY
I. STATEMENT OF PRINCIPLES
<Page>
Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee of the
Board of Directors or Trustees (the "Committee") of the ING Funds (each a
"Fund," collectively, the "Funds") set out under Paragraph I on EXHIBIT A to
this Audit and Non-Audit Services Pre-Approval Policy ("Policy") is responsible
for the oversight of the work of the Funds' independent auditors. As part of its
responsibilities, the Committee must pre-approve the audit and non-audit
services performed by the auditors in order to assure that the provision of
these services does not impair the auditors' independence from the Funds. The
Committee has adopted, and the Board has ratified, this Policy, which sets out
the procedures and conditions under which the services of the independent
auditors may be pre-approved.
Under Securities and Exchange Commission ("SEC") rules promulgated in accordance
with the Act, the Funds' may establish two different approaches to pre-approving
audit and non-audit services. The Committee may approve services without
consideration of specific case-by-case services ("general pre-approval") or it
may pre-approve specific services ("specific pre-approval"). The Committee
believes that the combination of these approaches contemplated in this Policy
results in an effective and efficient method for pre-approving audit and
non-audit services to be performed by the Funds' independent auditors. Under
this Policy, services that are not of a type that may receive general
pre-approval require specific pre-approval by the Committee. Any proposed
services that exceed pre-approved cost levels or budgeted amounts will also
require the Committee's specific pre-approval.
For both types of approval, the Committee considers whether the subject services
are consistent with the SEC's rules on auditor independence and that such
services are compatible with maintaining the auditors independence. The
Committee also considers whether a particular audit firm is in the best position
to provide effective and efficient services to the Funds. Reasons that the
auditors are in the best position include the auditors' familiarity with the
Funds' business, personnel, culture, accounting systems, risk profile, and other
factors, and whether the services will enhance the Funds' ability to manage and
control risk or improve audit quality. Such factors will be considered as a
whole, with no one factor being determinative.
The appendices attached to this Policy describe the audit, audit-related,
tax-related, and other services that have the Committee's general pre-approval.
For any service that has been approved through general pre-approval, the general
pre-approval will remain in place for a period 12 months from the date of
pre-approval, unless the Committee determines that a different period is
appropriate. The Committee will annually review and pre-approve the services
that may be provided by the independent auditors without specific pre-approval.
The Committee will revise the list of services subject to general pre-approval
as appropriate. This Policy does not serve as a delegation to Fund management of
the Committee's duty to pre-approve services performed by the Funds' independent
auditors.
II. AUDIT SERVICES
The annual audit services engagement terms and fees are subject to the
Committee's specific pre-approval. Audit services are those services that are
normally provided by auditors in connection with statutory and regulatory
filings or engagements or those that generally only independent auditors can
reasonably provide. They include the Funds' annual financial statement audit and
procedures that the independent auditors must perform in order to form an
opinion on the Funds' financial statements (E.G., information systems and
procedural reviews and testing). The Committee will monitor the audit services
engagement and approve any changes in terms, conditions or fees deemed by the
Committee to be necessary or appropriate.
The Committee may grant general pre-approval to other audit services, such as
statutory audits and services associated with SEC registration statements,
periodic reports and other documents filed with the SEC or issued in connection
with securities offerings.
The Committee has pre-approved the audit services listed on Appendix A. The
Committee must specifically approve all audit services not listed on Appendix A.
III. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or the review of the Funds' financial
statements or are traditionally performed by the independent auditors. The
Committee believes that the provision of audit-related services will not impair
the independent auditors' independence,
<Page>
and therefore may grant pre-approval to audit-related services. Audit-related
services include accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "audit services;" assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
relating to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Form N-SAR or Form N-CSR.
The Committee has pre-approved the audit-related services listed on Appendix B.
The Committee must specifically approve all audit-related services not listed on
Appendix B.
IV. TAX SERVICES
The Committee believes the independent auditors can provide tax services to the
Funds, including tax compliance, tax planning, and tax advice, without
compromising the auditors' independence. Therefore, the Committee may grant
general pre-approval with respect to tax services historically provided by the
Funds' independent auditors that do not, in the Committee's view, impair auditor
independence and that are consistent with the SEC's rules on auditor
independence.
The Committee will not grant pre-approval if the independent auditors initially
recommends a transaction the sole business purpose of which is tax avoidance and
the tax treatment of which may not be supported in the Internal Revenue Code and
related regulations. The Committee may consult outside counsel to determine that
tax planning and reporting positions are consistent with this Policy.
The Committee has pre-approved the tax-related services listed on Appendix C.
The Committee must specifically approve all tax-related services not listed on
Appendix C.
V. OTHER SERVICES
The Committee believes it may grant approval of non-audit services that are
permissible services for independent auditors to a Fund. The Committee has
determined to grant general pre-approval to other services that it believes are
routine and recurring, do not impair auditor independence, and are consistent
with SEC rules on auditor independence.
The Committee has pre-approved the non-audit services listed on Appendix D. The
Committee must specifically approve all non-audit services not listed on
Appendix D.
A list of the SEC's prohibited non-audit services is attached to this Policy as
Appendix E. The SEC's rules and relevant guidance should be consulted to
determine the precise definitions of these impermissible services and the
applicability of exceptions to certain of the SEC's prohibitions.
VI. PRE-APPROVAL OF FEE LEVELS AND BUDGETED AMOUNTS
The Committee will annually establish pre-approval fee levels or budgeted
amounts for audit, audit-related, tax and non-audit services to be provided to
the Funds by the independent auditors. Any proposed services exceeding these
levels or amounts require the Committee's specific pre-approval. The Committee
considers fees for audit and non-audit services when deciding whether to
pre-approve services. The Committee may determine, for a pre-approval period of
12 months, the appropriate ratio between the total amount of fees for the Fund's
audit, audit-related, and tax services (including fees for services provided to
Fund affiliates that are subject to pre-approval), and the total amount of fees
for certain permissible non-audit services for the Fund classified as other
services (including any such services provided to Fund affiliates that are
subject to pre-approval).
<Page>
VII. PROCEDURES
Requests or applications for services to be provided by the independent auditors
will be submitted to management. If management determines that the services do
not fall within those services generally pre-approved by the Committee and set
out in the appendices to these procedures, management will submit the services
to the Committee or its delagee. Any such submission will include a detailed
description of the services to be rendered. Notwithstanding this paragraph, the
Committee will, on an annual basis, receive from the independent auditors a list
of services provided by the auditors during the prior 12-month period.
VIII. DELEGATION
The Committee may delegate pre-approval authority to one or more of the
Committee's members. Any member or members to whom such pre-approval authority
is delegated must report any pre-approval decisions, including any pre-approved
services, to the Committee at its next scheduled meeting. The Committee will
identify any member to whom pre-approval authority is delegated in writing. The
member will retain such authority for a period of 12 months from the date of
pre-approval unless the Committee determines that a different period is
appropriate. The period of delegated authority may be terminated by the
Committee or at the option of the member.
IX. ADDITIONAL REQUIREMENTS
The Committee will take any measures the Committee deems necessary or
appropriate to oversee the work of the independent auditors and to assure the
auditors' independence from the Funds. This may include reviewing a formal
written statement from the independent auditors delineating all relationships
between the auditors and the Funds, consistent with Independence Standards Board
No. 1, and discussing with the auditors their methods and procedures for
ensuring independence.
<Page>
Appendix A
Pre-Approved Audit Services for the Pre-Approval Period June 1, 2003 through May
31, 2004
Service
<Table>
<Caption>
THE FUND(S) FEE RANGE
----------- -----------------
Statutory audits or financial audits /X/ As presented to
(including tax services associated with Audit
non-audit services) Committee
Services associated with SEC /X/ Not to exceed
registration statements, periodic $8,500 per
reports and other documents filed with filing
the SEC or other documents issued in
connection with securities offerings
(e.g., consents), and assistance in
responding to SEC comment letters.
Consultations by Fund management with /X/ Not to exceed
respect to accounting or disclosure $8,000 during
treatment of transactions or events the Pre-
and/or the actual or potential effect Approval
of final or proposed rules, standards Period
or interpretations by the SEC,
Financial Accounting Standards Board,
or other regulatory or standard setting
bodies.
</Table>
<Page>
Appendix B
Pre-Approved Audit-Related Services for the Pre-Approval Period June 1, 2003
through May 31, 2004
Service
<Table>
<Caption>
THE FUND(S) FUND AFFILIATES FEE RANGE
--------------- ----------------- ------------------------
Services related to Fund mergers /X/ /X/ Not to exceed
$10,000 per
merger
Consultations by Fund management with /X/ Not to exceed
respect to accounting or disclosure $5,000 per
treatment of transactions or events and/or occurrence during
the actual or potential effect of final or the Pre-Approval
proposed rules, standards or interpretations Period
by the SEC, Financial Accounting Standards
Board, or other regulatory or standard
setting bodies. [NOTE: Under SEC rules
some consultations may be "audit" services
and others may be "audit-related" services.]
Review of the Funds' semi-annual financial /X/ Not to exceed
statements $5,000 for each set
of financial
statements
Reports to regulatory or government agencies /X/ Up to $5,000 per
related to the annual engagement occurrence during
the Pre-Approval
Period
Regulatory compliance assistance /X/ /X/ Not to exceed
$5,000 per quarter
Training courses /X/ Not to exceed
$2,000 per course
For Prime Rate Trust, agreed upon procedures /X/ Not to exceed
for quarterly reports to rating agencies $9,000 per quarter
</Table>
<Page>
Appendix C
Pre-Approved Tax Services for the Pre-Approval Period June 1, 2003 through
May 31, 2004
<Table>
<Caption>
FUND
SERVICE THE FUND(S) AFFILIATES FEE RANGE
- ------- --------------- ----------------- ------------------------
Preparation of federal and state income tax /X/ Not to exceed
returns and federal excise tax returns for $6,000 per Fund
the Funds including assistance and review during the Pre-
with excise tax distributions. Approval Period
Review of IRC Sections 851(b) and 817(h) /X/ Not to exceed
diversification testing on a real-time basis $2,000 per Fund
during the Pre-
Approval Period
Review of year-end reporting for 1099's /X/ Not to exceed
$800 per Fund
during the Pre-
Approval Period
Tax assistance and advice regarding /X/ /X/ Not to exceed
statutory, regulatory or administrative $5,000 for the
developments Funds or for the
Funds'
investment
adviser during
the Pre-
Approval Period
International tax services (e.g., Taiwan and /X/ Not to exceed
India) $5,000 per Fund
during the Pre-
Approval Period
Tax training courses /X/ Not to exceed
$2,000 per
course during
the Pre-
Approval Period
</Table>
<Page>
<Table>
<Caption>
FUND
SERVICE THE FUND(S) AFFILIATES FEE RANGE
- ------- --------------- ----------------- ------------------------
Tax services associated with Fund mergers /X/ Not to exceed
$8,000 per
merger during
the Pre-
Approval Period
Tax services related to the preparation of /X/ Not to exceed
annual PFIC statements and annual Form 5471 $18,000 during
(Controlled Foreign Corporation) for the Pre-
structured finance vehicles Approval Period
Tax services related to CLOs and CBOs /X/ Not to exceed
$15,000 per
quarter
</Table>
<Page>
Appendix D
Pre-Approved Other Services for the Pre-Approval Period June 1, 2003 through
May 31, 2004
<Table>
<Caption>
FUND
SERVICE THE FUND(S) AFFILIATES FEE RANGE
- ------- --------------- ----------------- ------------------------
Agreed-upon procedures for Class B share /X/ Not to exceed
12b-1 programs $25,000
during the Pre-
Approval
Period
AIMR assistance, and/or verification of /X/ Not to exceed
composites $25,000
during the Pre-
Approval
Period
Security counts performed pursuant to Rule /X/ Not to exceed
17f-2 of the 1940 Act (I.E., counts for $5,000 per
Funds holding securities with affiliated Fund during
sub-custodians) the Pre-
Approval
Period
</Table>
<Page>
Appendix E
Prohibited Non-Audit Services
Dated: 200X
- Bookkeeping or other services related to the accounting records or
financial statements of the Funds
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
- Management functions
- Human resources
- Broker-dealer, investment adviser, or investment banking services
- Legal services
- Expert services unrelated to the audit
- Any other service that the Public Company Accounting Oversight
Board determines, by regulation, is impermissible
(e) (2) PERCENTAGE OF SERVICES REFERRED TO IN 4(b) - (4)(d) THAT WERE APPROVED
BY THE AUDIT COMMITTEE
100% of the services were approved by the audit committee.
(f) PERCENTAGE OF HOURS EXPENDED ATTRIBUTABLE TO WORK PERFORMED BY OTHER
THAN FULL TIME EMPLOYEES OF KPMG IF GREATER THAN 50%.
Not applicable.
(g) NON-AUDIT FEES: The non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to the
registrant's investment adviser, and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant for each of the last two fiscal years of the
registrant were $340,873 for year ended February 29, 2004 and $370,768
for fiscal year ended February 28, 2003.
(h) PRINCIPAL ACCOUNTANTS INDEPENDENCE: The Registrant's Audit committee
has considered whether the provision of non-audit services that were
rendered to the registrant's
<Page>
investment adviser and any entity controlling, controlled by, or under
common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to Rule
2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining KPMG's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
ING FUNDS
PROXY VOTING PROCEDURES AND GUIDELINES
Effective as of July 10, 2003
As amended August 21, 2003 and November 11, 2003
I. INTRODUCTION
The following are the Proxy Voting Procedures and Guidelines (the "Procedures
and Guidelines") of the ING Funds set forth on Exhibit 1 attached hereto and
each portfolio or series thereof (each a "Fund" and collectively, the "Funds").
The purpose of these Procedures and Guidelines is to set forth the process by
which each Fund will vote proxies related to the assets in its investment
portfolio (the "portfolio securities"). The Procedures and Guidelines have been
approved by each of the Funds' Board of Trustees/Directors(1) (each a "Board"
and collectively, the "Boards"), including a majority of the independent
Trustees/Directors(2) of the Board. These Procedures and Guidelines may be
amended only by the Board. The Board shall review these Procedures and
Guidelines at its discretion, and make any revisions thereto as deemed
appropriate by the Board.
II. VALUATION AND PROXY VOTING COMMITTEE
The Boards hereby delegate to the Valuation and Proxy Voting Committee of each
Board (each a "Committee" and collectively, the "Committees") the authority and
responsibility to oversee the implementation of these Procedures and Guidelines,
and where applicable, to make determinations
- ----------
(1) Reference in these Procedures to one or more Funds shall, as applicable,
mean those Funds that are under the jurisdiction of the particular Board or
Valuation and Proxy Voting Committee at issue. No provision in these Procedures
is intended to impose any duty upon the particular Board or Valuation and Proxy
Voting Committee with respect to any other Fund.
(2) The independent Trustees/Directors are those Board members who are not
"interested persons" within the meaning of Section 2(a)(19) the Investment
Company Act of 1940.
<Page>
on behalf of the Board with respect to the voting of proxies on behalf of each
Fund. Furthermore, the Boards hereby delegate to each Committee the authority to
review and approve material changes to proxy voting procedures of any Fund's
investment adviser (the "Adviser"). The Proxy Voting Procedures of the Adviser
are attached hereto as Exhibit 2. Any determination regarding the voting of
proxies of each Fund that is made by a Committee, or any member thereof, as
permitted herein, shall be deemed to be a good faith determination regarding the
voting of proxies by the full Board. Each Committee may rely on the Adviser
through the Agent, Proxy Coordinator and/or Proxy Group (as such terms are
defined below and in the Adviser's proxy voting procedures) to deal in the first
instance with the application of these Procedures and Guidelines. Each Committee
shall conduct itself in accordance with its charter.
III. DELEGATION OF VOTING RESPONSIBILITY
The Board hereby delegates to the Adviser to each Fund the authority and
responsibility to vote all proxies with respect to all portfolio securities of
each Fund in accordance with then current proxy voting procedures and guidelines
that have been approved by the Board. The Board may revoke such delegation with
respect to any proxy or proposal, and assume the responsibility of voting any
Fund proxy or proxies as it deems appropriate. Non-material amendments to the
Procedures and Guidelines may be approved for immediate implementation by the
President or Chief Financial Officer of a Fund, subject to ratification at the
next regularly scheduled meeting of the Valuation and Proxy Voting Committee.
When a Fund participates in the lending of its securities and the securities are
on loan at record date, proxies related to such securities will not be forwarded
to the Adviser by the Fund's custodian and therefore will not be voted.
When a Fund is a feeder in a master/feeder structure, proxies for the portfolio
securities of the master fund will be voted pursuant to the master fund's proxy
voting policies and procedures.
IV. APPROVAL AND REVIEW OF PROCEDURES
Each Fund's Adviser has adopted proxy voting procedures in connection with the
voting of portfolio securities for the Funds as attached hereto in Exhibit 2.
The Board hereby approves such procedures. All material changes to such
procedures must be approved by the Board or the Valuation and Proxy Voting
Committee prior to implementation; however, the President or Chief Financial
Officer of a Fund may make such non-material changes as they deem appropriate,
subject to ratification by the Board or the Valuation and Proxy Voting Committee
at its next regularly scheduled meeting.
V. VOTING PROCEDURES AND GUIDELINES
The Guidelines which are set forth in Exhibit 3 hereto specify the manner in
which the Funds generally will vote with respect to the proposals discussed
therein.
ROUTINE MATTERS
The Agent shall be instructed to submit a vote in accordance with the
Guidelines where such Guidelines provide a clear "For", "Against" or
"Abstain" on a proposal. However, the Agent shall be directed to refer
proxy proposals to the Proxy Coordinator for instructions as
<Page>
if it were a matter requiring case-by-case consideration under
circumstances where the application of the Guidelines is unclear, they
appear to involve unusual or controversial issues, or an Investment
Professional recommends a vote contrary to the Guidelines.
B. Matters Requiring Case-by-Case Consideration
The Agent shall be directed to refer proxy proposals accompanied by its
written analysis and voting recommendation to the Proxy Coordinator
where the Guidelines have noted a "case-by-case" consideration.
Upon receipt of a referral from the Agent, the Proxy Coordinator may
solicit additional research from the Agent, Investment Professional(s),
as well as from any other source or service.
The Proxy Coordinator will forward the Agent's analysis and
recommendation and/or any research obtained from the Investment
Professional(s), the Agent or any other source to the Proxy Group. The
Proxy Group may consult with the Agent and/or Investment
Professional(s), as it deems necessary.
1. Votes in Accordance with Agent Recommendation
In the event the Proxy Group recommends a vote in accordance
with the Agent's recommendation, the Proxy Group will instruct
the Agent, through the Proxy Coordinator, to vote in accordance
with the Agent's recommendation.
2. Non-Votes
The Proxy Group may recommend that a Fund refrain from voting
under the following circumstances: (1) if the economic effect on
shareholders' interests or the value of the portfolio holding is
indeterminable or insignificant or (2) if the cost of voting a
proxy outweighs the benefits, E.G., certain international
proxies. In such instances, the Proxy Group may instruct the
Agent, through the Proxy Coordinator, not to vote such proxy.
3. Votes Contrary to Procedures and Guidelines, or Agent
Recommendation, where applicable, or Where No
Recommendation is Provided by Agent.
If the Proxy Group recommends that a Fund vote contrary to the
Procedures and Guidelines, or the recommendation of the Agent,
where applicable, or if the Agent has made no recommendation and
the Procedures and Guidelines are silent, the Proxy Coordinator
will then request that each member of the Proxy Group and each
Investment Professional participating in the voting process
provide a Conflicts Report (as such term is defined for purposes
of the Adviser's proxy voting procedures).
If Counsel determines that a conflict of interest appears to
exist with respect to any member of the Proxy Group or the
relevant Investment Professional(s), the Proxy Coordinator will
then call a meeting of the Valuation and Proxy Voting Committee
and forward to such committee all information relevant to their
review, including the
<Page>
following materials or a summary thereof: the applicable
Procedures and Guidelines, the recommendation of the Agent where
applicable, the recommendation of the Investment
Professional(s), where applicable, any resources used by the
Proxy Group in arriving at its recommendation, the Conflicts
Report and any other written materials establishing whether a
conflict of interest exists, and findings of Counsel (as such
term is defined for purposes of the Adviser's proxy voting
procedures).
If Counsel determines that there does not appear to be a
conflict of interest with respect to any member of the Proxy
Group or the relevant Investment Professional(s), the Proxy
Coordinator will instruct the Agent to vote the proxy as
recommended by the Proxy Group.
4. Referrals to a Fund's Valuation and Proxy Voting
Committee
A Fund's Valuation and Proxy Voting Committee may consider all
recommendations, analysis, research and Conflicts Reports
provided to it by the Agent, Proxy Group and/or Investment
Professional(s), and any other written materials used to
establish whether a conflict of interest exists, in determining
how to vote the proxies referred to the Committee. The Committee
will instruct the Agent through the Proxy Coordinator how to
vote such referred proposals.
The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to a Fund's Valuation and
Proxy Voting Committee, all applicable recommendations,
analysis, research and Conflicts Reports.
VI. CONFLICTS OF INTEREST
In all cases in which a vote has not been clearly determined in advance by the
Procedures and Guidelines or for which the Proxy Group recommends a vote
contrary to the Procedures and Guidelines, or contrary to the recommendation of
the Agent, or where the Procedures and Guidelines are silent and the Agent has
made no recommendation, and Counsel has determined that a conflict of interest
appears to exist with respect to any member of the Proxy Group or any Investment
Professional participating in the voting process, the proposal shall be referred
to the Fund's Valuation and Proxy Voting Committee for determination so that the
Adviser shall have no opportunity to vote a Fund's proxy in a situation in which
it may be deemed to have a conflict of interest.
VII. REPORTING AND RECORD RETENTION
Beginning in August 2004, on an annual basis, each Fund will post its proxy
voting record or a link thereto for the prior one-year period ending on June
30th on the ING Funds website. The proxy voting record posted for any Fund that
is a feeder in a master/feeder structure will be that of the master fund. The
proxy voting record for each Fund will also be available in the EDGAR database
on the SEC's website.
<Page>
EXHIBIT 1
TO THE
ING FUNDS
PROXY VOTING PROCEDURES
ING EQUITY TRUST
ING FUNDS TRUST
ING INVESTMENT FUNDS, INC.
ING INVESTORS TRUST
ING MAYFLOWER TRUST
ING MUTUAL FUNDS
ING PRIME RATE TRUST
ING SENIOR INCOME FUND
ING VARIABLE INSURANCE TRUST
ING VARIABLE PRODUCTS TRUST
ING VP EMERGING MARKETS FUND, INC.
ING VP NATURAL RESOURCES TRUST
USLICO SERIES FUND
Effective as of July 10, 2003
<Page>
EXHIBIT 2
TO THE
ING FUNDS
PROXY VOTING PROCEDURES
ING INVESTMENTS, LLC,
DIRECTED SERVICES, INC.
AND
ING LIFE INSURANCE AND ANNUITY COMPANY
PROXY VOTING PROCEDURES
Effective as of July 10, 2003, as amended
I. INTRODUCTION
ING Investments, LLC, Directed Services, Inc. and ING Life Insurance and
Annuity Company (each an "Adviser" and collectively, the "Advisers") are
the investment advisers for the registered investment companies and each
series or portfolio thereof (each a "Fund" and collectively, the
"Funds") comprising the ING family of funds. As such, the Advisers have
been delegated the authority to vote proxies with respect to securities
for the Funds over which they have day-to-day portfolio management
responsibility.
The Advisers will abide by the proxy voting guidelines adopted by a
Fund's respective Board of Directors or Trustees (each a "Board" and
collectively, the "Boards") with regard to the voting of proxies unless
otherwise provided in the proxy voting procedures adopted by a Fund's
Board.
In voting proxies, the Advisers are guided by general fiduciary principles. Each
must act prudently, solely in the interest of the beneficial owners of the Funds
it manages. The Advisers will not subordinate the interest of beneficial owners
to unrelated objectives. Each Adviser will vote proxies in the manner that it
believes will do the most to maximize shareholder value.
The following are the Proxy Voting Procedures of ING Investments, LLC, Directed
Services, Inc. and ING Life Insurance and Annuity Company with respect to the
voting of proxies on behalf of their client Funds as approved by the respective
Board of each Fund.
Unless otherwise noted, proxies will be voted in all instances.
II. ROLES AND RESPONSIBILITIES
A. Proxy Coordinator
The Proxy Coordinator identified in Appendix 1 will assist in the
coordination of the voting of each Fund's proxies in accordance with the
ING Funds Proxy Voting Procedures and Guidelines ("Procedures and
Guidelines"). The Proxy Coordinator is authorized to direct
<Page>
the Agent to vote a Fund's proxy in accordance with the Procedures and
Guidelines unless the Proxy Coordinator receives a recommendation from
an Investment Professional (as described below) to vote contrary to the
Procedures and Guidelines. In such event, the Proxy Coordinator will
call a meeting of the Proxy Group.
B. Agent
An independent proxy voting service (the "Agent"), as approved by the
Board of each Fund, shall be engaged to assist in the voting of Fund
proxies through the provision of vote analysis, implementation,
recordkeeping and disclosure services. The Agent is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the portfolio
securities are processed in a timely fashion. To the extent applicable,
the Agent is required to vote and/or refer all proxies in accordance
with these Procedures. The Agent will retain a record of all proxy votes
handled by the Agent. Such record must reflect all the information
required to be disclosed in a Fund's Form N-PX pursuant to Rule 30b1-4
under the Investment Company Act. In addition, the Agent is responsible
for maintaining copies of all proxy statements received by issuers and
to promptly provide such materials to the Adviser upon request.
The Agent shall be instructed to vote all proxies in accordance with the
ING Funds' Guidelines, except as otherwise instructed through the Proxy
Coordinator by the Adviser's Proxy Group, or a Fund's Valuation and
Proxy Voting Committee.
The Agent shall be instructed to obtain all proxies from the Funds'
custodians and to review each proxy proposal against the Guidelines. The
Agent also shall be requested to call the Proxy Coordinator's attention
to specific proxy proposals that although governed by the Guidelines
appear to involve unusual or controversial issues.
C. Proxy Group
The Adviser shall establish a Proxy Group (the "Proxy Group") which
shall assist in the review of the Agent's recommendations when a proxy
voting issue is referred to the Group through the Proxy Coordinator. The
members of the Proxy Group, which may include employees of the Advisers'
affiliates, are identified in Appendix 1, as may be amended from time at
the Advisers' discretion.
A minimum of four (4) members of the Proxy Group (or three (3) if one
member of the quorum is either the Fund's Chief Investment Risk Officer
or Chief Financial Officer) shall constitute a quorum for purposes of
taking action at any meeting of the Group. The vote of a simple majority
of the members present and voting shall determine any matter submitted
to a vote. The Proxy Group may meet in person or by telephone. The Proxy
Group also may take action via electronic mail in lieu of a meeting,
provided that each Group member has received a copy of any relevant
electronic mail transmissions circulated by each other participating
Group member prior to voting and provided that the Proxy Coordinator
follows the directions of a majority of a quorum (as defined above)
responding via electronic mail. For all votes taken in person or by
telephone or teleconference, the vote shall be taken outside the
presence of any person other than the members of the Proxy Group.
<Page>
A meeting of the Proxy Group will be held whenever the Proxy Coordinator
receives a recommendation from an Investment Professional to vote a
Fund's proxy contrary to the Procedures and Guidelines, or the
recommendation of the Agent, where applicable, or if the Agent has made
no recommendation with respect to a vote on a proposal.
For each proposal referred to the Proxy Group, it will review (1) the
Procedures and Guidelines, (2) the recommendation of the Agent, if any,
(3) the recommendation of the Investment Professional(s) and (4) any
other resources that the Proxy Group deems appropriate to aid in a
determination of a recommendation.
If the Proxy Group recommends that a Fund vote in accordance with the
Procedures and Guidelines, or the recommendation of the Agent, where
applicable, it shall instruct the Proxy Coordinator to so advise the
Agent.
If the Proxy Group recommends that a Fund vote contrary to the
Procedures and Guidelines, or the recommendation of the Agent, where
applicable, it shall follow the procedures for such voting as
established by a Fund's Board.
D. Investment Professionals
The Funds' Advisers, sub-advisers and/or portfolio managers (referred to
herein as "Investment Professionals") may be asked to submit a
recommendation to the Proxy Group regarding the voting of proxies
related to the portfolio securities over which they have day-to-day
portfolio management responsibility. The Investment Professionals may
accompany their recommendation with any other research materials that
they deem appropriate.
III. VOTING PROCEDURES
A. In all cases, the Adviser shall follow the voting procedures as
set forth in the Procedures and Guidelines of the Fund on whose
behalf the Adviser is exercising delegated authority to vote.
ROUTINE MATTERS
The Agent shall be instructed to submit a vote in accordance with the
Guidelines where such Guidelines provide a clear "For", "Against" or
"Abstain" on a proposal. However, the Agent shall be directed to refer
proxy proposals to the Proxy Coordinator for instructions as if it were
a matter requiring case-by-case consideration under circumstances where
the application of the Guidelines is unclear.
C. Matters Requiring Case-by-Case Consideration
The Agent shall be directed to refer proxy proposals accompanied by its
written analysis and voting recommendation to the Proxy Coordinator
where the Guidelines have noted a "case-by-case" consideration.
Upon receipt of a referral from the Agent, the Proxy Coordinator may
solicit additional research from the Agent, Investment Professional(s),
as well as from any other source or service.
<Page>
The Proxy Coordinator will forward the Agent's analysis and
recommendation and/or any research obtained from the Investment
Professional(s), the Agent or any other source to the Proxy Group. The
Proxy Group may consult with the Agent and/or Investment
Professional(s), as it deems necessary.
1. Votes in Accordance with Agent Recommendation
In the event the Proxy Group recommends a vote in accordance
with the Agent's recommendation, the Proxy Group will instruct
the Agent, through the Proxy Coordinator, to vote in accordance
with the Agent's recommendation.
2. Non-Votes
The Proxy Group may recommend that a Fund refrain from voting
under the following circumstances: (1) if the economic effect on
shareholders' interests or the value of the portfolio holding is
indeterminable or insignificant or (2) if the cost of voting a
proxy outweighs the benefits, E.G., certain international
proxies. In such instances, the Proxy Group may instruct the
Agent, through the Proxy Coordinator, not to vote such proxy.
3. Votes Contrary to Procedures and Guidelines, or Agent
Recommendation, where applicable, or Where No
Recommendation is Provided by Agent.
If the Proxy Group recommends that a Fund vote contrary to the
Procedures and Guidelines, or the recommendation of the Agent,
where applicable, or if the Agent has made no recommendation and
the Procedures and Guidelines are silent, the Proxy Coordinator
will then implement the procedures for handling such votes as
adopted by the Fund's Board.
4. The Proxy Coordinator will maintain a record of all
proxy questions that have been referred to a Fund's
Valuation and Proxy Voting Committee, all applicable
recommendations, analysis, research and Conflicts
Reports.
IV. CONFLICTS OF INTEREST
In connection with their participation in the voting process for portfolio
securities, each member of the Proxy Group and each Investment Professional
participating in the voting process must act solely in the best interests of the
beneficial owners of the applicable Fund. The members of the Proxy Group may not
subordinate the interests of the Fund's beneficial owners to unrelated
objectives.
For all matters for which the Proxy Group recommends a vote contrary to
Procedures and Guidelines, or the recommendation of the Agent, where applicable,
or where the Agent has made no recommendation and the Procedures and Guidelines
are silent, the Proxy Coordinator will implement the procedures for handling
such votes as adopted by the Fund's Board, including completion of such
Conflicts Reports as may be required under the Fund's procedures. Completed
Conflicts Reports shall be provided to the Proxy Coordinator within two (2)
business days. Such Conflicts Report should describe any known conflicts of
either a business or personal nature, and
<Page>
set forth any contacts with respect to the referral item with non-investment
personnel in its organization or with outside parties (except for routine
communications from proxy solicitors). The Conflicts Report should also include
written confirmation that any recommendation from an Investment Professional
provided under circumstances where a conflict of interest exists was made solely
on the investment merits and without regard to any other consideration.
The Proxy Coordinator shall forward all Conflicts Reports to a member of the
mutual funds practice group of ING US Legal Services ("Counsel") for review.
Counsel shall review each report and provide the Proxy Coordinator with a brief
statement regarding whether or not a material conflict of interest is present.
Matters as to which a conflict of interest is deemed to be present shall be
handled as provided in the Fund's Procedures and Guidelines.
V. REPORTING AND RECORD RETENTION
The Adviser shall maintain the records required by Rule 204-2(c)(2), as may be
amended from time to time, including the following: (1) A copy of each proxy
statement received regarding a Fund's portfolio securities. Such proxy
statements received from issuers are available either in the SEC's EDGAR
database or are kept by the Agent and are available upon request. (2) A record
of each vote cast on behalf of a Fund. (3) A copy of any document created by the
Adviser that was material to making a decision how to vote a proxy, or that
memorializes the basis for that decision. (4) A copy of written requests for
Fund proxy voting information and any written response thereto or to any oral
request for information on how the Adviser voted proxies on behalf of a Fund.
All proxy voting materials and supporting documentation will be retained for a
minimum of six (6) years.
<Page>
APPENDIX 1
TO THE
ADVISERS' PROXY VOTING PROCEDURES
PROXY GROUP FOR REGISTERED INVESTMENT COMPANY CLIENTS OF ING INVESTMENTS, LLC,
DIRECTED SERVICES, INC. AND ING LIFE INSURANCE AND ANNUITY COMPANY:
<Table>
<Caption>
NAME TITLE OR AFFILIATION
Stanley D. Vyner Chief Investment Risk Officer and Executive Vice President of ING
Investments, LLC
Karla J. Bos Acting Proxy Coordinator
Maria Anderson Assistant Vice President - Manager Fund Compliance of ING Funds Services,
LLC
Michael J. Roland Executive Vice President and Chief Financial Officer of ING Investments, LLC
Todd Modic Vice President of Financial Reporting - Fund Accounting of ING Funds
Services, LLC
Theresa K. Kelety, Esq. Counsel, ING Americas US Legal Services
Effective as of April 21, 2004
</Table>
<Page>
EXHIBIT 3
TO THE
ING FUNDS PROXY VOTING PROCEDURES
PROXY VOTING GUIDELINES OF THE ING FUNDS
Effective as of July 10, 2003
As amended August 21, 2003 and November 11, 2003
I. INTRODUCTION
The following is a statement of the proxy voting Guidelines that have been
adopted by the respective Boards of Directors or Trustees of each Fund.
Proxies must be voted in the best interest of the Fund. The Guidelines summarize
the Funds' positions on various issues of concern to investors, and give a
general indication of how Fund portfolio securities will be voted on proposals
dealing with particular issues. The Guidelines are not exhaustive and do not
include all potential voting issues.
The Advisers, in exercising their delegated authority, will abide by the
Guidelines as outlined below with regard to the voting of proxies except as
otherwise provided in the Procedures. In voting proxies, the Advisers are guided
by general fiduciary principles. Each must act prudently, solely in the interest
of the beneficial owners of the Funds it manages. The Advisers will not
subordinate the interest of beneficial owners to unrelated objectives. Each
Adviser will vote proxies in the manner that it believes will do the most to
maximize shareholder value.
II. GUIDELINES
The following Guidelines are grouped according to the types of proposals
generally presented to shareholders of U.S. issuers: Board of Directors,
Proxy Contests, Auditors, Proxy Contest Defenses, Tender Offer Defenses,
Miscellaneous Governance Provisions, Capital Structure, Executive and
Director Compensation, State of Incorporation, Mergers and Corporate
Restructurings, Mutual Fund Proxies and Social and Environmental Issues.
An additional section addresses proposals most frequently found in
Global Proxies.
In all cases where "case-by-case" consideration is noted, it shall be
the policy of the Funds to vote in accordance with the recommendation
provided by the Funds' Agent, Institutional Shareholder Services, Inc.
Such policy may be overridden in any case pursuant to the procedures
outlined herein.
1. THE BOARD OF DIRECTORS
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Votes on director nominees should be made on a CASE-BY-CASE basis.
<Page>
SEPARATING CHAIRMAN AND CEO
Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions
of chairman and CEO be held separately.
PROPOSALS SEEKING A MAJORITY OF INDEPENDENT DIRECTORS
Evaluate on a CASE-BY-CASE basis shareholder proposals asking that a majority of
directors be independent. Vote FOR shareholder proposals asking that board
audit, compensation, and/or nominating committees be composed exclusively of
independent directors.
STOCK OWNERSHIP REQUIREMENTS
Generally, vote AGAINST shareholder proposals requiring directors to own a
minimum amount of company stock in order to qualify as a director or to remain
on the board.
TERM OF OFFICE
Generally, vote AGAINST shareholder proposals to limit the tenure of outside
directors.
AGE LIMITS
Generally, vote AGAINST shareholder proposals to impose a mandatory retirement
age for outside directors.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Proposals on director and officer indemnification and liability protection
should be evaluated on a CASE-BY-CASE basis, using Delaware law as the standard.
Vote AGAINST proposals to limit or eliminate entirely directors' and officers'
liability for monetary damages for violating the duty of care. Vote AGAINST
indemnification proposals that would expand coverage beyond just legal expenses
to acts, such as negligence, that are more serious violations of fiduciary
obligation than mere carelessness. Vote FOR only those proposals providing such
expanded coverage in cases when a director's or officer's legal defense was
unsuccessful if:
(1) The director was found to have acted in good faith and in a manner
that he reasonably believed was in the best interests of the
company, and
(2) Only if the director's legal expenses would be covered.
2. PROXY CONTESTS
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Votes in a contested election of directors must be evaluated on a CASE-BY-CASE
basis.
REIMBURSE PROXY SOLICITATION EXPENSES
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis.
3. AUDITORS
RATIFYING AUDITORS
Generally, vote FOR proposals to ratify auditors.
NON-AUDIT SERVICES
Consider on a CASE-BY-CASE basis proposals to approve auditors when total
non-audit fees exceed the total of audit fees, audit-related fees and
permissible tax fees.
<Page>
AUDITOR INDEPENDENCE
Generally, vote AGAINST shareholder proposals asking companies to prohibit their
auditors from engaging in non-audit services (or capping the level of non-audit
services).
AUDIT FIRM ROTATION (SHAREHOLDER PROPOSALS):
Generally, vote AGAINST shareholder proposals asking for mandatory audit firm
rotation.
4. PROXY CONTEST DEFENSES
BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS
Generally, vote AGAINST proposals to classify the board.
Generally, vote FOR proposals to repeal classified boards and to elect all
directors annually.
SHAREHOLDER ABILITY TO REMOVE DIRECTORS
Generally, vote AGAINST proposals that provide that directors may be removed
only for cause.
Generally, vote FOR proposals to restore shareholder ability to remove directors
with or without cause.
Generally, vote AGAINST proposals that provide that only continuing directors
may elect replacements to fill board vacancies. Generally, vote FOR proposals
that permit shareholders to elect directors to fill board vacancies.
CUMULATIVE VOTING
Generally, vote AGAINST proposals to eliminate cumulative voting.
Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis
relative to the company's other governance provisions.
SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Generally, vote AGAINST proposals to restrict or prohibit shareholder ability to
call special meetings.
Generally, vote FOR proposals that remove restrictions on the right of
shareholders to act independently of management.
SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Generally, vote AGAINST proposals to restrict or prohibit shareholder ability to
take action by written consent.
Generally, vote FOR proposals to allow or make easier shareholder action by
written consent.
SHAREHOLDER ABILITY TO ALTER THE SIZE OF THE BOARD
Review on a CASE-BY-CASE basis proposals that seek to fix the size of the board.
Review on a CASE-BY-CASE basis proposals that give management the ability to
alter the size of the board without shareholder approval.
5. TENDER OFFER DEFENSES
POISON PILLS
Generally, vote FOR shareholder proposals that ask a company to submit its
poison pill for shareholder ratification.
Review on a CASE-BY-CASE basis shareholder proposals to redeem a company's
poison pill.
Review on a CASE-BY-CASE basis management proposals to ratify a poison pill.
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FAIR PRICE PROVISIONS
Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis.
Generally, vote AGAINST fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.
GREENMAIL
Generally, vote FOR proposals to adopt antigreenmail charter of bylaw amendments
or otherwise restrict a company's ability to make greenmail payments.
Review on a CASE-BY-CASE basis antigreenmail proposals when they are bundled
with other charter or bylaw amendments.
PALE GREENMAIL
Review on a CASE-BY-CASE basis restructuring plans that involve the payment of
pale greenmail.
UNEQUAL VOTING RIGHTS
Generally, vote AGAINST dual-class exchange offers.
Generally, vote AGAINST dual-class recapitalizations.
SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO AMEND THE CHARTER OR BYLAWS
Generally, vote AGAINST management proposals to require a supermajority
shareholder vote to approve charter and bylaw amendments.
Generally, vote FOR shareholder proposals to lower supermajority shareholder
vote requirements for charter and bylaw amendments.
SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO APPROVE MERGERS
Generally, vote AGAINST management proposals to require a supermajority
shareholder vote to approve mergers and other significant business combinations.
Generally, vote FOR shareholder proposals to lower supermajority shareholder
vote requirements for mergers and other significant business combinations.
WHITE SQUIRE PLACEMENTS
Generally, vote FOR shareholder proposals to require approval of blank check
preferred stock issues for other than general corporate purposes.
6. MISCELLANEOUS GOVERNANCE PROVISIONS
CONFIDENTIAL VOTING
Generally, vote FOR shareholder proposals that request companies to adopt
confidential voting, use independent tabulators, and use independent inspectors
of election as long as the proposals include clauses for proxy contests as
follows:
- In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy.
- If the dissidents agree, the policy remains in place.
- If the dissidents do not agree, the confidential voting policy is
waived.
Generally, vote FOR management proposals to adopt confidential voting.
EQUAL ACCESS
Generally, vote FOR shareholder proposals that would allow significant company
shareholders (defined as those holding more than $5 million in securities of the
company in question) equal access to management's proxy material in order to
evaluate and propose voting recommendations
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on proxy proposals and director nominees, and in order to nominate their own
candidates to the board.
BUNDLED PROPOSALS
Review on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals.
SHAREHOLDER ADVISORY COMMITTEES
Review on a CASE-BY-CASE basis proposals to establish a shareholder advisory
committee.
7. CAPITAL STRUCTURE
COMMON STOCK AUTHORIZATION
Review proposals to increase the number of shares of common stock authorized for
issue on a CASE-BY-CASE basis.
Generally, vote AGAINST proposals to increase the number of authorized shares of
the class of stock that has superior voting rights in companies that have
dual-class capitalization structures.
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Generally, vote FOR management proposals to increase common share authorization
for a stock split, provided that the increase in authorized shares would not
result in an excessive number of shares available for issuance given a company's
industry and performance in terms of shareholder returns.
REVERSE STOCK SPLITS
Consider on a CASE-BY-CASE basis management proposals to implement a reverse
stock split.
PREFERRED STOCK
Generally, vote AGAINST proposals authorizing the creation of new classes of
preferred stock with unspecified voting, conversion, dividend distribution, and
other rights ("blank check" preferred stock).
Generally, vote FOR proposals to create blank check preferred stock in cases
when the company expressly states that the stock will not be used as a takeover
defense.
Generally, vote FOR proposals to authorize preferred stock in cases where the
company specifies the voting, dividend, conversion, and other rights of such
stock and the terms of the preferred stock appear reasonable.
Vote CASE-BY-CASE on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for issue given
a company's industry and performance in terms of shareholder returns.
SHAREHOLDER PROPOSALS REGARDING BLANK CHECK PREFERRED STOCK
Generally, vote FOR shareholder proposals to have blank check preferred stock
placements, other than those shares issued for the purpose of raising capital or
making acquisitions in the normal course of business, submitted for shareholder
ratification.
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
Generally, vote FOR management proposals to reduce the par value of common
stock.
PREEMPTIVE RIGHTS
Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive
rights. In evaluating proposals on preemptive rights, consider the size of a
company and the characteristics of its shareholder base.
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DEBT RESTRUCTURINGS
Review on a CASE-BY-CASE basis proposals to increase common and/or preferred
shares and to issue shares as part of a debt restructuring plan.
SHARE REPURCHASE PROGRAMS
Generally, vote FOR management proposals to institute open-market share
repurchase plans in which all shareholders may participate on equal terms.
TRACKING STOCK
Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis.
8. EXECUTIVE AND DIRECTOR COMPENSATION
Votes with respect to compensation plans should be determined on a CASE-BY-CASE
basis.
MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS
Generally, vote AGAINST management proposals seeking approval to reprice
options.
DIRECTOR COMPENSATION
Votes on stock-based plans for directors are made on a CASE-BY-CASE basis.
EMPLOYEE STOCK PURCHASE PLANS
Votes on employee stock purchase plans should be made on a CASE-BY-CASE basis.
OBRA-RELATED COMPENSATION PROPOSALS:
AMENDMENTS THAT PLACE A CAP ON ANNUAL GRANTS OR AMEND ADMINISTRATIVE
FEATURES Generally, vote FOR plans that simply amend shareholder-approved
plans to include administrative features or place a cap on the annual
grants any one participant may receive to comply with the provisions of
Section 162(m) of OBRA.
AMENDMENTS TO ADD PERFORMANCE-BASED GOALS
Generally, vote FOR amendments to add performance goals to existing
compensation plans to comply with the provisions of Section 162(m) of OBRA.
AMENDMENTS TO INCREASE SHARES AND RETAIN TAX DEDUCTIONS UNDER OBRA
Votes on amendments to existing plans to increase shares reserved and to
qualify the plan for favorable tax treatment under the provisions of
Section 162(m) should be evaluated on a CASE-BY-CASE basis.
APPROVAL OF CASH OR CASH-AND-STOCK BONUS PLANS
Generally, vote FOR cash or cash-and-stock bonus plans to exempt the
compensation from taxes under the provisions of Section 162(m) of OBRA.
SHAREHOLDER PROPOSALS TO LIMIT EXECUTIVE AND DIRECTOR PAY
Generally, vote FOR shareholder proposals that seek additional disclosure of
executive and director pay information.
Review on a CASE-BY-CASE basis all other shareholder proposals that seek to
limit executive and director pay.
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GOLDEN AND TIN PARACHUTES
Generally, vote FOR shareholder proposals to have golden and tin parachutes
submitted for shareholder ratification.
Review on a CASE-BY-CASE basis all proposals to ratify or cancel golden or
tin parachutes.
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Generally, vote FOR proposals that request shareholder approval in order to
implement an ESOP or to increase authorized shares for existing ESOPs, except in
cases when the number of shares allocated to the ESOP is "excessive" (i.e.,
generally greater than five percent of outstanding shares).
401(k) EMPLOYEE BENEFIT PLANS
Generally, vote FOR proposals to implement a 401(k) savings plan for employees.
EXPENSING OF STOCK OPTIONS
Consider shareholder proposals to expense stock options on a CASE-BY-CASE basis.
9. STATE OF INCORPORATION
VOTING ON STATE TAKEOVER STATUTES
Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freezeout provisions, fair price provisions, stakeholder laws, poison
pill endorsements, severance pay and labor contract provisions, antigreenmail
provisions, and disgorgement provisions).
VOTING ON REINCORPORATION PROPOSALS
Proposals to change a company's state of incorporation should be examined on a
CASE-BY-CASE basis.
10. MERGERS AND CORPORATE RESTRUCTURINGS
MERGERS AND ACQUISITIONS
Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis.
CORPORATE RESTRUCTURING
Votes on corporate restructuring proposals, including minority squeezeouts,
leveraged buyouts, spinoffs, liquidations, and asset sales should be considered
on a CASE-BY-CASE basis.
SPINOFFS
Votes on spinoffs should be considered on a CASE-BY-CASE basis.
ASSET SALES
Votes on asset sales should be made on a CASE-BY-CASE basis.
LIQUIDATIONS
Votes on liquidations should be made on a CASE-BY-CASE basis.
ADJOURNMENT
Generally, vote FOR proposals to adjourn a meeting to provide additional time
for vote solicitation when the primary proposal is also voted FOR.
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APPRAISAL RIGHTS
Generally, vote FOR proposals to restore, or provide shareholders with, rights
of appraisal.
CHANGING CORPORATE NAME
Generally, vote FOR changing the corporate name.
11. MUTUAL FUND PROXIES
ELECTION OF DIRECTORS
Vote the election of directors on a CASE-BY-CASE basis.
CONVERTING CLOSED-END FUND TO OPEN-END FUND
Vote conversion proposals on a CASE-BY-CASE basis.
PROXY CONTESTS
Vote proxy contests on a CASE-BY-CASE basis.
INVESTMENT ADVISORY AGREEMENTS
Vote the investment advisory agreements on a CASE-BY-CASE basis.
APPROVING NEW CLASSES OR SERIES OF SHARES
Generally, vote FOR the establishment of new classes or series of shares.
PREFERRED STOCK PROPOSALS
Vote the authorization for or increase in preferred shares on a CASE-BY-CASE
basis.
1940 ACT POLICIES
Vote these proposals on a CASE-BY-CASE basis.
CHANGING A FUNDAMENTAL RESTRICTION TO A NONFUNDAMENTAL RESTRICTION
Vote these proposals on a CASE-BY-CASE basis.
CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NONFUNDAMENTAL
Generally, vote AGAINST proposals to change a fund's fundamental investment
objective to nonfundamental.
NAME RULE PROPOSALS
Vote these proposals on a CASE-BY-CASE basis.
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION
Vote these proposals on a CASE-BY-CASE basis.
CHANGES TO THE CHARTER DOCUMENT
Vote changes to the charter document on a CASE-BY-CASE basis.
CHANGING THE DOMICILE OF A FUND
Vote reincorporations on a CASE-BY-CASE basis.
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CHANGE IN FUND'S SUBCLASSIFICATION
Vote these proposals on a CASE-BY-CASE basis.
AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUBADVISORS WITHOUT SHAREHOLDER
APPROVAL
Generally, vote FOR these proposals.
DISTRIBUTION AGREEMENTS
Vote these proposals on a CASE-BY-CASE basis.
MASTER-FEEDER STRUCTURE
Generally, vote FOR the establishment of a master-feeder structure.
CHANGES TO THE CHARTER DOCUMENT
Vote changes to the charter document on a CASE-BY-CASE basis.
MERGERS
Vote merger proposals on a CASE-BY-CASE basis.
ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT
Generally, vote AGAINST shareholder proposals for the establishment of a
director ownership requirement.
REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis.
TERMINATE THE INVESTMENT ADVISOR
Vote to terminate the investment advisor on a CASE-BY-CASE basis.
12. SOCIAL AND ENVIRONMENTAL ISSUES
These issues cover a wide range of topics, including consumer and public safety,
environment and energy, general corporate issues, labor standards and human
rights, military business, and workplace diversity.
In general, vote CASE-BY-CASE. While a wide variety of factors goes into each
analysis, the overall principal guiding all vote recommendations focuses on how
the proposal will enhance the economic value of the company.
13. GLOBAL PROXIES
While a number of the foregoing Guidelines may be applied to both U.S. and
global proxies, the following provide for the differing regulatory and legal
requirements, market practices and political and economic systems existing in
various global markets.
ROUTINE MANAGEMENT PROPOSALS
Generally, vote FOR the following and other similar routine management
proposals:
- the opening of the shareholder meeting
- that the meeting has been convened under local regulatory requirements
- the presence of quorum
- the agenda for the shareholder meeting
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- the election of the chair of the meeting
- the appointment of shareholders to co-sign the minutes of the meeting
- regulatory filings (E.G., to effect approved share issuances)
- the designation of inspector or shareholder representative(s) of minutes
of meeting
- the designation of two shareholders to approve and sign minutes of
meeting
- the allowance of questions
- the publication of minutes
- the closing of the shareholder meeting
DISCHARGE OF MANAGEMENT/SUPERVISORY BOARD MEMBERS
Generally, vote FOR management proposals seeking the discharge of management and
supervisory board members, unless there is concern about the past actions of the
company's auditors or directors or legal action is being taken against the board
by other shareholders.
DIRECTOR REMUNERATION
CONSIDER DIRECTOR COMPENSATION PLANS ON A CASE-BY-CASE BASIS. GENERALLY, VOTE
FOR PROPOSALS TO APPROVE THE REMUNERATION OF DIRECTORS AS LONG AS THE AMOUNT IS
NOT EXCESSIVE AND THERE IS NO EVIDENCE OF ABUSE.
APPROVAL OF FINANCIAL STATEMENTS AND DIRECTOR AND AUDITOR REPORTS
Generally, vote FOR management proposals seeking approval of financial accounts
and reports, unless there is concern about the company's financial accounts and
reporting.
REMUNERATION OF AUDITORS
Generally, vote FOR proposals to authorize the board to determine the
remuneration of auditors, unless there is evidence of excessive compensation
relative to the size and nature of the company.
INDEMNIFICATION OF AUDITORS
Generally, vote AGAINST proposals to indemnify auditors.
ALLOCATION OF INCOME AND DIVIDENDS
Generally, vote FOR management proposals concerning allocation of income and the
distribution of dividends, unless the amount of the distribution is consistently
and unusually small or large.
STOCK (SCRIP) DIVIDEND ALTERNATIVES
Generally, vote FOR most stock (scrip) dividend proposals, but vote AGAINST
proposals that do not allow for a cash option unless management demonstrates
that the cash option is harmful to shareholder value.
DEBT ISSUANCE REQUESTS
When evaluating a debt issuance request, the issuing company's present financial
situation is examined. The main factor for analysis is the company's current
debt-to-equity ratio, or gearing level. A high gearing level may incline markets
and financial analysts to downgrade the company's bond rating, increasing its
investment risk factor in the process. A gearing level up to 100 percent is
considered acceptable.
Generally, vote FOR debt issuances for companies when the gearing level is
between zero and 100 percent. Review on a CASE-BY-CASE basis proposals where the
issuance of debt will result in the gearing level being greater than 100
percent, comparing any such proposed debt issuance to industry and market
standards.
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FINANCING PLANS
Generally, vote FOR the adoption of financing plans if they are in the best
economic interests of shareholders.
RELATED PARTY TRANSACTIONS
Consider related party transactions on a CASE-BY-CASE basis. Generally, vote FOR
approval of such transactions unless the agreement requests a strategic move
outside the company's charter or contains unfavorable terms.
CAPITALIZATION OF RESERVES
Generally, vote FOR proposals to capitalize the company's reserves for bonus
issues of shares or to increase the par value of shares.
ARTICLE AMENDMENTS
Review on a CASE-BY-CASE basis all proposals seeking amendments to the articles
of association.
Generally, vote FOR an article amendment if:
- it is editorial in nature;
- shareholder rights are protected;
- there is negligible or positive impact on shareholder value;
- management provides adequate reasons for the amendments; and
- the company is required to do so by law (if applicable).
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 10. 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 11. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) 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.
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(b) 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 May 5, 2004
----------------------------------
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 May 5, 2004
----------------------------------
By /s/ Michael J. Roland
----------------------------------------------------
Michael J. Roland
Executive Vice President and Chief Financial Officer
Date May 5, 2004
----------------------------------