-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AePH4WHuQq9b63DMUL4ViZ2Ek9DgX2X/nO9bb/WnlP9oC7UMy4jE15dlVLIH/oED RC2BjTF29Np1vntvntFhDw== 0000950147-02-000726.txt : 20020529 0000950147-02-000726.hdr.sgml : 20020529 20020528182555 ACCESSION NUMBER: 0000950147-02-000726 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020529 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ING GNMA INCOME FUND INC CENTRAL INDEX KEY: 0000059140 IRS NUMBER: 222013958 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02401 FILM NUMBER: 02664017 BUSINESS ADDRESS: STREET 1: 7337 E. DOUBLETREE RANCH ROAD STREET 2: . CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 4804773000 MAIL ADDRESS: STREET 1: LEXINGTON GROUP OF MUTUAL FUNDS STREET 2: PARK 80 WEST PLAZA TWO CITY: SADDLE BROOK STATE: NJ ZIP: 07662 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON INCOME FUND INC DATE OF NAME CHANGE: 19810210 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM GNMA INCOME FUND INC DATE OF NAME CHANGE: 20000824 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON GNMA INCOME FUND INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ING MUTUAL FUNDS CENTRAL INDEX KEY: 0000895430 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07428 FILM NUMBER: 02664018 BUSINESS ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 1-800-992-0180 MAIL ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM MUTUAL FUNDS DATE OF NAME CHANGE: 19990526 FORMER COMPANY: FORMER CONFORMED NAME: NICHOLAS APPLEGATE MUTUAL FUNDS DATE OF NAME CHANGE: 19930328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ING FUNDS TRUST CENTRAL INDEX KEY: 0001066602 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08895 FILM NUMBER: 02664019 BUSINESS ADDRESS: STREET 1: ING PILGRIM FUNDS STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 800-992-0180 MAIL ADDRESS: STREET 1: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: ING FUNDS TRUST DATE OF NAME CHANGE: 19980721 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM FUNDS TRUST DATE OF NAME CHANGE: 20010312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ING INVESTMENT FUNDS INC CENTRAL INDEX KEY: 0000061448 IRS NUMBER: 136066974 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01939 FILM NUMBER: 02664020 BUSINESS ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 1-800-992-0180 MAIL ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: MAGNACAP FUND INC DATE OF NAME CHANGE: 19850701 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM MAGNACAP FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC DATE OF NAME CHANGE: 19950503 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC/MD DATE OF NAME CHANGE: 19981113 N-30D 1 e-8571.txt ANNUAL REPORT FOR YEAR ENDING 3-31-02 ANNUAL REPORT March 31, 2002 Classes I and Q FIXED INCOME FUNDS ING GNMA Income [PHOTO] ING Intermediate Bond ING Strategic Income ING High Yield ING High Yield Opportunity MONEY MARKET FUND ING Classic Money Market [LION LOGO] ING FUNDS (formerly the Pilgrim Funds) TABLE OF CONTENTS - -------------------------------------------------------------------------------- President's Letter ............................... 1 Portfolio Managers' Reports ...................... 2 Index Descriptions ............................... 13 Report of Independent Accountants ................ 15 Statements of Assets and Liabilities ............. 16 Statements of Operations ......................... 18 Statements of Changes in Net Assets .............. 19 Financial Highlights ............................. 23 Notes to Financial Statements .................... 29 Portfolios of Investments ........................ 45 Shareholder Meeting Results ...................... 60 Tax Information .................................. 63 Director/Trustee and Officer Information ......... 64 PRESIDENT'S LETTER - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the Classes I and Q March 31, 2002 Annual Report for the ING Funds (formerly, the Pilgrim Funds). There are six Income Funds included in this Annual Report. There have been some very important changes that have occurred over the past several months regarding the ING Funds. I would like to take this opportunity to share them with you. As you may recall, in September 2000, ING Group acquired ReliaStar Financial Corp., the parent company of the adviser to the Pilgrim Funds. In December 2000, ING Group acquired the financial services of Aetna Inc., including Aeltus Investment Management, Inc., adviser to the Aetna Series Fund. ING Group has embarked upon a plan to integrate some of the operations of its various affiliated mutual fund groups. Effective March 1, 2002, ING Group merged the operations of the Aetna Series Fund into the Pilgrim Funds and renamed the entire fund complex, ING Funds. In addition to the changes noted above, individual product name changes have also occurred within the ING Funds family. These changes are part of ING Group's evolving corporate strategy to create one master brand. The ING Funds family now offers more than 100 open- and closed-end funds and variable products with a wide range of investment objectives and styles. At ING Funds, we are dedicated to providing core investments for the serious investors. Our goal is to understand and anticipate your needs and objectives, and manage our products accordingly. We greatly appreciate your continued investment in the ING Funds. Sincerely, /s/ James M. Hennessy James M. Hennessy President ING Funds Services, LLC April 15, 2002 1 ING GNMA INCOME FUND Portfolio Managers' Report - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Denis P. Jamison, CFA; Roseann G. McCarthy, Co-Portfolio Managers, ING Investments, LLC. GOAL: The ING GNMA Income Fund (the "Fund") seeks to generate a high level of current income with an investment portfolio that stresses liquidity and safety of principal. The Fund only purchases securities whose interest and principal payments are guaranteed by the United States Government or its agencies. These securities include mortgage-backed securities issued by the Government National Mortgage Agency (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and U.S. Treasury bonds, notes, and bills. Normally, at least 80% of the Fund's assets are invested in GNMA mortgages. MARKET OVERVIEW: It has been a difficult last six months for the bond market. The yield on U.S. Treasury bonds hit a low in late October but there has been a steady upward climb ever since. For example, the yield of ten-year U.S. Treasury bond spiked from 4.18% on November 7th to 5.45% at the end of the first quarter. The Lehman Brothers Government Bond Index fell 1.2% during the last six months of the year ended March 31st. Other sectors of the bond market performed better as the yield spreads narrowed between U.S. Treasury securities and corporate bonds and mortgages. Nonetheless, even the returns from these securities were uninspiring. Investors reduced their exposure to fixed income securities because they expect the Federal Reserve to engineer a sharp increase in short-term interest rates and reduce liquidity as the economy emerges from the mild 2001 recession. We believe that these fears are well grounded. PERFORMANCE: For the year ended March 31, 2002, the Fund's Class Q shares provided a total return of 4.50% compared to the Lehman Brothers Mortgage-Backed Securities Index which returned 6.39%. PORTFOLIO SPECIFICS: We made an ill-advised 35% increase in the Fund's effective maturity during the December quarter. This was accomplished by lifting the Fund's holdings of long-term U.S. Treasury bonds from 3.5% of the portfolio to 7.4%. At that time, we anticipated a more pronounced economic slowdown. Unfortunately, the economy showed far more resilience than we expected. We began to reduce our interest rate exposure in March. The portfolio currently is about 15% longer than the Lehman Brothers GNMA Mortgage Index. We look to reduce that further in the months ahead. We are using cash flow to purchase premium coupon GNMA single-family mortgages. Rising interest rates have significantly diminished the risk of prepayments from these securities and they generate higher current income than multi-family project loans and low coupon single family mortgages. In essence, we are sacrificing price appreciation potential for greater income. MARKET OUTLOOK: The bond market looks very oversold. There are plenty of arguments to be made for only a moderate tightening by the Federal Reserve. Bonds also seem to be a good buy given the low level of inflation and the relatively high valuations attached to competing investment alternatives such as stocks. Nonetheless, it's probably too early to bottom fish. We can't decide whether the recent back up in interest rates is merely a cyclical bounce associated with changes in monetary policy and the business cycle or if it is the beginning of a secular move to higher rates reflecting a breakdown in the structural trends that created the twenty year bull market in bonds. Reflecting our cushion, we are likely to increase our cash holdings and add to our single-family mortgages rather than increase our call-protected multi-family mortgage investments. 2 Portfolio Managers' Report ING GNMA INCOME FUND - -------------------------------------------------------------------------------- 2/23/01 3/31/01 3/31/02 ------- ------- ------- ING GNMA Income Fund Class Q $10,000 $10,142 $10,598 Lehman Brothers Mortgage-Backed Securities Index $10,000 $10,058 $10,701 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ----------------------------------------------- SINCE INCEPTION SINCE INCEPTION OF CLASS I OF CLASS Q 1 YEAR 1/7/02 2/26/01 ------ ------ ------- Class I -- 0.04% -- Class Q 4.50% -- 5.42% Lehman Brothers Mortgage- Backed Securities Index 6.39% 0.99%(1) 6.45%(2) Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING GNMA Income Fund against the Lehman Brothers Mortgage-Backed Securities Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. Performance table and graph do not reflect the deduction of taxes that a shareholder will pay on fund distributions or the redemption of fund shares. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) Since inception performance for index is shown from 1/1/02. (2) Since inception performance for index is shown from 3/1/01. PRINCIPAL RISK FACTOR(S): Exposure to financial and interest rate risks and prepayment risk of mortgage related securities. Fluctuations in the value of the Fund's shares can be expected in response to changes in interest rates. The value of an investment in the Fund is not guaranteed and will fluctuate. See accompanying index descriptions on page 13. 3 ING INTERMEDIATE BOND FUND Portfolio Manager's Report - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT: James Kauffmann, Vice President and Senior Portfolio Manager, ING Investment Management, LLC. GOAL: The ING Intermediate Bond Fund (the "Fund") seeks to provide investors with a high level of current income, consistent with the preservation of capital and liquidity by investing at least 80% of its total assets in investment grade debt securities. MARKET OVERVIEW: The "new world order" did not last very long as the tranquility seen at the end of fiscal year 2000 gave way to fundamentalist warfare, increased middle east tension, anthrax scares, California energy supply issues, domestic recession, Latin American default, and the largest bankruptcy of an investment grade company in the history of the bond market. Few capital markets practitioners will lament the passing of 2001, bad news was abundant and many operated in denial mode, claiming sunshine right around the corner. The premium on nimbleness was enormous as portfolio managers were forced to deal with an unprecedented array of risk factors. The global economy fell into mild recession forcing the world's central banks to unleash an unmatched wave of interest rate easings. Despite continued consumer spending, the recession hurt the corporation through destroyed profitability, and the major equity markets turned in their second consecutive losing year. The "school of V-shaped recovery" became fully enrolled, as liquidity was abundant. By the second semester, however, many investors had dropped out to find a more reality-based curriculum in "U", "L", or "W-shaped recovery" institutions. After a long period of risk aversion, the second quarter of 2001 proved to be an optimistic time, equity markets rose, credit risk premiums receded and prepayment risks subsided. Still riding on the central bank easing cycle, the global debt markets finished the first half of 2001 with solid absolute returns and pleasing relative returns. Conditions evaporated quickly, however, as the second half of 2001 opened on a sour note. Sentiment took a dive in July as the capital markets were confronted by an abundance of weak economic fundamentals. After a summer of poor capital market returns, along came the unforgettable events of September 11th. For a few weeks the world stood still, bond markets did not matter much as we struggled to determine if, in fact, the world had changed forever. The Fund, however, did not stand still. Although the U.S. markets were closed for days, portfolio managers were calling Japan late into the night desperately trying to buy any and all available risk-free duration as the flight to quality made a treasury rally inevitable. In addition, the managers made the most significant asset allocation shifts into mortgages and defensive credit sectors in the Fund's history. The managers were successful on all accounts, and the Fund was rewarded with generous returns. 2001 concluded on a less promising note. The Enron bankruptcy called into question the role of corporate governance, financial integrity and management self-dealing, not to mention the relationship between a company and its auditors. If Enron and the end of the bond bull market were not enough, 2001 finished with a surge in volatility as institutions went into a defensive mode in an attempt to preserve capital and fight another day. The erosion of bond prices continued into the first quarter of 2002 as bond managers felt the "performance winds" in their face. Perhaps the largest and most welcome surprise came with the sudden economic traction of the global macroeconomic cycle. Far from the initial post-September 11th forecasts of -3.0% to -4.0% GDP growth, the U.S. economy actually turned in a healthy 4th quarter growth rate of 1.7%, followed by an even stronger first quarter estimate of nearly 5%. PERFORMANCE: For the period from inception (January 8, 2002) through March 31, 2002, the Fund's Class I shares provided a total return of 0.36% compared to 0.09% for the Lehman Brothers Aggregate Bond Index for the same period. PORTFOLIO SPECIFICS: The Fund's outperformance of its benchmark index can be attributed to several factors. 1. First, the Fund was long duration for the first three-quarters of 2001 as interest rates declined in response to the 2001 Federal Reserve easing cycle. The Fund was then able to establish a neutral to short duration position in the first quarter of 2002, as the economic recovery gained traction and interest rates moved substantially higher. 2. Second, the managers benefited from a consistent credit sector overweight and mortgage sector underweight as credit performed well in three out of the four quarters of the year. While relative returns were positive, the Mortgage-backed securities sector was still the worst performing sector in the Lehman Brothers Aggregate Bond Index over the last twelve months. 3. Finally, security selection within the corporate bond market was vitally important, as the Fund was able to avoid many of the years' numerous credit blow-ups, including the Enron bankruptcy, while participating in the outperformance of the financial and industrial sectors. MARKET OUTLOOK: Looking forward, the manager's will focus on the following three areas to properly position the Fund. First, the sustainability of the economic recovery is unknown. While late 2001/early 2002 growth in the economy has surprised many, time will tell if growth declines after the one-time effects of an inventory build-up, warm winter weather and declining interest rates are removed from the equation. Second, the managers believe that corporate earnings and balance sheets should improve in 2002 as corporations have cut costs and reduced capital expenditures, stock buy-backs and M&A activity. Finally, rising geopolitical risk in the Middle East could have a negative effect on market returns through expanded risk premiums; knee-jerk "flight to quality" capital flows and substantially higher oil prices. With the prospect of improved corporate earnings and credit spreads at attractive levels historically, the Fund will continue to overweight corporate bonds and underweight treasuries. Security selection will continue to be important, however, as a large segment of the market trades at 52- week tights, but a small segment of the market trades extraordinarily wide. Within the credit sector, the manager's plan to continue to overweight the industrial and utility sectors and market weight the financial sector, as valuations do not look compelling. Believing the economy may continue to show improvement through the first half of the year, the manager's feel the current trajectory of interest rates is higher and that the shape of the curve will become flatter, with short rates rising more than intermediate and long rates. As a result, the Fund will maintain its slightly short duration position for now. Finally, due to rich valuations, the Fund will retain market weight mortgages as the sector has recently had outstanding returns, which might be hard to duplicate for the balance of the year. 4 Portfolio Manager's Report ING INTERMEDIATE BOND FUND - -------------------------------------------------------------------------------- 1/8/02 3/31/02 ------ ------- ING Intermediate Bond Fund Class Q $10,000 $10,036 Lehman Brothers Aggregate Bond Index $10,000 $10,009 TOTAL RETURNS FOR THE PERIOD ENDED MARCH 31, 2002 ----------------------------------- SINCE INCEPTION OF CLASS I 1/8/02 ------ Class I 0.36% Lehman Brothers Aggregate Bond Index 0.09%(1) Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING Intermediate Bond Fund against the Lehman Brothers Aggregate Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. Performance table and graph do not reflect the deduction of taxes that a shareholder will pay on fund distributions or the redemption of fund shares. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) Since inception performance for index is shown from 1/1/02. PRINCIPAL RISK FACTOR(S): Exposure to credit, market and interest rate risk. Fluctuations in the value of the Fund's shares can be expected in response to changes in interest rates. The Fund's investments in mortgage-related securities may entail prepayment risk. The Fund may invest a portion of its assets in high yield debt securities. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio and in some cases, the lower market price for those instruments. The Fund may also invest a portion of its assets in foreign securities. International investing does pose special risks, including currency fluctuation and political risks not found in investments that are solely domestic. See accompanying index descriptions on page 13. 5 ING STRATEGIC INCOME FUND Portfolio Managers' Report - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Robert K. Kinsey, Vice President; Edwin Schriver, Senior Vice President, ING Investments, LLC. GOAL: The ING Strategic Income Fund (the "Fund") seeks maximum total return by investing at least 60% of its total assets in debt securities issued by the U.S. and foreign corporations, U.S. and foreign governments and their agencies that are rated in one of the top four categories by a nationally recognized statistical rating agency. MARKET OVERVIEW: Enron after-shocks and a funding crisis for many issuers in the commercial paper markets dominated the headlines over the last six months. Accounting and liquidity concerns prompted a sell-off of many of the largest debt issuers. Although we avoided much of the initial sell-off in names such as Qwest, Worldcom, Sprint, and Tyco, our recommitment to these names late in the second quarter of 2001 proved premature. Our holdings in Endesa, PEMEX, and United Mexican States, benefited the fund. A precipitous rise in domestic interests rates in March trumped the positive bond market returns of January and February. The investment grade component marginally outperformed the Lehman Brothers Aggregate Bond Index in the first quarter of 2002; however, it lagged its Lipper category by a significant amount. The widely followed Lehman Brothers Aggregate Bond Index eked out a positive return of 0.09% for the quarter. Yet emerging market debt posted a strong 5.76% with riskier classes such as Eastern Europe up 10.24% during the same period. The past year saw a divergence of returns within the high yield market. While most sectors of the market generated respectable returns in a difficult operating environment, the telecommunications sector declined sharply as it became clear that substantial excess capacity would precipitate widespread defaults. At the same time, the Enron debacle resulted in increased skepticism with respect to any issuer with aggressive accounting policies and/or material off-balance sheet liabilities. Our high yield portion underperformed both the benchmark index and the high yield peer group due to a variety of factors including unfortunate timing, an underweight exposure to BB's, an overweight exposure in CCC's, and certain specific security selections primarily within the telecommunications sector. PERFORMANCE: For the year ended March 31, 2002, the Fund's Class Q shares provided a total return of 0.49% compared to the Lehman Brothers Aggregate Bond Index which returned 5.35% for the same period. PORTFOLIO SPECIFICS: For its fiscal year ending March the fund has lagged in its Lipper category, which contains a number of funds with large emerging market allocations. We have not traditionally been participants in the high beta sector of emerging markets, and this has hampered us since that asset class started a major run up in November of 2001. Our lack of exposure to countries like Russia, Brazil, Poland, and the Philippines are chiefly responsible for our recent underperformance. Generally we maintain a neutral duration for the fund, but we let it drift lower in March as fears of aggressive central bank tightening crept into fixed income markets. The Riksbank was the first to tighten in the face of a global economic recovery. At year end high yield comprised approximately 20% of the fund. Our high yield performance suffered from a variety of factors including unfortunate timing, an underweight exposure to higher quality BB's, an overweight exposure in lower quality CCC's, and certain specific security selections primarily within the telecommunications sector. In the most recent quarter, the high yield portion of the fund outperformed both the index and the high yield fund peer group. As an asset class, high yield is benefiting from an improving economic outlook and strong fund flows from investors. Following the recently reported improved economic numbers, investors seem to be increasing their appetite for cyclical investments and for higher risk credits in general. MARKET OUTLOOK: Our duration is now slightly shorter than the benchmark index. Concerns about corporate governance, accounting irregularities, and access to commercial paper markets will continue to challenge domestic credit-sensitive markets. However, we maintain our positions in some of the more beaten up names for both the carry and the potential for positive dollar returns. Looking to boost our high yield allocation, we reduced our exposure to emerging markets after a strong first quarter. In that vein we also pruned MBS, sold our Republic of Italy and British Telephone positions, and reduced Household International. We plan to maintain our overweight in the energy sector focusing on names such as PEMEX, Marathon Oil, Kerr McGee, Williams, and Conoco. At present all of our positions are dollar-denominated. We remain bullish about the outlook for future high yield returns. Aggressive Federal Reserve easing over the past year are likely to have a lasting impact on investment and spending. Fund flows into high yield remain positive, portfolio managers have large cash positions and pension managers are still in the early stages of implementing increased high yield allocations. All of these factors provide reasons for optimism regarding returns in the short run. In the longer-term, current market yield spreads price in a continuation of very high defaults over several years. Several studies indicate that high yield defaults are very likely to decline by the second half of this year, providing the potential for significant appreciation as the market adjusts to a lower default environment. The most recent domestic economic data suggests that we are, indeed, in a recovery. And the current sell-off in bonds suggests that income will be the major component of credit market returns in 2002. 6 Portfolio Managers' Report ING STRATEGIC INCOME FUND - --------------------------------------------------------------------------------
7/27/98 3/31/99 3/31/00 3/31/01 3/31/02 ------- ------- ------- ------- ------- ING Strategic Income Fund Class Q $10,000 $10,365 $10,451 $10,936 $11,000 Lehman Brothers Aggregate Bond Index $10,000 $10,384 $10,578 $11,904 $12,540
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ------------------------------------ SINCE INCEPTION 1 YEAR 7/27/98 ------ ------- Class Q 0.49% 2.60% Lehman Brothers Aggregate Bond Index 5.35% 6.37%(1) Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING Strategic Income Fund against the Lehman Brothers Aggregate Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. Performance table and graph do not reflect the deduction of taxes that a shareholder will pay on fund distributions or the redemption of fund shares. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) Since inception performance for index is shown from 08/01/98. PRINCIPAL RISK FACTOR(S): High yield bonds have exposure to financial, market and interest rate risks. High yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. The Fund's investments in mortgage-related securities may entail prepayment risk. The Fund may invest up to 30% of its total assets in securities payable in foreign currencies. International investing does pose special risks, including currency fluctuation and political risks not found in domestic investments. See accompanying index descriptions on page 13. 7 ING HIGH YIELD FUND Portfolio Managers' Report - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Edwin Schriver, Russ Stiver, CFA, Andy Mitchell, Co-Portfolio Managers, ING Investments, LLC. GOAL: The ING High Yield Fund (the "Fund") seeks to provide investors with a high level of current income with capital appreciation as a secondary objective by investing in BBB and lower-rated debt securities. MARKET OVERVIEW: The past year has been a difficult time for both the world economy and financial markets. The U.S. economy entered into a mild recession in March of 2001, primarily as a result of excess capacity, high inventories and declining business investment in the aftermath of the internet bubble. The Federal Reserve acted aggressively to ease monetary conditions in 2001, but just as the economy appeared poised for a rebound the September 11th terrorist attacks sent a shock through the economy. Economic growth finally appears to have returned in the first quarter of 2002, and financial markets are beginning to reflect a brighter outlook. The past year has seen a divergence of returns within the high yield market. While most sectors of the market generated respectable returns in a difficult operating environment, the telecommunications sector declined sharply as it became clear that substantial excess capacity would precipitate widespread defaults. At the same time, the Enron debacle resulted in increased skepticism with respect to any issuer with aggressive accounting policies and/or material off-balance sheet liabilities. PERFORMANCE: For the year ended March 31, 2002, the Fund's Class Q shares provided a total return of 0.64% compared to 0.65% for the Lehman Brothers High Yield Bond Index. PORTFOLIO SPECIFICS: Management began re-positioning the Fund in late 2000 to reduce telecommunications exposure. While in retrospect we wish we had reduced telecom faster and more drastically, the steps taken did have a tremendous positive impact on returns. To reinvest the proceeds from telecom sales, the Fund took advantage of recessionary conditions to invest heavily in second-tier cyclical companies with sufficient liquidity to survive a lengthy recession. This strategy has paid off over the past 6 months as the recession appears to have run its course and portfolio managers scramble to increase cyclical exposure. The Fund also took advantage of the sell-off following September 11th to buy hotel and gaming company bonds at very low prices. Both of these sectors have appreciated sharply since that time. MARKET OUTLOOK: It appears that the inventory correction that was a significant factor driving the recession has come to an end and that economic growth has returned. We expect the economy to continue to recover, but to do so slowly in the absence of any impetus for increased end-user demand. Default rates, which have risen steadily over the past year, appear to be peaking and should decline materially later this year. Despite the recent rally, high yield spreads continue to reflect a continuation of high defaults for some time. We believe that the prospect of lower default rates makes high yield securities an attractive relative value in an environment of high equity P/E ratios and very low Treasury yields. In this environment of slowly improving economic conditions, we continue to focus on second-tier companies with sufficient liquidity, avoiding speculative investments and top-tier issuers offering low yield spreads. 8 Portfolio Managers' Report ING HIGH YIELD FUND - -------------------------------------------------------------------------------- 6/17/99 3/31/00 3/31/01 3/31/02 ------- ------- ------- ------- ING High Yield Fund Class Q $10,000 $ 9,745 $ 8,115 $ 8,167 Lehman Brothers High Yield Bond Index $10,000 $ 9,785 $10,031 $10,097 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ------------------------------------ SINCE INCEPTION OF CLASS Q 1 YEAR 6/17/99 ------ ------- Class Q 0.64% -7.00% Lehman Brothers High Yield Bond Index 0.65% 0.35%(1) Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING High Yield Fund against the Lehman Brothers High Yield Bond Index. The index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. Performance table and graph do not reflect the deduction of taxes that a shareholder will pay on fund distributions or the redemption of fund shares. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) Since inception performance for index is shown from 7/1/99. PRINCIPAL RISK FACTOR(S): Exposure to financial, market and interest rate risks. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. See accompanying index descriptions on page 13. 9 ING HIGH YIELD OPPORTUNITY FUND Portfolio Managers' Report - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Edwin Schriver, Russ Stiver, CFA, Andy Mitchell, Co-Portfolio Managers, ING Investments, LLC. GOAL: The ING High Yield Opportunity Fund (the "Fund") invests primarily in higher-yielding, lower-rated bonds to achieve high current income with potential for capital growth. MARKET OVERVIEW: The past year has been a difficult time for both the world economy and financial markets. The U.S. economy entered into a mild recession in March of 2001, primarily as a result of excess capacity, high inventories and declining business investment in the aftermath of the internet bubble. The Federal Reserve acted aggressively to ease monetary conditions in 2001, but just as the economy appeared poised for a rebound the September 11th terrorist attacks sent a shock through the economy. Economic growth finally appears to have returned in the first quarter of 2002, and financial markets are beginning to reflect a brighter outlook. The past year has seen a divergence of returns within the high yield market. While most sectors of the market generated respectable returns in a difficult operating environment, the telecommunications sector declined sharply as it became clear that substantial excess capacity would precipitate widespread defaults. At the same time, the Enron debacle resulted in increased skepticism with respect to any issuer with aggressive accounting policies and/or material off-balance sheet liabilities. PERFORMANCE: For the year ended March 31, 2002, the Fund's Class Q shares provided a total return of -1.56% compared to 3.33% for the Credit Suisse First Boston High Yield Index. PORTFOLIO SPECIFICS: Management began re-positioning the Fund in late 2000 to reduce telecommunications exposure. While in retrospect we wish we had reduced telecom faster and more drastically, the steps taken did have a tremendous positive impact on returns. To reinvest the proceeds from telecom sales, the Fund took advantage of recessionary conditions to invest in second and third-tier companies that we expect to benefit from improved economic conditions. This strategy has paid off over the past few months as the recession appears to have run its course and portfolio managers scramble to increase cyclical exposure. MARKET OUTLOOK: It appears that the inventory correction that was a significant factor driving the recession has come to an end and that economic growth has returned. We expect the economy to continue to recover, but to do so slowly in the absence of any impetus for increased end-user demand. Default rates, which have risen steadily over the past year, appear to be peaking and should decline materially later this year. Despite the recent rally, high yield spreads continue to reflect a continuation of high defaults for some time. We believe that the prospect of lower default rates makes high yield securities an attractive relative value in an environment of high equity P/E ratios and very low Treasury yields. In this environment of slowly improving economic conditions, we continue to focus on second and third-tier companies with sufficient asset protection and an expectation for improving financial results. Over the past few months, we have reduced top-tier holdings that offer low yield spreads. 10 Portfolio Managers' Report ING HIGH YIELD OPPORTUNITY FUND - --------------------------------------------------------------------------------
3/27/98 3/31/98 3/31/99 3/31/00 3/31/01 3/31/02 ------- ------- ------- ------- ------- ------- ING High Yield Opportunity Fund Class Q $10,000 $10,016 $10,156 $10,665 $ 9,471 $ 9,323 Credit Suisse First Boston High Yield Bond Index $10,000 $10,000 $ 9,925 $ 9,955 $10,031 $10,365
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ------------------------------------ SINCE INCEPTION OF CLASS Q 1 YEAR 3/27/98 ------ ------- Class Q -1.56% -1.73% Credit Suisse First Boston High Yield Bond Index 3.33% 0.90%(1) Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING High Yield Opportunity Fund against the Credit Suisse First Boston High Yield Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. Performance table and graph do not reflect the deduction of taxes that a shareholder will pay on fund distributions or the redemption of fund shares. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) Since inception performance for index is shown from 04/01/98. PRINCIPAL RISK FACTOR(S): Exposure to financial, market and interest rate risks. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio and in some cases, the lower market price for those instruments. Up to 35% of total assets may be invested in foreign securities. International investing does pose special risks, including currency fluctuation and political risks not found in investments that are solely domestic. Risks of foreign investing are generally intensified for investments in emerging markets. See accompanying index descriptions on page 13. 11 ING CLASSIC MONEY MARKET FUND Portfolio Manager's Report - -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT: Jennifer J. Thompson, CFA, Vice President, ING Investment Management, LLC. GOAL: The ING Classic Money Market Fund (the "Fund") seeks to provide investors with a high level of current income as is consistent with preservation of capital and liquidity and the maintenance of a stable $1.00 net asset value per share. MARKET OVERVIEW: The money markets were very active in the one-year period ended March 31, 2002. The fiscal year began on April 1, 2001 with a Fed Funds target rate of 5% and the Federal Reserve Board's Federal Open Market Committee (the "FOMC" or the "Fed") in an "easing" mode. In fact, the Fed began its easing cycle early in 2001 and continued it throughout the year lowering its Fed Funds target rate by 475 basis points in 2001 to 1.75% by December. According to the National Bureau of Economic Research, the current recession started in March 2001. Many market participants, while unsure whether or not the economy was in recession, believed that some parts of the economy were beginning to stabilize at the end of the summer, and predicted an end to the Fed's easing cycle by December. However, the tragic terrorist events of September 11th dashed hope of an economic recovery, unsettled the financial markets and plunged the economy fully into recession. The Fed did not disappoint in light of the terrorist activity and economic slump and, with few inflationary concerns, continued to reduce rates through the end of the year. 2002 began with a market view that the Fed would lower rates once more on January 30th at its FOMC meeting. However, views changed during the month and the Fed left its Fed Funds target unchanged at 1.75%. By the FOMC's mid-March meeting, economic indicators were stronger than anticipated and market participants fully changed their views to expectations of increases in the Fed Funds rate and economic recovery by second half of 2002. The LIBOR yield curve was volatile during January, stable during February and steepened significantly during March. The curve from 1-month LIBOR to 12-month LIBOR increased from 57 basis points in December to 121 basis points at the end of March. All of the increase came from a back up in the 12-month LIBOR rate as market participants begin to price in future Fed tightenings. PORTFOLIO SPECIFICS: The Fund's primary strategy for most of the year was to maintain an average maturity longer than its competitors. Throughout much of the year, the Fund utilized a barbell strategy. Purchases of nine-month and one-year paper were made in advance of reductions in the Fed Funds rate. The purchase of longer paper contributed to Fund performance. By year-end, however, with the end of the Fed's easing cycle nearing, the Fund began to restrict new purchases to those maturing in less than six months. In addition, when available, the Fund increased its purchase of floating rate notes, which should perform nicely in a rising rate environment. MARKET OUTLOOK: Going forward, most market participants continue to expect economic recovery by the second half of the year. In addition, most expect the Fed to begin to raise its Fed Funds target by June. Given this backdrop, the Fund plans to keep its duration neutral to or shorter than the benchmark, but will consider purchasing longer securities (greater than six months) if rates make sense given Fed Funds rate expectations. PRINCIPAL RISK FACTOR(S): An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 12 INDEX DESCRIPTIONS - -------------------------------------------------------------------------------- The LEHMAN BROTHERS GOVERNMENT BOND INDEX: A market value weighted index of U.S. government and government agency securities (other than mortgage securities) with maturities of one year or more. The LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index composed of all fixed securities mortgage pools by GNMA, FNMA and the FHLMC, including GNMA Graduated Payment Mortgages. The LEHMAN BROTHERS GNMA MORTGAGE INDEX is a total comprehensive GNMA index comprised of 30-year GNMA pass-throughs, 15-year GNMA pass-throughs, and GNMA Graduated Payment Mortgages. The LEHMAN BROTHERS AGGREGATE BOND INDEX is an unmanaged index composed of securities from the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index and the Asset-Backed Securities Index. The LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index that includes all fixed income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $100 million, and at least 1 year to maturity. The CREDIT SUISSE FIRST BOSTON HIGH YIELD BOND INDEX is an index of high yield bonds rated BB or below. All indices are unmanaged. An investor cannot invest directly in an index. 13 (THIS PAGE INTENTIONALLY LEFT BLANK) 14 REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of ING Funds Trust and ING Mutual Funds and the Board of Directors and Shareholders of ING Investment Funds, Inc. and ING GNMA Income Fund, Inc. In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of ING Intermediate Bond Fund (formerly Pilgrim Intermediate Bond Fund) and ING Classic Money Market Fund (formerly ING Pilgrim Money Market Fund), two of the ten funds comprising ING Funds Trust (formerly Pilgrim Funds Trust), ING Strategic Income Fund (formerly Pilgrim Strategic Income Fund) and ING High Yield Opportunity Fund (formerly Pilgrim High Yield Fund II), two of the twelve funds comprising ING Mutual Funds (formerly Pilgrim Mutual Funds), ING High Yield Fund (formerly Pilgrim High Yield Fund), one of the two funds comprising ING Investment Funds, Inc. (formerly Pilgrim Investment Funds, Inc.) and ING GNMA Income Fund, Inc. (formerly Pilgrim GNMA Income Fund, Inc.), each a "Fund" collectively the "Funds", at March 31, 2002, the results of each of their operations for the year then ended, the changes in each of their net assets and financial highlights for each of the periods indicated except as described below, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2002 by correspondence with the custodian, brokers and transfer agent, provide a reasonable basis for our opinion. For all periods ending prior to and including December 31, 2000 for ING GNMA Income Fund, Inc., the statements of changes in net assets and financial highlights were audited by other independent accountants whose report dated February 26, 2001 expressed unqualified opinions on those financial statements and financial highlights. For all periods ending prior to and including October 31, 2000 for ING Intermediate Bond Fund and ING Classic Money Market Fund, the statements of changes in net assets and financial highlights were audited by other independent accountants whose report dated December 5, 2000 expressed unqualified opinions on those financial statements and financial highlights. For all periods ending prior to and including June 30, 2000 for ING Strategic Income Fund, ING High Yield Opportunity Fund and ING High Yield Fund, the statements of changes in net assets and financial highlights were audited by other independent accountants whose report dated August 4, 2000 expressed unqualified opinions on those financial statements and financial highlights. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Denver, Colorado May 15, 2002 15 STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2002 - --------------------------------------------------------------------------------
ING ING ING ING ING INTERMEDIATE STRATEGIC ING HIGH YIELD CLASSIC GNMA INCOME BOND INCOME HIGH YIELD OPPORTUNITY MONEY MARKET FUND FUND FUND FUND FUND FUND ------------- ------------- ------------ ------------- ------------- ------------- ASSETS: Investments in securities at value* $ 655,057,976 $ 76,313,970 $ 45,967,772 $ 164,896,258 $ 205,803,089 $ -- Short-term investments at amortized cost 3,440,930 7,267,410 3,838,000 14,683,000 20,880,000 548,972,625 Cash -- 251,472 283,285 -- -- -- Receivables: Investment securities sold -- 17,998,036 1,392,165 -- 1,850,056 -- Fund shares sold 6,519,726 158,462 35,075 320,775 239,072 2,389,431 Dividends and interest 3,890,431 678,271 548,999 4,781,894 6,563,809 3,612,989 Prepaid expenses 95,238 11,257 14,223 9,371 33,752 25,897 Reimbursement due from manager -- 6,131 50,346 28,545 269,609 119,845 ------------- ------------- ------------ ------------- ------------- ------------- Total assets 669,004,301 102,685,009 52,129,865 184,719,843 235,639,387 555,120,787 ------------- ------------- ------------ ------------- ------------- ------------- LIABILITIES: Payable for investment securities purchased 1,475,475 33,575,611 495,285 990,066 -- -- Payable for fund shares redeemed 293,211 54,063 141,043 417,955 201,217 -- Payable to affiliates 566,051 56,582 47,602 227,697 307,069 308,896 Payable to custodian 237,236 -- -- 41,754 140,588 1,992,068 Other accrued expenses and liabilities 445,826 97,775 146,215 212,136 1,463,997 243,412 ------------- ------------- ------------ ------------- ------------- ------------- Total liabilities 3,017,799 33,784,031 830,145 1,889,608 2,112,871 2,544,376 ------------- ------------- ------------ ------------- ------------- ------------- NET ASSETS $ 665,986,502 $ 68,900,978 $ 51,299,720 $ 182,830,235 $ 233,526,516 $ 552,576,411 ============= ============= ============ ============= ============= ============= NET ASSETS WERE COMPRISED OF: Paid-in capital $ 671,000,210 $ 69,527,244 $ 63,368,989 $ 369,199,680 $ 832,789,402 $ 552,611,722 Accumulated net investment income (loss) 3,756,751 25,666 323,172 (575,150) (4,531,528) -- Accumulated net realized loss on investments and foreign currencies (17,905,988) (358,237) (10,413,673) (181,333,204) (489,379,065) (35,311) Net unrealized appreciation (depreciation) of investments and foreign currencies 9,135,529 (293,695) (1,978,768) (4,461,091) (105,352,293) -- ------------- ------------- ------------ ------------- ------------- ------------- NET ASSETS $ 665,986,502 $ 68,900,978 $ 51,299,720 $ 182,830,235 $ 233,526,516 $ 552,576,411 ============= ============= ============ ============= ============= ============= * Cost of securities $ 645,922,447 $ 76,607,665 $ 47,946,540 $ 169,357,314 $ 311,063,316 $ --
See Accompanying Notes to Financial Statements 16 STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2002 - --------------------------------------------------------------------------------
ING ING ING ING ING INTERMEDIATE STRATEGIC ING HIGH YIELD CLASSIC GNMA INCOME BOND INCOME HIGH YIELD OPPORTUNITY MONEY MARKET FUND FUND FUND FUND FUND FUND ------------ ----------- ----------- ------------ ------------ ------------ CLASS A: Net assets $535,902,771 $41,502,598 $34,386,676 $ 61,930,136 $ 53,122,292 $549,999,170 Shares authorized 730,000,000 unlimited unlimited 80,000,000 unlimited unlimited Par value $ 0.01 $ 0.001 $ 0.00 $ 0.10 $ 0.00 $ 0.001 Shares outstanding 62,794,241 4,187,712 3,140,271 17,909,669 7,074,683 550,054,615 Net asset value and redemption price per share $ 8.53 $ 9.91 $ 10.95 $ 3.46 $ 7.51 $ 1.00 Maximum offering price per share (4.75%)(1) $ 8.96 $ 10.40 $ 11.50 $ 3.63 $ 7.88 $ 1.00 CLASS B: Net assets $ 79,301,877 $11,216,470 $11,847,928 $111,177,019 $143,741,803 $ 1,987,230 Shares authorized 100,000,000 unlimited unlimited 80,000,000 unlimited unlimited Par value $ 0.01 $ 0.001 $ 0.00 $ 0.10 $ 0.00 $ 0.001 Shares outstanding 9,328,749 1,133,000 1,108,856 32,180,338 19,061,517 1,987,702 Net asset value and redemption price per share(2) $ 8.50 $ 9.90 $ 10.68 $ 3.45 $ 7.54 $ 1.00 Maximum offering price per share $ 8.50 $ 9.90 $ 10.68 $ 3.45 $ 7.54 $ 1.00 CLASS C: Net assets $ 37,192,984 $ 6,382,223 $ 4,963,936 $ 4,782,279 $ 24,674,343 $ 589,915 Shares authorized 50,000,000 unlimited unlimited 20,000,000 unlimited unlimited Par value $ 0.01 $ 0.001 $ 0.00 $ 0.10 $ 0.00 $ 0.001 Shares outstanding 4,370,441 644,590 443,117 1,386,700 3,274,654 589,777 Net asset value and redemption price per share(2) $ 8.51 $ 9.90 $ 11.20 $ 3.45 $ 7.53 $ 1.00 Maximum offering price per share $ 8.51 $ 9.90 $ 11.20 $ 3.45 $ 7.53 $ 1.00 CLASS I: Net assets $ 1,615,042 $ 9,799,687 n/a n/a n/a $ 96 Shares authorized 50,000,000 unlimited n/a n/a n/a unlimited Par value $ 0.01 $ 0.001 n/a n/a n/a $ 0.001 Shares outstanding 189,100 988,422 n/a n/a n/a 96 Net asset value and redemption price per share $ 8.54 $ 9.91 n/a n/a n/a $ 1.00 Maximum offering price per share $ 8.54 $ 9.91 n/a n/a n/a $ 1.00 CLASS M: Net assets $ 495,030 n/a n/a $ 4,921,968 n/a n/a Shares authorized 10,000,000 n/a n/a 5,000,000 n/a n/a Par value $ 0.01 n/a n/a $ 0.10 n/a n/a Shares outstanding 57,978 n/a n/a 1,418,915 n/a n/a Net asset value and redemption price per share $ 8.54 n/a n/a $ 3.47 n/a n/a Maximum offering price per share (3.25%)(3) $ 8.83 n/a n/a $ 3.59 n/a n/a CLASS Q: Net assets $ 203,802 n/a $ 101,180 $ 18,833 $ 1,660,474 n/a Shares authorized 50,000,000 n/a unlimited 20,000,000 unlimited n/a Par value $ 0.01 n/a $ 0.00 $ 0.10 $ 0.00 n/a Shares outstanding 23,862 n/a 9,770 5,450 220,314 n/a Net asset value and redemption price per share $ 8.54 n/a $ 10.36 $ 3.46 $ 7.54 n/a Maximum offering price per share $ 8.54 n/a $ 10.36 $ 3.46 $ 7.54 n/a CLASS T: Net assets $ 11,274,996 n/a n/a n/a $ 10,327,604 n/a Shares authorized 10,000,000 n/a n/a n/a unlimited n/a Par value $ 0.01 n/a n/a n/a $ 0.00 n/a Shares outstanding 1,321,108 n/a n/a n/a 1,373,716 n/a Net asset value and redemption price per share(2) $ 8.53 n/a n/a n/a $ 7.52 n/a Maximum offering price per share $ 8.53 n/a n/a n/a $ 7.52 n/a
- ---------- (1) Maximum offering price is computed at 100/95.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share may be reduced for any applicable contingent deferred sales charge. (3) Maximum offering price is computed at 100/96.75 of net asset value. On purchases of $50,000 or more, the offering price is reduced. See Accompanying Notes to Financial Statements 17 STATEMENTS OF OPERATIONS for the year ended March 31, 2002 - --------------------------------------------------------------------------------
ING ING ING ING ING INTERMEDIATE STRATEGIC ING HIGH YIELD CLASSIC GNMA INCOME BOND INCOME HIGH YIELD OPPORTUNITY MONEY MARKET FUND FUND FUND FUND FUND FUND ------------ ----------- ----------- ------------ ------------- ------------ INVESTMENT INCOME: Dividends(1) $ -- $ 60,020 $ 144,031 $ -- $ 1,888,253 $ -- Interest (net of foreign withholding tax)* 38,822,790 3,045,090 3,825,463 20,092,504 28,907,026 19,389,576 Other income 69,305 11,811 -- 33,113 7,474 -- ------------ ----------- ----------- ------------ ------------- ------------ Total investment income 38,892,095 3,116,921 3,969,494 20,125,617 30,802,753 19,389,576 ------------ ----------- ----------- ------------ ------------- ------------ EXPENSES: Investment management fees 3,029,006 257,006 238,822 1,141,988 1,506,347 1,373,494 Distribution fees: Class A 1,231,066 133,075 131,234 143,286 179,326 4,036,188 Class B 629,174 66,289 75,778 1,217,290 1,560,107 23,109 Class C 244,330 47,701 39,390 49,844 274,311 18,613 Class M 2,557 -- -- 47,257 -- -- Class Q 1,478 -- 551 6 6,908 -- Class T 93,197 -- -- -- 88,509 -- Transfer agent fees: Class A 728,053 50,517 59,180 98,886 96,745 508,015 Class B 92,827 8,751 16,221 210,030 294,809 2,335 Class C 35,985 6,411 8,346 8,598 51,337 1,958 Class I 144 990 -- -- -- 939 Class M 501 -- -- 10,900 -- -- Class Q 353 -- 22 1 2,165 -- Class T 21,614 -- -- -- 25,154 -- Administrative and service fees 602,635 51,401 9,892 6,270 36,807 -- Shareholder reporting fees 329,697 18,443 10,229 80,560 149,459 150,435 Registration and filing fees 226,977 38,617 85,534 84,277 115,473 361,814 Professional fees 331,138 23,435 21,976 57,248 145,954 239,841 Custody and accounting fees 267,912 50,609 40,879 71,417 117,266 151,128 Directors' fees 31,489 2,345 1,710 7,897 10,966 22,980 Insurance fees 13,343 2,697 3,060 3,916 6,870 38,152 Miscellaneous fees 55,939 6,789 31,727 11,437 14,219 10,855 Merger fees -- -- -- -- 171,319 -- ------------ ----------- ----------- ------------ ------------- ------------ Total expenses 7,969,415 765,076 774,551 3,251,108 4,854,051 6,939,856 ------------ ----------- ----------- ------------ ------------- ------------ Less: Waived and reimbursed fees -- 94,760 197,052 178,851 701,773 2,737,023 ------------ ----------- ----------- ------------ ------------- ------------ Net expenses 7,969,415 670,316 577,499 3,072,257 4,152,278 4,202,833 ------------ ----------- ----------- ------------ ------------- ------------ Net investment income 30,922,680 2,446,605 3,391,995 17,053,360 26,650,475 15,186,743 ------------ ----------- ----------- ------------ ------------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gain (loss) on investments (913,597) 2,655,273 (1,228,830) (30,682,764) (128,472,048) (7,895) Net realized gain (loss) on foreign currencies -- -- (1,358,810) 3,431 -- -- Net change in unrealized appreciation (depreciation) of: Investments (6,963,619) (1,001,657) (417,407) 12,052,732 93,237,035 -- Foreign currencies -- -- (281,963) (35) 2,631 -- ------------ ----------- ----------- ------------ ------------- ------------ Net realized and unrealized gain (loss) on investments and foreign currencies (7,877,216) 1,653,616 (3,287,010) (18,626,636) (35,232,382) (7,895) ------------ ----------- ----------- ------------ ------------- ------------ INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 23,045,464 $ 4,100,221 $ 104,985 $ (1,573,276) $ (8,581,907) $ 15,178,848 ============ =========== =========== ============ ============= ============ * Foreign withholding tax $ -- $ -- $ 6,415 $ -- $ -- $ --
- ---------- (1) Dividends at March 31, 2002 include dividends from affiliates of $21,390 for ING Strategic Income Fund. See Accompanying Notes to Financial Statements 18 STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
ING GNMA INCOME FUND ----------------------------------------------- YEAR THREE YEAR ENDED MONTHS ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, 2002 2001 2000 ------------- ------------- ------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 30,922,680 $ 6,099,260 $ 23,520,988 Net realized gain (loss) on investments (913,597) 2,155,030 (3,100,065) Net change in unrealized appreciation (depreciation) of investments (6,963,619) 10,658,686 14,939,928 ------------- ------------- ------------- Net increase in net assets resulting from operations 23,045,464 18,912,976 35,360,851 ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (26,463,542) (5,337,765) (20,940,972) Class B (2,926,862) (15,248) -- Class C (1,103,400) (21,052) -- Class I (10,679) -- -- Class M (16,405) -- -- Class Q (34,787) -- -- Class T (745,081) -- -- ------------- ------------- ------------- Total distributions (31,300,756) (5,374,065) (20,940,972) ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 643,474,750 100,862,198 125,118,144 Net proceeds from shares issued in merger -- 121,277,768 -- Shares resulting from dividend reinvestments 25,992,838 4,928,490 19,059,996 ------------- ------------- ------------- 669,467,588 227,068,456 144,178,140 Cost of shares redeemed (524,205,659) (82,941,057) (163,864,918) ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 145,261,929 144,127,399 (19,686,778) ------------- ------------- ------------- Net increase (decrease) in net assets 137,006,637 157,666,310 (5,266,899) ------------- ------------- ------------- Net assets, beginning of period 528,979,865 371,313,555 376,580,454 ------------- ------------- ------------- Net assets, end of period $ 665,986,502 $ 528,979,865 $ 371,313,555 ============= ============= ============= Undistributed net investment income $ 3,756,751 $ 3,111,865 $ 2,580,016 ============= ============= =============
See Accompanying Notes to Financial Statements 19 STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
ING INTERMEDIATE BOND FUND ING STRATEGIC INCOME FUND ------------------------------------------- --------------------------------------------- YEAR FIVE YEAR YEAR NINE YEAR ENDED MONTHS ENDED ENDED ENDED MONTHS ENDED ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 2,446,605 $ 1,132,938 $ 2,329,136 $ 3,391,995 $ 878,413 $ 970,594 Net realized gain (loss) on investments and foreign currencies 2,655,273 1,830,366 (143,795) (2,587,640) (478,013) (764,277) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (1,001,657) 890,496 538,098 (699,370) (1,070,152) 133,421 ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 4,100,221 3,853,800 2,723,439 104,985 (669,752) 339,738 ------------ ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (1,922,242) (919,767) (2,041,049) (2,834,862) (146,883) -- Class B (282,881) (61,258) (101,798) (765,882) (247,615) -- Class C (206,467) (152,036) (163,643) (384,868) (202,833) -- Class Q -- -- -- (15,964) (14,262) -- Class X -- -- (42,824) -- -- -- Class I (104,328) -- -- -- -- -- Retail Classes -- -- -- -- -- (951,573) Advisory and Institutional Classes -- -- -- -- -- (14,213) Net realized gain from investments Class A (2,450,199) -- -- -- -- -- Class B (598,972) -- -- -- -- -- Class C (316,838) -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Total distributions (5,881,927) (1,133,061) (2,349,314) (4,001,576) (611,593) (965,786) ------------ ------------ ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 81,254,578 31,247,228 13,626,853 70,809,949 18,837,830 17,563,244 Net proceeds from shares issued in merger -- -- -- -- 38,298,220 -- Shares resulting from dividend reinvestments 5,238,279 1,079,112 2,286,176 3,130,636 154,206 496,450 ------------ ------------ ------------ ------------ ------------ ------------ 86,492,857 32,326,340 15,913,029 73,940,585 57,290,256 18,059,694 Cost of shares redeemed (56,684,962) (31,389,778) (15,129,247) (72,175,006) (13,958,363) (22,583,786) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions 29,807,895 936,562 783,782 1,765,579 43,331,893 (4,524,092) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets 28,026,189 3,657,301 1,157,907 (2,131,012) 42,050,548 (5,150,140) ------------ ------------ ------------ ------------ ------------ ------------ Net assets, beginning of period 40,874,789 37,217,488 36,059,581 53,430,732 11,380,184 16,530,324 ------------ ------------ ------------ ------------ ------------ ------------ Net assets, end of period $ 68,900,978 $ 40,874,789 $ 37,217,488 $ 51,299,720 $ 53,430,732 $ 11,380,184 ============ ============ ============ ============ ============ ============ Undistributed (distributions in excess of) net investment income $ 25,666 $ (123) $ -- $ 323,172 $ 662,982 $ 491,239 ============ ============ ============ ============ ============ ============
See Accompanying Notes to Financial Statements 20 STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
ING HIGH YIELD FUND ING HIGH YIELD OPPORTUNITY FUND -------------------------------------------- --------------------------------------------- YEAR NINE YEAR YEAR NINE YEAR ENDED MONTHS ENDED ENDED ENDED MONTHS ENDED ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 ------------ ------------- ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 17,053,360 $ 18,207,579 $ 36,230,377 $ 26,650,475 $ 13,984,487 $ 10,617,663 Net realized loss on investments and foreign currencies (30,679,333) (84,181,652) (25,618,407) (128,472,048) (30,313,380) (5,014,882) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 12,052,697 24,598,891 (31,769,051) 93,239,666 (171,723,969) (2,564,989) ------------ ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (1,573,276) (41,375,182) (21,157,081) (8,581,907) (188,052,862) 3,037,792 ------------ ------------- ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (5,436,672) (5,135,551) -- (6,458,146) (2,817,607) -- Class B (11,171,417) (11,970,081) -- (18,561,481) (7,662,538) -- Class C (451,861) (384,454) -- (3,281,268) (1,602,144) -- Class M (571,816) (715,679) -- -- -- -- Class Q (175) (774) -- (354,145) (339,297) -- Class T -- -- -- (1,699,167) (2,078,844) -- Retail Classes -- -- (36,230,374) -- -- (10,642,507) Advisory and Institutional Classes -- -- (3) -- -- (408,689) Tax return of capital (4,498,101) (4,442,387) (2,218,003) -- -- -- ------------ ------------- ------------- ------------- ------------- ------------- Total distributions (22,130,042) (22,648,926) (38,448,380) (30,354,207) (14,500,430) (11,051,196) ------------ ------------- ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 191,763,068 98,580,483 169,075,396 84,360,403 225,162,311 52,761,331 Net proceeds from shares issued in merger -- -- -- -- 157,469,063 142,232,354 Shares resulting from dividend reinvestments 7,565,343 7,751,412 14,545,896 10,800,384 5,223,248 4,467,190 ------------ ------------- ------------- ------------- ------------- ------------- 199,328,411 106,331,895 183,621,292 95,160,787 387,854,622 199,460,875 Cost of shares redeemed 201,264,772) (137,899,986) (237,672,115) (114,117,367) (93,091,171) (72,762,619) Equalization -- (85,563) -- -- -- -- ------------ ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions (1,936,361) (31,653,654) (54,050,823) (18,956,580) 294,763,451 126,698,256 ------------ ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets (25,639,679) (95,677,762) (113,656,284) (57,892,694) 92,210,159 118,684,852 ------------ ------------- ------------- ------------- ------------- ------------- Net assets, beginning of period 208,469,914 304,147,676 417,803,960 291,419,210 199,209,051 80,524,199 ------------ ------------- ------------- ------------- ------------- ------------- Net assets, end of period $182,830,235 $ 208,469,914 $ 304,147,676 $ 233,526,516 $ 291,419,210 $ 199,209,051 ============ ============= ============= ============= ============= ============= Distributions in excess of net investment income $ (575,150) $ -- $ -- $ (4,531,528) $ (1,416,713) $ -- ============ ============= ============= ============= ============= =============
See Accompanying Notes to Financial Statements 21 STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
ING CLASSIC MONEY MARKET FUND ----------------------------------------------- YEAR FIVE YEAR ENDED MONTHS ENDED ENDED MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000 ------------- ------------- ------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 15,186,743 $ 11,694,174 $ 20,954,019 Net realized loss on investments (7,895) -- -- ------------- ------------- ------------- Net increase in net assets resulting from operations 15,178,848 11,694,174 20,954,019 ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (14,840,212) (11,319,230) (19,815,480) Class B (52,545) (61,692) (135,706) Class C (45,463) (47,516) (53,814) Class I (283,241) (258,718) (946,158) Class X -- -- (22,875) ------------- ------------- ------------- Total distributions (15,221,461) (11,687,156) (20,974,033) ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 975,386,497 434,532,850 937,201,052 Shares resulting from dividend reinvestments 14,857,263 11,459,544 20,538,703 ------------- ------------- ------------- 990,243,760 445,992,394 957,739,755 Cost of shares redeemed (969,388,733) (372,069,868) (733,044,049) ------------- ------------- ------------- Net increase in net assets resulting from capital share transactions 20,855,027 73,922,526 224,695,706 ------------- ------------- ------------- Net increase in net assets 20,812,414 73,929,544 224,675,692 ------------- ------------- ------------- Net assets, beginning of period 531,763,997 457,834,453 233,158,761 ------------- ------------- ------------- Net assets, end of period $ 552,576,411 $ 531,763,997 $ 457,834,453 ============= ============= ============= Undistributed net investment income $ -- $ 7,018 $ -- ============= ============= =============
See Accompanying Notes to Financial Statements 22 FINANCIAL HIGHLIGHTS ING GNMA INCOME FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS I CLASS Q ---------- ------------------------ JANUARY 7, YEAR FEBRUARY 26, 2002(1) TO ENDED 2001(1) TO MARCH 31, MARCH 31, MARCH 31, 2002 2002 2001 ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.61 8.63 8.51 Income from investment operations: Net investment income $ 0.10 0.39 0.04 Net realized and unrealized gain (loss) on investments $ (0.10) (0.01) 0.08 Total from investment operations $ 0.00 0.38 0.12 Less distributions from: Net investment income $ 0.07 0.47 -- Total distributions $ 0.07 0.47 -- Net asset value, end of period $ 8.54 8.54 8.63 TOTAL RETURN(2): % 0.04 4.50 1.41 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 1,615 204 476 Ratios to average net assets: Expenses(3) % 0.88 1.12 1.14 Net investment income(3) % 5.83 5.35 5.42 Portfolio turnover % 76 76 33
- ---------- (1) Commencement of offering shares. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. See Accompanying Notes to Financial Statements 23 ING INTERMEDIATE BOND FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period. CLASS I ----------- JANUARY 8, 2002(1) TO MARCH 31 2002 ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 9.99 Income from investment operations: Net investment income $ 0.11 Net realized and unrealized loss on investments $ (0.07) Total from investment operations $ 0.04 Less distributions from: Net investment income $ 0.12 Total distributions $ 0.12 Net asset value, end of period $ 9.91 TOTAL RETURN(2): % 0.36 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 9,800 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 0.82 Gross expenses prior to expense reimbursement(3) % 0.90 Net investment income after expense reimbursement(3)(4) % 0.05 Portfolio turnover rate % 1,216* - ---------- (1) Commencement of offering shares. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return information for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investments, LLC within three years. * Portfolio turnover was greater then expected during this period due to active trading undertaken in response to market conditions that existed at that time. See Accompanying Notes to Financial Statements 24 FINANCIAL HIGHLIGHTS ING STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS Q -------------------------------------------------------------- YEAR NINE MONTHS YEAR THREE MONTHS JULY 27 ENDED ENDED ENDED ENDED 1998(1) TO MARCH 31, MARCH 31, JUNE 30, JUNE 30, MARCH 31, 2002 2001(6) 2000 1999(2) 1999 ---- ------- ---- ------- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 11.18 11.45 11.99 12.26 12.43 Income from investment operations: Net investment income $ 1.18 0.50 0.94 0.25 0.48 Net realized and unrealized loss on investments $ (1.12) (0.17) (0.54) (0.38) (0.04) Total from investment operations $ 0.06 0.33 0.40 (0.13) 0.44 Less distributions from: Net investment income $ 0.88 0.60 0.94 0.14 0.50 Net realized gains on investments $ -- -- -- -- 0.11 Total distributions $ 0.88 0.60 0.94 0.14 0.61 Net asset value, end of period $ 10.36 11.18 11.45 11.99 12.26 TOTAL RETURN(3): % 0.49 3.00 3.55 1.16 5.78 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 101 236 228 171 314 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.73 1.00 0.86 0.71 0.69 Gross expenses prior to expense reimbursement(4) % 1.10 2.06 2.54 1.37 1.74 Net investment income after expense reimbursement(4)(5) % 7.12 7.17 7.79 6.07 6.03 Portfolio turnover rate % 211 132 168 69 274
- ---------- (1) The Fund commenced operations on July 27, 1998. (2) Effective May 24, 1999, ING Investments, LLC, became the Investment Manager of the Fund and the Fund changed its year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investments, LLC wihin three years. (6) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 25 ING HIGH YIELD FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS Q --------------------------------------------------- YEAR NINE MONTHS YEAR JUNE 17 ENDED ENDED ENDED 1999(1) TO MARCH 31, MARCH 31, JUNE 30, JUNE 30, 2002 2001(5)(6) 2000 1999 ---- ---------- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 3.89 5.60 5.93 5.91 Income from investment operations: Net investment income $ 0.42 0.11 0.60 0.02 Net realized and unrealized loss on investments $ (0.40) (1.39) (0.33) -- Total from investment operations $ 0.02 (1.28) (0.27) 0.02 Less distributions from: Net investment income $ 0.36 0.43 0.60 -- Tax return of capital $ 0.09 -- -- -- Total distributions $ 0.45 0.43 0.60 -- Net asset value, end of period $ 3.46 3.89 5.60 5.93 TOTAL RETURN(2): % 0.64 (23.11) (5.29) 0.34 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 19 -- -- -- Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 0.98 1.07 1.05 -- Gross expenses prior to expense reimbursement(3) % 1.06 1.16 1.17 -- Net investment income after expense reimbursement(3)(4) % 9.01 10.61 10.41 -- Portfolio turnover rate % 99 100 89 184
- ---------- (1) Commencement of offering shares. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return information for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investments, LLC within three years. (5) The Fund changed its fiscal year end to March 31. (6) Per share calculations for the period were based on average shares outstanding. See Accompanying Notes to Financial Statements 26 FINANCIAL HIGHLIGHTS ING HIGH YIELD OPPORTUNITY FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS Q ------------------------------------------------------------------------ YEAR NINE MONTHS YEAR THREE MONTHS YEAR MARCH 27, ENDED ENDED ENDED ENDED ENDED 1998(1) TO MARCH 31, MARCH 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31, 2002 2001(6) 2000 1999(2) 1999 1998 ---- ------- ---- ------- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.71 10.82 11.59 11.68 12.72 12.70 Income from investment operations: Net investment income $ 0.78 0.83 1.20 0.30 1.16 0.01 Net realized and unrealized gain (loss) on investments $ (0.94) (2.07) (0.76) (0.11) (1.01) 0.01 Total from investment operations $ (0.16) (1.24) 0.44 0.19 0.15 Less distributions from: Net investment income $ 1.01 0.87 1.21 0.28 1.19 -- Total distributions $ 1.01 0.87 1.21 0.28 1.19 -- Net asset value, end of period $ 7.54 8.71 10.82 11.59 11.68 12.72 TOTAL RETURN(3): % (1.56) (11.80) 4.04 1.63 1.40 0.16 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 1,660 3,041 6,882 3,229 6,502 567 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.93 1.00 1.08 0.90 0.87 0.97 Gross expenses prior to expense reimbursement(4) % 1.20 1.22 1.27 1.17 1.28 0.97 Net investment income after expense reimbursement(4)(5) % 11.33 11.28 10.73 9.88 10.01 7.53 Portfolio turnover rate % 102 113 113 44 242 484
- ---------- (1) The Fund commenced operations on March 27, 1998. (2) Effective May 24, 1999, ING Investments, LLC, became the Investment Manager of the Fund and the Fund changed its year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (4) Annualized for periods less than one year (5) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investments, LLC within three years. (6) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 27 ING CLASSIC MONEY MARKET FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS I -------------------------------------------------------- YEAR FIVE MONTHS YEAR OCTOBER 13, ENDED ENDED ENDED 1999(1) TO MARCH 31, MARCH 31, OCTOBER 31, OCTOBER 31, 2002 2001(4) 2000 1999 ---- ------- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.04 0.02 0.06 -- Total from investment operations $ 0.04 0.02 0.06 -- Less distributions from: Net investment income $ 0.04 0.02 0.06 -- Total distributions $ 0.04 0.02 0.06 -- Net asset value, end of period $ 1.00 1.00 1.00 1.00 TOTAL RETURN(2): % 3.71 2.46 6.19 0.28 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ --* 10,816 12,061 1,906 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 0.31 0.31 0.28 0.31 Gross expenses prior to expense reimbursement(3) % 0.43 0.55 0.41 0.59 Net investment income after expense reimbursement(3)(5) % 3.85 6.08 5.96 5.29
- ---------- (1) Commencement of offering shares. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed its fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses subject to possible reimbursements to ING Investments, LLC within three years. * Amount represents less than $1,000. See Accompanying Notes to Financial Statements 28 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 - -------------------------------------------------------------------------------- NOTE 1 -- ORGANIZATION ORGANIZATION. ING GNMA Income Fund, Inc. (formerly Pilgrim GNMA Income Fund, Inc.), ING Funds Trust ("IFT", formerly Pilgrim Funds Trust), ING Mutual Funds ("IMF", formerly Pilgrim Mutual Funds) and ING Investment Funds, Inc. ("IIF", formerly Pilgrim Investment Funds, Inc.) are each open-end investment management companies registered under the Investment Company Act of 1940, as amended. ING GNMA Income Fund ("GNMA Fund", formerly Pilgrim GNMA Income Fund) is the single series of ING GNMA Income Fund, Inc., a Maryland Corporation organized on August 15, 1973. IFT is a Delaware business trust established July 30, 1998 and consists of ten separately managed portfolios. Two of the Portfolios in this report are ING Intermediate Bond Fund ("Intermediate Bond Fund", formerly Pilgrim Intermediate Bond Fund), and ING Classic Money Market Fund (formerly ING Pilgrim Money Market Fund). IMF is a Delaware business trust organized in 1992 and consists of twelve separately managed portfolios. Two of the Portfolios in this report are ING Strategic Income Fund ("Strategic Income Fund", formerly Pilgrim Strategic Income Fund) and ING High Yield Opportunity Fund ("High Yield Opportunity Fund", formerly Pilgrim High Yield Fund II). IIF is a Maryland Corporation organized in July 1969 and consists of two separately managed portfolios. One of the Portfolios in this report is the ING High Yield Fund ("High Yield Fund", formerly Pilgrim High Yield Fund). The investment objective of each Fund is described in each Fund's prospectus. Each Fund offers at least four of the following classes of shares: Class A, Class B, Class C, Class I, Class M, Class Q and Class T. The separate classes of shares differ principally in the applicable sales charges (if any), transfer agent fees, distribution fees and shareholder servicing fees. Shareholders of each class also bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund and earn income from the portfolio pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains are allocated to each class pro rata based on the net assets of each class on the date of distribution. No class has preferential dividend rights. Differences in per share dividend rates generally result from the relative weighting of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution, and shareholder servicing fees. Class B shares, along with their pro rata reinvested dividend shares, automatically convert to Class A shares approximately eight years after purchase. On September 1, 2000, ING Group N.V. (NYSE:ING) acquired ReliaStar Financial Corp., the indirect parent company of Pilgrim Investments, Inc., Adviser to some of the Funds, Pilgrim Securities, Inc., Distributor to the Funds and Pilgrim Group, Inc., Administrator to the Funds. In conjunction with the acquistions, the Adviser, Distributor and Administrator changed their names to ING Pilgrim Investments, Inc., ING Pilgrim Securities, Inc. and ING Pilgrim Group, Inc., respectively, effective September 8, 2000. Effective February 26, 2001, ING Pilgrim Investments, Inc. was merged into the newly formed ING Pilgrim Investments, LLC. Effective February 27, 2001, ING Pilgrim Group, Inc. was merged into the newly formed ING Pilgrim Group, LLC. Effective March 1, 2002, the Adviser, Distributor and Administrator changed their names to ING Investments, LLC, ING Funds Distributor, Inc. and ING Funds Services, LLC, respectively. REORGANIZATION. On November 2, 2001, the Board of Directors/Trustees of the ING Funds approved a proposal to reorganize the High Yield Fund into the High Yield Opportunity Fund. This proposed reoganziation is subject to approval by the shareholders of the High Yield Fund. If shareholder approval is obtained, it is expected that the reorganization would take place during the second quarter of 2002. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements, and such policies are in conformity with generally accepted accounting principles for investment companies. 29 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- A. SECURITY VALUATION. Investments in equity securities traded on a national securities exchange or included on the NASDAQ National Market System are valued at the last reported sale price. Securities traded on an exchange or NASDAQ for which there has been no sale and securities traded in the over-the-counter-market are valued at the mean between the last reported bid and ask prices. All investments quoted in foreign currencies will be valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the time such valuation is determined by each Fund's custodian. Debt securities are valued at bid prices (High Yield Fund, including securities sold short, is valued at the mean between the bid and ask prices) obtained from independent services or from one or more dealers making markets in the securities and may be adjusted based on the Fund's valuation procedures. U.S. Government obligations are valued by using market quotations or independent pricing services that use prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Securities for which market quotations are not readily available are valued at their respective fair values as determined in good faith and in accordance with policies set by the Board of Directors/Trustees. Investments in securities maturing in less than 60 days are valued at amortized cost, which approximates market value. At March 31, 2002, the Strategic Income Fund, High Yield Fund and High Yield Opportunity Fund contained three, one and thirteen securities, respectively, for which bid prices obtained from one or more dealers making markets in the securities were adjusted based on the Funds' valuation procedures. These securities had a total value of $302,424 (represents 0.59% of net assets), $453,937 (represents 0.25% of net assets), and $5,265,920 (represents 2.25% of net assets), for the Strategic Income Fund, High Yield Fund and High Yield Opportunity Fund, respectively. In addition, at March 31, 2002, the High Yield Opportunity Fund contained twelve securities for which market quotations were not readily available and which were valued at their fair value as determined in good faith and in accordance with policies set by the Board of Directors/Trustees. These securities had a total value of $923,291 (represents 0.40% of net assets) for the High Yield Opportunity Fund. B. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Securities transactions are accounted for on the trade date. Realized gains and losses are reported on the basis of identified cost of securities delivered. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date, or for certain foreign securities, when the information becomes available to the funds. Premium amortization and discount accretion are determined by the effective yield method. C. FOREIGN CURRENCY TRANSLATION. The books and records of the Funds are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis: (1) Market value of investment securities, other assets and liabilities -- at the exchange rates prevailing at the end of the day. (2) Purchases and sales of investment securities, income and expenses -- at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets and the market values are presented at the foreign exchange rates at the end of the day, the Funds do not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments. For securities which are subject to foreign withholding tax upon disposition, liabilities are recorded on the statement of assets and liabilities for the estimated tax withholding based on the securities' current market values. Upon disposition, realized gains or losses on such securities are recorded net of foreign withholding tax. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities 30 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and the U.S. Government. These risks include but are not limited to re-evaluation of currencies and future adverse political and economic developments which could cause securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and the U.S. Government. D. FOREIGN CURRENCY TRANSACTIONS. Certain funds may enter into foreign currency exchange transactions to convert to and from different foreign currencies and to and from the U.S. dollar in connection with the planned purchases or sales of securities. The Funds either enter into these transactions on a spot basis at the spot rate prevailing in the foreign currency exchange market or use forward foreign currency contracts to purchase or sell foreign currencies. When the contract is fulfilled or closed, gains or losses are realized. Until then, the gain or loss is included in unrealized appreciation or depreciation. Risks may arise upon entering into forward contracts from the potential inability of counterparties to meet the terms of their forward contracts and from the potential inability of counterparties to meet the terms of their forward contracts and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar. Each Fund may enter into futures contracts involving foreign currency, interest rates, securities and securities indices, for hedging purposes only. A futures contract obligates the seller of the contract to deliver and the purchaser of the contract to take delivery of the type of foreign currency, financial instrument or security called for in the contract at a specified future time for a specified price. Upon entering into such a contract, a Fund is required to deposit and maintain as collateral such initial margin as required by the exchange on which the contract is traded. Pursuant to the contract, a Fund agrees to receive from or pay to the broker an amount equal to the daily fluctuations in the value of the contract. Such receipts or payments are known as variation margins and are recorded as unrealized gains or losses by the Fund. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. E. DISTRIBUTIONS TO SHAREHOLDERS. The Funds record distributions to their shareholders on ex-date. Intermediate Bond Fund, High Yield Opportunity Fund, and ING Classic Money Market Fund declare and become ex-dividend daily and pay dividends monthly. GNMA Fund, Strategic Income Fund and High Yield Fund declare and become ex-dividend monthly and pay dividends monthly. Each Fund distributes capital gains, to the extent available, annually. F. FEDERAL INCOME TAXES. It is the policy of the Funds to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of their net investment income and any net realized capital gains to their shareholders. Therefore, a federal income tax or excise tax provision is not required. In addition, by distributing during each calendar year substantially all of its net investment income and net realized capital gains, each Fund intends not to be subject to any federal excise tax. The Board of Directors/Trustees intends to offset any net capital gains with any available capital loss carryforward until each carryforward has been fully utilized or expires. In addition, no capital gain distribution shall be made until the capital loss carryforward has been fully utilized or expires. G. USE OF ESTIMATES. Management of the Funds has made certain estimates and assumptions relating to the reporting of assets, liabilities, income, and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. H. REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements only with government 31 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- securities dealers recognized by the Board of Governors of the Federal Reserve System or with member banks of the Federal Reserve System. Under such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Fund will always receive as collateral securities with market values equal to at least 100% of the amount being invested by the Fund. If the seller defaults, a Fund may incur a delay in the realization of proceeds, it may incur a loss if the value of the collateral securing the repurchase agreement declines, and it may incur disposition costs in liquidating the collateral. I. SECURITIES LENDING. Each Fund had the option to temporarily loan 33 1/3% of its total assets to brokers, dealers or other financial institutions in exchange for a negotiated lender's fee. The borrower is required to fully collateralize the loans with cash, letters of credit or U.S. Government securities. During the year ended March 31, 2002, the Funds did not loan any securities. J. EQUALIZATION. The High Yield Fund followed the accounting practice known as equalization, by which a portion of the proceeds from sales and costs of purchases of Fund shares, equivalent on a per share basis to the amount of distributable investment income on the date of the transaction, is credited or charged to undistributed income. As a result, undistributed investment income per share is unaffected by sales or redemptions of Fund shares. High Yield Fund discontinued the practice of equalization in December of 2000. K. PRINCIPLES OF PRESENTATION. Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation. L. RECENTLY ISSUED ACCOUNTING STANDARDS. In November 2000, a revised AICPA Audit and Accounting Guide (the "Guide"), AUDITS OF INVESTMENT COMPANIES, was issued, and is effective for fiscal years beginning after December 15, 2000. The revised Guide requires Funds to classify gains and losses realized on principal paydowns received on mortgaged-backed securities previously included in realized gains/loss, as part of interest income. Adopting this principle does not affect the Funds' net asset value but does change the classification between interest income and realized gain/loss in the statements of operations. The adoption of this principle is not material to the financial statements. NOTE 3 -- INVESTMENT TRANSACTIONS For the year ended March 31, 2002, the cost of purchases and proceeds from the sales of securities, excluding short-term securities, were as follows: PURCHASES SALES ------------ ------------ GNMA Fund $ -- $ -- Intermediate Bond Fund 396,852,834 377,028,710 Strategic Income Fund 47,434,067 42,642,758 High Yield Fund 172,354,635 185,570,752 High Yield Opportunity Fund 237,497,537 273,920,313 U.S. Government Securities not included above were as follows: PURCHASES SALES ------------ ------------ GNMA Fund $685,711,538 $449,327,817 Intermediate Bond Fund 290,815,878 271,376,462 Strategic Income Fund 59,578,144 62,987,804 High Yield Fund -- -- High Yield Opportunity Fund -- -- NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES GNMA Fund, Strategic Income Fund, High Yield Fund and High Yield Opportunity Fund have entered into an Investment Management Agreement with ING Investments, LLC (the "Manager", the "Investment Manager" or the "Adviser"), a wholly-owned subsidiary of ING Groep N.V. ING Mutual Funds Management, LLC served as the manager of the Intermediate Bond Fund and ING Classic Money Market Fund pursuant to an Investment Management Agreement. On April 30, 2001 ING Mutual Funds Management, LLC merged into ING Investments, LLC. All contracts, obligations and assets of ING Mutual Funds Management, LLC were assumed by ING Investments, LLC pursuant to the merger. The investment management agreements compensate the Manager with a fee, computed daily and payable monthly, based on the average daily net assets of each Fund, at the following annual rates: 32 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- For GNMA Fund -- 0.60% for the first $150 million, 0.50% of the next $250 million, 0.45% of the next $400 million and 0.40% in excess of $800 million; for Intermediate Bond -- 0.50%; for Strategic Income Fund -- 0.45% for the first $500 million, 0.40% of the next $250 million and 0.35% in excess of $750 million; for High Yield Fund and High Yield Opportunity Fund -- 0.60%; for ING Classic Money Market Fund -- 0.25%. The fees payable to the Manager were discounted for the Intermediate Bond Fund and the ING Classic Money Market Fund by 75% in each Fund's first year of operations, and by 50% in each Fund's second year of operations. ING Investment Management LLC (IIM), a registered investment advisor, serves as subadvisor to the Intermediate Bond Fund and ING Classic Money Market Fund pursuant to a subadvisory agreement between the Adviser and IIM. For its services IIM receives from the Adviser, a fee equal to 0.25% and 0.125%, respectively, of the average daily net assets of the Intermediate Bond Fund and ING Classic Money Market Fund. ING Funds Services, LLC (the "Administrator" or "IFS"), serves as administrator to each Fund except High Yield Fund. The GNMA Fund, Intermediate Bond Fund, Strategic Income Fund and High Yield Opportunity Fund pay the Administrator a fee calculated at an annual rate of 0.10% of each Fund's average daily net assets. High Yield Fund has entered into a Service Agreement with IFS wherby IFS will act as Shareholder Service Agent for the Fund. The agreement provides that IFS will be compensated for incoming and outgoing shareholder telephone calls and letters, and all reasonable out-of-pocket expenses incurred in connection with the performance of such services. Prior to March 1, 2002, IFS acted as Shareholder Service Agent for the Strategic Income Fund and High Yield Opportunity Fund. NOTE 5 -- DISTRIBUTION AND SERVICE FEES Each share class of the Funds (except as noted below) has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), whereby ING Funds Distributor, Inc. (the "Distributor") is reimbursed or compensated (depending on the class of shares) by the Funds for expenses incurred in the distribution of each Funds' shares ("Distribution Fees"). Pursuant to the 12b-1 Plans, the Distributor is entitled to payment each month for actual expenses incurred in the distribution and promotion of each 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 have 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:
CLASS A CLASS B CLASS C CLASS I CLASS M CLASS Q CLASS T ------- ------- ------- ------- ------- ------- ------- GNMA Fund 0.25% 1.00% 1.00% N/A 0.75% 0.25% 0.65% Intermediate Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A Strategic Income Fund 0.35% 0.75% 0.75% N/A N/A 0.25% N/A High Yield Fund 0.25% 1.00% 1.00% N/A 0.75% 0.25% N/A High Yield Opportunity Fund 0.35% 1.00% 1.00% N/A N/A 0.25% 0.65% ING Classic Money Market Fund 0.75% 1.00% 1.00% N/A N/A N/A N/A
During the year ended March 31, 2002, the Distributor waived 0.10% of the Distribution fee for Intermediate Bond Fund for Class A only and waived 0.40% of the Distribution Fee for ING Classic Money Market Fund for Class A only. For the year ended March 31, 2002, the Distributor has retained $163,140 as sales charges from the proceeds of Class A Shares sold, $38,511 from the proceeds of Class C Shares redeemed, and $760 from the proceeds of Class M Shares sold. 33 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- NOTE 6 -- OTHER TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES At March 31, 2002, the Funds had the following amounts recorded in payable to affiliates on the accompanying Statements of Assets and Liabilities (see Notes 4 and 5):
ACCRUED ACCRUED SHAREHOLDER INVESTMENT ACCRUED SERVICES AND MANAGEMENT ADMINISTRATIVE DISTRIBUTION FEES FEES FEES TOTAL -------- -------- -------- -------- GNMA Fund $283,114 $ 65,227 $217,710 $566,051 Intermediate Bond Fund 28,215 5,643 22,724 56,582 Strategic Income Fund 19,874 6,378 21,350 47,602 High Yield Fund 93,455 19,292 114,950 227,697 High Yield Opportunity Fund 117,282 25,697 164,090 307,069 ING Classic Money Market Fund 119,694 1,012 188,190 308,896
At March 31, 2002, Lion Connecticut Holdings, Inc., a wholly-owned indirect subsidiary of ING Groep N.V., held 41.2% and 38.1% of the shares outstanding of Intermediate Bond Fund and Strategic Income Fund, respectively. At March 31, 2002, ING National Trust, a wholly-owned indirect subsidiary of ING Groep N.V., held 14.1% of the shares outstanding of Intermediate Bond Fund. Investment activities of these shareholders could have a material impact on the Funds. NOTE 7 -- EXPENSE LIMITATIONS For the following Funds, the Investment Manager has voluntarily agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses to the following annual expenses to average daily net assets ratios:
CLASS A CLASS B CLASS C CLASS I CLASS M CLASS Q CLASS T ------- ------- ------- ------- ------- ------- ------- GNMA Fund 1.29% 2.04% 2.04% 1.04% N/A 1.29% N/A Intermediate Bond Fund 1.15% 1.90% 1.90% 0.90% N/A N/A N/A Strategic Income Fund 0.95% 1.35% 1.35% N/A N/A 0.85% N/A High Yield Fund 1.10% 1.85% 1.85% N/A 1.60% 1.10% N/A High Yield Opportunity Fund 1.10% 1.75% 1.75% N/A N/A 1.00% 1.40% ING Classic Money Market Fund 0.77% 1.41% 1.41% 0.31% N/A N/A N/A
Each Fund will at a later date reimburse the Investment Manager for management fees waived and other expenses assumed by the Investment Manager during the previous 36 months, but only if, after such reimbursement, the Fund's expense ratio does not exceed the percentage described above. Waived and reimbursed fees and any recoupment by the Investment Manager of such waived and reimbursed fees are reflected on the accompanying Statements of Operations for each Fund. NOTE 8 -- LINE OF CREDIT All of the Funds included in this report with the exception of GNMA Fund, in addition to certain other funds managed by the Adviser, have entered into an unsecured committed revolving line of credit agreement (the "Credit Agreement") with State Street Bank and Trust Company for an aggregate amount of $125,000,000. The proceeds may be used only to: (1) temporarily finance the purchase and sale of securities; (2) finance the redemption of shares of an investor in the Funds; and (3) enable the Funds to meet other emergency expenses as defined in the Credit Agreement. The Funds to which the line of credit is available pay a commitment fee equal to 0.08% per annum on the daily unused portion of the committed line amount payable quarterly in arrears. During the year ended March 31, 2002, the Funds did not have any loans outstanding. NOTE 9 -- WHEN ISSUED SECURITIES (GNMA FUND) The GNMA Fund, at times, may purchase GNMA certificates on a delayed delivery, forward or when-issued basis with payment and delivery often taking place a month or more after the initiation of the transaction. It is the Fund's policy to record when-issued GNMA certificates (and the corresponding obligation to pay for the securities) at the time the purchase commitment becomes fixed -- generally on the trade date. It is also the Fund's policy to segregate assets to cover its commitments for when-issued securities on trade date. 34 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- NOTE 10 -- CONSTRUCTION LOAN SECURITIES (GNMA FUND) The GNMA Fund may purchase construction loan securities, which are issued to finance building costs. The funds are disbursed as needed or in accordance with a prearranged plan. The securities provide for the timely payment to the registered holder of interest at the specified rate plus scheduled installments of principal. Upon completion of the construction phase, the construction loan securities are terminated and project loan securities are issued. It is the Fund's policy to record these GNMA certificates on trade date, and to segregate assets to cover its commitments on trade date as well. NOTE 11 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
CLASS A SHARES CLASS B SHARES ---------------------------------------------- ---------------------------------------- YEAR THREE YEAR THREE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED PERIOD ENDED MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, 2002 2001 2000 2002 2001 2000(1) ------------- ------------ ------------- ------------ ------------ --------- GNMA FUND (NUMBER OF SHARES) Shares sold 63,157,820 9,936,676 15,011,381 6,022,864 1,097,963 103,659 Shares issued in merger -- 6,943,491 -- -- 4,553,567 -- Shares issued as reinvestment of dividends 2,668,663 578,344 2,343,091 186,731 1,539 455 Shares redeemed (55,105,271) (9,201,160) (20,138,470) (2,387,819) (249,233) (977) ------------- ------------ ------------- ------------ ------------ --------- Net increase (decrease) in shares outstanding 10,721,212 8,257,351 (2,783,998) 3,821,776 5,403,836 103,137 ============= ============ ============= ============ ============ ========= GNMA FUND ($) Shares sold $ 546,608,964 $ 84,029,800 $ 122,250,526 $ 52,159,368 $ 8,930,188 $ 858,288 Shares issued in merger -- 59,085,277 -- -- 38,677,635 -- Shares issued as reinvestment of dividends 23,079,905 4,895,626 19,042,463 1,612,231 13,021 3,763 Shares redeemed (477,081,467) (78,707,194) (163,634,919) (20,607,683) (2,134,765) (8,207) ------------- ------------ ------------- ------------ ------------ --------- Net increase (decrease) $ 92,607,402 $ 69,303,509 $ (22,341,930) $ 33,163,916 $ 45,486,079 $ 853,844 ============= ============ ============= ============ ============ ========= CLASS C SHARES CLASS I SHARES ------------------------------------------- -------------- YEAR THREE ENDED MONTHS ENDED PERIOD ENDED PERIOD ENDED MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, 2002 2001 2000(2) 2002(4) ------------ ------------ ----------- ----------- GNMA FUND (NUMBER OF SHARES) Shares sold 4,825,457 923,217 243,137 210,287 Shares issued in merger -- 673,255 -- -- Shares issued as reinvestment of dividends 72,008 2,350 1,667 1,232 Shares redeemed (2,123,195) (220,849) (26,606) (22,419) ------------ ------------ ----------- ----------- Net increase (decrease) in shares outstanding 2,774,270 1,377,973 218,198 189,100 ============ ============ =========== =========== GNMA FUND ($) Shares sold $ 41,776,167 $ 7,833,790 $ 2,009,330 $ 1,814,979 Shares issued in merger -- 5,719,720 -- -- Shares issued as reinvestment of dividends 622,914 19,843 13,770 10,679 Shares redeemed (18,282,654) (1,879,617) (221,792) (191,917) ------------ ------------ ----------- ----------- Net increase (decrease) $ 24,116,427 $ 11,693,736 $ 1,801,308 $ 1,633,741 ============ ============ =========== =========== CLASS M SHARES CLASS Q SHARES CLASS T SHARES ------------------------ ------------------------- --------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2002 2001(3) 2002 2001(3) 2002 2001(3) --------- --------- ----------- --------- ----------- ------------ GNMA FUND (NUMBER OF SHARES) Shares sold 34,505 -- 93,434 7,106 177 1,580 Shares issued in merger -- 34,197 -- 50,391 -- 2,061,429 Shares issued as reinvestment of dividends 1,394 -- 3,377 -- 72,423 -- Shares redeemed (6,551) (5,567) (128,049) (2,397) (796,883) (17,618) --------- --------- ----------- --------- ----------- ------------ Net increase (decrease) in shares outstanding 29,348 28,630 (31,238) 55,100 (724,283) 2,045,391 ========= ========= =========== ========= =========== ============ GNMA FUND ($) Shares sold $ 300,488 $ -- $ 813,238 $ 54,840 $ 1,546 $ 13,580 Shares issued in merger -- 311,809 -- 428,802 -- 17,054,525 Shares issued as reinvestment of dividends 12,067 -- 29,255 -- 625,787 -- Shares redeemed (56,512) (47,654) (1,099,075) (20,517) (6,886,351) (151,310) --------- --------- ----------- --------- ----------- ------------ Net increase (decrease) $ 256,043 $ 264,155 $ (256,582) $ 463,125 $(6,259,018) $ 16,916,795 ========= ========= =========== ========= =========== ============
- ---------- (1) Class B commenced operations on October 6, 2000. (2) Class C commenced operations of October 13, 2000. (3) Class M, Q and T commenced operations on February 26, 2001. (4) Class I commenced operations on January 7, 2002. 35 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES -------------------------------------------- --------------------------------------------- YEAR FIVE YEAR FIVE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ----------- ----------- INTERMEDIATE BOND FUND (NUMBER OF SHARES) Shares sold 5,035,127 2,799,804 742,508 1,144,345 126,479(2) 197,117 Shares issued as reinvestment of dividends 403,357 87,297 210,814 59,528 6,008 9,518 Shares redeemed (4,549,770) (2,728,504) (1,217,143) (346,703) (16,667) (254,916) ------------ ------------ ------------ ------------ ----------- ----------- Net increase (decrease) in shares outstanding 888,714 158,597 (263,821) 857,170 115,820 (48,281) ============ ============ ============ ============ =========== =========== INTERMEDIATE BOND FUND ($) Shares sold $ 52,129,574 $ 27,656,049 $ 6,951,913 $ 11,851,772 $ 1,282,225(2) $ 1,832,353 Shares issued as reinvestment of dividends 4,097,319 867,710 1,990,945 601,448 59,681 95,747 Shares redeemed (47,299,269) (26,982,543) (11,378,033) (3,506,893) (165,234) (2,372,024) ------------ ------------ ------------ ------------ ----------- ----------- Net increase (decrease) $ 8,927,624 $ 1,541,216 $ (2,435,175) $ 8,946,327 $ 1,176,672 $ (443,924) ============ ============ ============ ============ =========== =========== CLASS C SHARES CLASS I SHARES CLASS X SHARES(3) ----------------------------------------- -------------- --------------------------- FIVE FIVE YEAR ENDED MONTHS ENDED YEAR ENDED PERIOD ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000 2002(1) 2001 2000 ----------- ----------- ----------- ------------ --------- --------- INTERMEDIATE BOND FUND (NUMBER OF SHARES) Shares sold 703,512 235,675 479,308 1,005,783 1 35,831 Shares issued as reinvestment of dividends 42,864 15,272 15,231 10,435 -- 4,185 Shares redeemed (540,629) (363,308) (58,433) (27,796) (58,228)(2) (88,834) ----------- ----------- ----------- ------------ --------- --------- Net increase (decrease) in shares outstanding 205,747 (112,361) 436,106 988,422 (58,227) (48,818) =========== =========== =========== ============ ========= ========= INTERMEDIATE BOND FUND ($) Shares sold $ 7,201,959 $ 2,308,946 $ 4,500,995 $ 10,071,273 $ 8 $ 341,592 Shares issued as reinvestment of dividends 435,184 151,721 157,438 104,328 -- 42,046 Shares redeemed (5,601,691) (3,634,603) (542,480) (277,109) (607,398)(2) (836,710) ----------- ----------- ----------- ------------ --------- --------- Net increase (decrease) $ 2,035,452 $(1,173,936) $ 4,115,953 $ 9,898,492 $(607,390) $(453,072) =========== =========== =========== ============ ========= =========
- ---------- (1) Class I Shares commenced operations on January 8, 2002. (2) Amounts reflect 57,507 of Class X shares, valued at $550,587, that were converted into Class B shares on November 17, 2000. (3) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 36 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES ------------------------------------------------ --------------------------------------------- YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 --------------- ---------------- --------------- --------------- -------------- -------------- STRATEGIC INCOME FUND (NUMBER OF SHARES) Shares sold 4,697,482 518,725 604,669 674,202 408,264 235,490 Shares issued in merger -- 3,150,703 -- -- 92,272 -- Shares issued as reinvestment of dividends 226,982 4,630 11,483 31,890 4,913 16,764 Shares redeemed (5,100,284) (583,744) (607,655) (368,456) (112,217) (333,238) ------------- ------------ ------------ ------------- ------------ ------------ Net increase (decrease) in shares outstanding (175,820) 3,090,314 8,497 337,636 393,232 (80,984) ============= ============ ============ ============= ============ ============ STRATEGIC INCOME FUND ($) Shares sold $ 53,226,132 $ 7,106,388 $ 7,329,922 $ 7,477,720 $ 4,695,326 $ 2,807,321 Shares issued in merger -- 37,188,186 -- -- 1,064,000 -- Shares issued as reinvestment of dividends 2,571,224 54,593 139,358 352,785 56,288 199,456 Shares redeemed (57,817,171) (6,920,354) (7,363,256) (4,086,298) (1,297,614) (3,971,439) ------------- ------------ ------------ ------------- ------------ ------------ Net increase (decrease) $ (2,019,815) $ 37,428,813 $ 106,024 $ 3,744,207 $ 4,518,000 $ (964,662) ============= ============ ============ ============= ============ ============ CLASS C SHARES CLASS Q SHARES ------------------------------------------------ ------------------------------------------ YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 --------------- -------------- ----------------- --------------- -------------- ----------- STRATEGIC INCOME FUND (NUMBER OF SHARES) Shares sold 730,521 546,942 594,925 152,597 38,536 5,652 Shares issued in merger -- 3,821 -- -- -- -- Shares issued as reinvestment of dividends 16,633 3,185 11,584 1,329 462 1,233 Shares redeemed (735,217) (445,234) (905,931) (165,279) (37,766) (1,293) ------------ ------------ ------------- ------------ ---------- --------- Net increase (decrease) in shares outstanding 11,937 108,714 (299,422) (11,353) 1,232 5,592 ============ ============ ============= ============ ========== ========= STRATEGIC INCOME FUND ($) Shares sold $ 8,465,693 $ 6,606,970 $ 7,361,851 $ 1,640,404 $ 429,146 $ 64,150 Shares issued in merger -- 46,034 -- -- -- -- Shares issued as reinvestment of dividends 192,316 38,209 143,424 14,311 5,116 14,212 Shares redeemed (8,486,891) (5,322,378) (11,234,101) (1,784,646) (418,017) (14,990) ------------ ------------ ------------- ------------ ---------- --------- Net increase (decrease) $ 171,118 $ 1,368,835 $ (3,728,826) $ (129,931) $ 16,245 $ 63,372 ============ ============ ============= ============ ========== ========= CLASS A SHARES CLASS B SHARES ---------------------------------------------- -------------------------------------------- YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 ------------- ------------ ------------- ------------ ------------ ------------ HIGH YIELD FUND (NUMBER OF SHARES) Shares sold 47,045,534 15,745,272 18,403,831 4,988,334 5,309,475 10,007,643 Shares issued as reinvestment of dividends 868,779 646,613 992,628 1,119,773 995,556 1,441,815 Shares redeemed (44,279,505) (19,153,331) (24,529,807) (9,945,406) (9,975,735) (15,933,643) ------------- ------------ ------------- ------------ ------------ ------------ Net increase (decrease) in shares outstanding 3,634,808 (2,761,446) (5,133,348) (3,837,299) (3,670,704) (4,484,185) ============= ============ ============= ============ ============ ============ HIGH YIELD FUND ($) Shares sold $ 168,380,158 $ 66,608,855 $ 97,912,317 $ 17,928,604 $ 22,503,028 $ 55,282,605 Shares issued as reinvestment of dividends 3,084,229 2,819,377 5,460,638 3,996,787 4,335,584 7,894,426 Shares redeemed (158,516,234) (82,304,218) (131,398,105) (35,288,970) (43,506,185) (86,943,865) ------------- ------------ ------------- ------------ ------------ ------------ Net increase (decrease) $ 12,948,153 $(12,875,986) $ (28,025,150) $(13,363,579) $(16,667,573) $(23,766,834) ============= ============ ============= ============ ============ ============ CLASS C SHARES ------------------------------------------ YEAR NINE ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 ----------- ----------- ------------ HIGH YIELD FUND (NUMBER OF SHARES) Shares sold 698,361 2,026,872 2,837,111 Shares issued as reinvestment of dividends 49,016 34,886 28,522 Shares redeemed (776,938) (1,825,857) (1,778,397) ----------- ----------- ------------ Net increase (decrease) in shares out- standing 29,561 235,901 1,087,236 =========== =========== ============ HIGH YIELD FUND ($) Shares sold $ 2,472,909 $ 9,115,727 $ 15,174,843 Shares issued as reinvestment of dividends 175,072 151,350 153,864 Shares redeemed (2,724,654) (8,303,880) (9,243,746) ----------- ----------- ------------ Net increase (decrease) $ (76,673) $ 963,197 $ 6,084,961 =========== =========== ============
37 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - --------------------------------------------------------------------------------
CLASS M SHARES CLASS Q SHARES ------------------------------------------------ ------------------------------------ YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 ------------ ------------- ------------- -------- --------- ----- HIGH YIELD FUND (NUMBER OF SHARES) Shares sold 863,037 95,583 127,747 6,225 3,863 -- Shares issued as reinvestment of dividends 86,174 101,388 188,400 47 218 -- Shares redeemed (1,346,516) (909,049) (1,858,983) (828) (4,080) -- ------------ ------------- ------------- -------- --------- ----- Net increase (decrease) in shares outstanding (397,305) (712,078) (1,542,836) 5,444 1 -- ============ ============= ============= ======== ========= ===== HIGH YIELD FUND ($) Shares sold $ 2,960,082 $ 395,381 $ 705,631 $ 21,315 $ 19,119 $ -- Shares issued as reinvestment of dividends 309,096 444,144 1,036,966 159 957 2 Shares redeemed (4,732,104) (3,916,982) (10,086,399) (2,810) (15,911) -- ------------ ------------- ------------- -------- --------- ----- Net increase (decrease) $ (1,462,926) $ (3,077,457) $ (8,343,802) $ 18,664 $ 4,165 $ 2 ============ ============= ============= ======== ========= ===== CLASS A SHARES CLASS B SHARES -------------------------------------------- --------------------------------------------- YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------- ------------ HIGH YIELD OPPORTUNITY FUND (NUMBER OF SHARES) Shares sold 7,384,162 3,446,818 2,024,176 2,122,908 1,020,908 696,890 Shares issued in merger -- 3,571,051 1,920,197 -- 12,288,479 6,815,662 Shares issued as reinvestment of dividends 386,832 147,603 85,848 708,385 217,419 173,796 Shares redeemed (7,052,007) (3,995,119) (2,296,078) (4,559,558) (2,284,363) (1,757,346) ------------ ------------ ------------ ------------ ------------- ------------ Net increase (decrease) in shares outstanding 718,987 3,170,353 1,734,143 (1,728,265) 11,242,443 5,929,002 ============ ============ ============ ============ ============= ============ HIGH YIELD OPPORTUNITY FUND ($) Shares sold $ 58,175,845 $ 68,146,350 $ 22,289,353 $ 16,743,471 $ 118,247,344 $ 7,778,149 Shares issued in merger -- 31,382,187 21,258,924 -- 108,181,979 75,437,662 Shares issued as reinvestment of dividends 3,009,696 1,393,773 948,687 5,501,455 2,064,653 1,923,761 Shares redeemed (55,398,519) (37,459,282) (25,459,352) (35,664,329) (21,596,811) (19,459,549) ------------ ------------ ------------ ------------ ------------- ------------ Net increase (decrease) $ 5,787,022 $ 63,463,028 $ 19,037,612 $(13,419,403) $ 206,897,165 $ 65,680,023 ============ ============ ============ ============ ============= ============ CLASS C SHARES CLASS Q SHARES -------------------------------------------- ------------------------------------------- YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ----------- ------------ ------------ HIGH YIELD OPPORTUNITY FUND (NUMBER OF SHARES) Shares sold 793,691 1,019,125 835,807 374,119 953,432 1,176,601 Shares issued in merger -- 2,033,709 876,081 -- -- -- Shares issued as reinvestment of dividends 131,261 38,546 60,087 24,396 30,998 38,331 Shares redeemed (1,491,553) (1,406,811) (1,223,652) (527,306) (1,271,213) (857,666) ------------ ------------ ------------ ----------- ------------ ------------ Net increase (decrease) in shares outstanding (566,601) 1,684,569 548,323 (128,791) (286,783) 357,266 ============ ============ ============ =========== ============ ============ HIGH YIELD OPPORTUNITY FUND ($) Shares sold $ 6,403,212 $ 29,857,628 $ 9,284,852 $ 3,014,721 $ 8,874,061 $ 12,941,570 Shares issued in merger -- 17,904,896 9,698,640 -- -- -- Shares issued as reinvestment of dividends 1,024,746 365,478 667,948 191,409 300,645 431,200 Shares redeemed (11,855,613) (13,234,360) (13,540,976) (4,139,454) (12,170,488) (9,622,674) ------------ ------------ ------------ ----------- ------------ ------------ Net increase (decrease) $ (4,427,655) $ 34,893,642 $ 6,110,464 $ (933,324) $ (2,995,782) $ 3,750,096 ============ ============ ============ =========== ============ ============ CLASS T SHARES ------------------------------------------- YEAR NINE ENDED MONTHS ENDED PERIOD ENDED MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000(1) ----------- ----------- ------------ HIGH YIELD OPPORTUNITY FUND (NUMBER OF SHARES) Shares sold 5,425 3,731 42,193 Shares issued in merger -- -- 3,237,823 Shares issued as reinvestment of dividends 137,220 115,386 45,794 Shares redeemed (896,484) (890,992) (426,380) ----------- ----------- ------------ Net increase (decrease) in shares outstanding (753,839) (771,875) 2,899,430 =========== =========== ============ HIGH YIELD OPPORTUNITY FUND ($) Shares sold $ 23,154 $ 36,929 $ 467,407 Shares issued in merger -- -- 35,837,128 Shares issued as reinvestment of dividends 1,073,078 1,098,699 495,594 Shares redeemed (7,059,452) (8,630,230) (4,680,068) ----------- ----------- ------------ Net increase (decrease) $(5,963,220) $(7,494,602) $ 32,120,061 =========== =========== ============
- ---------- (1) Class T Shares commenced operations on March 31, 2000. 38 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES ----------------------------------------------- -------------------------------------------- YEAR FIVE YEAR FIVE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000 2002 2001 2000 ------------- ------------- ------------- ----------- ----------- ------------ ING CLASSIC MONEY MARKET FUND (NUMBER OF SHARES) Shares sold 975,047,539 431,641,207 880,095,214 243,751 1,038,248(1) 11,939,590 Shares issued in merger -- -- -- -- -- -- Shares issued as reinvestment of dividends 14,496,071 11,100,736 19,495,251 51,325 62,429 120,224 Shares redeemed (955,149,292) (367,751,613) (687,044,099) (1,021,831) (1,091,847) (10,526,771) ------------- ------------- ------------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding 34,394,318 74,990,330 212,546,366 (726,755) 8,830 1,533,043 ============= ============= ============= =========== =========== ============ ING CLASSIC MONEY MARKET FUND ($) Shares sold $ 975,047,296 $ 431,641,207 $ 880,095,214 $ 243,715 $ 1,038,248(1) $ 11,939,590 Shares issued in merger -- -- -- -- -- -- Shares issued as reinvestment of dividends 14,496,071 11,100,736 19,495,251 51,325 62,429 120,224 Shares redeemed (955,149,292) (367,751,613) (687,044,099) (1,021,831) (1,091,847) (10,526,772) ------------- ------------- ------------- ----------- ----------- ------------ Net increase (decrease) $ 34,394,075 $ 74,990,330 $ 212,546,366 $ (726,791) $ 8,830 $ 1,533,042 ============= ============= ============= =========== =========== ============ CLASS C SHARES CLASS I SHARES ------------------------------------------ ------------------------------------------- YEAR FIVE YEAR FIVE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000 2002 2001 2000 ----------- ----------- ----------- ------------ ----------- ------------ ING CLASSIC MONEY MARKET FUND (NUMBER OF SHARES) Shares sold 95,399 1,847,196 4,458,551 106 -- 39,600,100 Shares issued in merger -- -- -- -- -- -- Shares issued as reinvestment of dividends 44,817 45,292 38,998 265,050 251,087 863,004 Shares redeemed (2,133,740) (1,344,060) (2,907,001) (11,083,870) (1,494,250) (30,307,606) ----------- ----------- ----------- ------------ ----------- ------------ Net increase (decrease) in shares outstanding (1,993,524) 548,428 1,590,548 (10,818,714) (1,243,163) 10,155,498 =========== =========== =========== ============ =========== ============ ING CLASSIC MONEY MARKET FUND ($) Shares sold $ 95,380 $ 1,847,196 $ 4,458,551 $ 106 $ -- $ 39,600,100 Shares issued in merger -- -- -- -- -- -- Shares issued as reinvestment of dividends 44,817 45,292 38,998 265,050 251,087 863,004 Shares redeemed (2,133,740) (1,344,060) (2,907,002) (11,083,870) (1,494,250) (30,307,606) ----------- ----------- ----------- ------------ ----------- ------------ Net increase (decrease) $(1,993,543) $ 548,428 $ 1,590,547 $(10,818,714) $(1,243,163) $ 10,155,498 =========== =========== =========== ============ =========== ============ CLASS X SHARES(2) ----------------------------- FIVE MONTHS ENDED YEAR ENDED MARCH 31, OCTOBER 31, 2001 2000 --------- ----------- ING CLASSIC MONEY MARKET FUND (NUMBER OF SHARES) Shares sold 6,199 1,107,597 Shares issued as reinvestment of dividends -- 21,226 Shares redeemed (388,098)(1) (2,258,571) --------- ----------- Net decrease in shares outstanding (381,899) (1,129,748) ========= =========== ING CLASSIC MONEY MARKET FUND ($) Shares sold $ 6,199 $ 1,107,597 Shares issued as reinvestment of dividends -- 21,226 Shares redeemed (388,098)(1) (2,258,570) --------- ----------- Net decrease $(381,899) $(1,129,747) ========= ===========
- ---------- (1) Amounts reflect 381,646 of Class X shares, valued at $381,646, that were converted into Class B shares on November 17, 2000. (2) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 39 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- NOTE 12 -- CREDIT RISK AND DEFAULTED SECURITIES Although each Fund has a diversified portfolio, Strategic Income Fund, High Yield Fund and High Yield Opportunity Fund had 8.95%, 15.97% and 33.09%, respectively, of their portfolios invested in lower rated and comparable quality unrated high yield securities. Investments in high yield securities are accompanied by a greater degree of credit risk and such lower rated securities tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities, because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At March 31, 2002, the Strategic Income Fund held the following defaulted securities: Adelphia Business Solutions, Inc., Call-Net Enterprises, Inc., Doman Industries Ltd., Sterling Chemicals, Inc., WinStar Communications, Inc. and XO Communications, Inc. The aggregate value for these securities was $360,530. The High Yield Fund held Adelphia Business Solutions, Inc., and Zilog, Inc., securities in default with aggregate value of $1,993,375. The High Yield Opportunity Fund held Adelphia Business Solutions, Inc., Call-Net Enterprises, Inc., Classic Cable, Inc., Concentric Network Corp., Doman Industries Ltd., Exodus Communications, Inc., Globix Corp., ICG Services, Inc., SA Telecommunications, Inc., Source Media, Inc., Sterling Chemicals, Inc., US Interactive, WinStar Communications, Inc., XO Communications, Inc., and Zilog, Inc. The aggregate value for these securities was $17,805,668. For financial reporting purposes, it is each Fund's accounting practice to discontinue the accrual of income and to provide an estimate for probable losses due to unpaid interest income on defaulted bonds for the current reporting period. NOTE 13 -- FEDERAL INCOME TAXES Dividends paid by the Funds from net investment income and distributions of net realized short-term capital gains are, for federal income tax purposes, taxable as ordinary income to shareholders. The tax composition of dividends and distributions to shareholders was as follows: ORDINARY TAX RETURN INCOME OF CAPITAL ----------- ---------- GNMA Fund $31,300,756 $ -- Intermediate Bond Fund 5,881,927 -- Strategic Income Fund 4,001,576 -- High Yield Fund 17,631,941 4,498,101 High Yield Opportunity Fund 30,354,207 -- ING Classic Money Market Fund 15,221,461 -- The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains, foreign currency transactions, organization costs and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. To the extent distributions exceed net investment income and/or net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. 40 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Accordingly, the following amounts have been increased (decreased) through reclassification as of March 31, 2002: ACCUMULATED NET REALIZED PAID-IN UNDISTRIBUTED NET GAINS (LOSSES) CAPITAL INVESTMENT INCOME ON INVESTMENTS ------- ----------------- -------------- GNMA Fund $ -- $1,022,962 $(1,022,962) Intermediate Bond Fund -- 95,102 (95,102) Strategic Income Fund -- 269,771 (269,771) High Yield Fund (4,837,174) 4,501,532 335,642 High Yield Opportunity Fund -- 588,917 (588,917) ING Classic Money Market Fund (284) 27,700 (27,416) Capital loss carryforwards which may be used to offset future realized capital gains for federal income tax purposes were as follows at March 31, 2002: AMOUNT EXPIRATION DATES ------ ---------------- GNMA Fund $ 16,472,090 2003 - 2010 Strategic Income Fund 9,471,478 2006 - 2010 High Yield Fund 178,091,462 2003 - 2010 High Yield Opportunity Fund 459,417,528 2004 - 2010 A portion of the amount of these losses may be limited in the future due to previous fund mergers. During the year ended March 31, 2002, $339,073 of capital loss carryforwards of the High Yield Fund expired. As of March 31, 2002, the following amounts represent distribution requirements of the Funds: ORDINARY LONG-TERM INCOME CAPITAL GAINS ------ ------------- GNMA Fund $3,756,752 $ -- Intermediate Bond Fund 482,366 53,053 Strategic Income Fund 378,682 -- High Yield Opportunity Fund 1,061,218 -- Under the current tax law, capital and currency losses realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended March 31, 2002, the Funds elected to defer losses occurring between November 1, 2001 and March 31, 2002 as follows: POST OCTOBER CAPITAL/CURRENCY FUND LOSSES DEFERRED ---- --------------- GNMA Fund $ 1,397,729 Strategic Income Fund 865,961 High Yield Fund 3,241,742 High Yield Opportunity Fund 29,769,046 ING Classic Money Market Fund 35,311 NOTE 14 -- CHANGES IN THE FUND'S YEAR-END Effective March 31, 2001 the Funds changed their fiscal year-end to March 31 from: June 30 for Strategic Income Fund, High Yield Fund and High Yield Opportunity Fund; October 31 for Intermediate Bond Fund and ING Classic Money Market Fund; December 31 for GNMA Fund. This change was done to facilitate the administration of the Funds. 41 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- NOTE 15 -- REORGANIZATIONS On February 23, 2001 and March 23, 2001, certain Funds, as listed below (each an: "Acquiring Fund"), acquired the assets and certain liabilities of other Funds, also listed below (each an "Acquired Fund"), in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund are presented in Note 11 -- Capital Shares. Net assets and unrealized appreciation/(depreciation) as of the reorganization date were as follows:
ACQUIRED FUND UNREALIZED ACQUIRING ACQUIRED TOTAL NET ASSETS OF TOTAL NET ASSETS OF APPRECIATION FUND FUND ACQUIRED FUND (000) ACQUIRING FUND (000) (DEPRECIATION)(000) ---- ---- ------------------- -------------------- ------------------- GNMA Pilgrim Government Securities Fund Income Fund $121,742 $391,489 $ 2,145 Strategic Pilgrim Global Income Fund 14,716 13,785 (104) Income Fund Pilgrim International Bond Fund 23,582 13,785 (799) High Yield Pilgrim High Total Return Fund I 106,620 140,145 (135,704) Opportunity Pilgrim High Total Return Fund II 50,849 140,145 (28,974) Fund
The net assets of GNMA Fund, Strategic Income Fund and High Yield Opportunity Fund after the acquisition were approximately $513,231,000, $52,083,000 and $297,614,000, respectively. 42 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- NOTE 16 - ILLIQUID SECURITIES Pursuant to guidelines adopted by the Fund's Board of Directors/Trustees, the following securities have been deemed to be illiquid. The Funds currently limit investment in illiquid securities to 15% of the Fund's net assets, at market value, at time of purchase.
FUND SECURITY - ---- -------- Strategic Income East Coast Power LLC, 7.536%,due 06/30/17 Enersis S.A.(Chile)6.600%, due 12/01/26 FHLMC, 9.000%, due 06/01/06 FHLMC, 10.000%, due 10/01/03 FNMA, 9.500%, due 06/01/05 FNMA, 9.500%, due 07/01/06 FNMA, 9.500%, due 05/01/07 GNMA, 8.500%, due 02/15/21 North Atlantic Trading, Inc. North Atlantic Trading, Inc. Warrants Simula, Inc., 8.000%, due 05/01/04 Tricom S.A. 11.375%,due 09/01/04 Unikredit Realkredit, 6.000%, due 07/01/29 High Yield Dayton Superior Corp. Warrants Mpower Holding Corp. Travelcenters America Inc. Warrants High Yield Opportunity Cellnet Data Systems, Inc. Warrants CHC Helicopter Corp. Comforce Corp. Warrants Electronic Retailing System Warrants ICG Services, Inc., 10.000%, due 02/15/08 Int'l Utility Structures, Inc. Warrants Int'l Utility Structures, Inc., 10.750%, due 02/01/08 Int'l Utility Structures, Inc., 13.000%, due 02/01/08 International Fast Food Corp. International Wireless Communications Holdings, Inc. Jordan Telecommunications Metromedia Intl. Group,Inc., 10.500%, due 09/30/07 North Atlantic Trading Co. North Atlantic Trading Co. Warrants Orion Refining Corp. Packaged Ice, Inc. Warrants Poland Telekom, Inc. Warrants SA Telecommunications, Inc.,10.000% due 08/15/06 SA Telecommunications, Inc.,10.000% due 08/15/06 SA Telecommunications, Inc.,10.000% due 08/15/06 Simula, Inc., 8.000%, due 05/01/04 Travelcenters of America, Inc. Warrants US Interactive Warrants US Interactive, 12.000%, due 04/17/05 Westways Funding II Ltd.,18.370% due 01/29/03 PRINCIPAL INITIAL PERCENT AMOUNT/ ACQUISITION OF NET FUND SHARES DATE COST VALUE ASSETS - ---- ------ ---- ---- ----- ------ Strategic Income $ 78,000 04/14/99 $ 78,000 $ 68,132 0.13% 20,000 02/23/99 19,074 19,889 0.04% 3,753 01/24/97 3,840 3,815 0.01% 4,574 01/23/96 4,687 4,724 0.01% 5,696 12/11/97 5,839 5,787 0.01% 5,593 01/29/96 5,782 5,782 0.01% 6,895 04/01/97 7,082 7,034 0.01% 1,425 04/01/97 1,471 1,546 0.00% 21,444 04/11/01 161,409 337,743 0.66% 250 04/11/01 -- 3 0.00% 432,000 01/04/01 280,837 302,400 0.59% 250,000 07/08/98 245,795 185,625 0.36% 977 10/16/98 149 111 0.00% ------------ ------------ ---- 813,965 942,591 1.83% ============ ============ ==== High Yield 3,100 08/10/00 -- 31,000 0.02% 900 06/28/99 3,897 36 0.00% 3,000 01/31/01 34,739 30,750 0.02% ------------ ------------ ---- 38,636 61,786 0.04% ============ ============ ==== High Yield Opportunity 10,000 09/24/97 -- 100 0.00% 2,000 12/14/00 12,358 33,460 0.01% 92,950 12/23/98 -- 930 0.00% 100 03/31/00 -- 1 0.00% 3,600,000 03/06/00 2,748,329 198,000 0.08% 10,000 06/28/01 -- -- 0.00% 1,725,000 12/10/01 991,782 948,750 0.41% 2,456,000 08/01/01 828,382 675,400 0.29% 220,738 11/04/97 14,676,275 -- 0.00% 483,445 08/09/96 8,452,566 4,834 0.00% 2,350 01/31/00 -- 122,200 0.05% 9,581,938 05/24/98 9,571,273 4,886,788 2.09% 740,726 06/18/97 15,363,580 11,666,434 5.00% 5,480 06/18/97 210,003 55 0.00% 866,408 12/10/98 409,800 8,664 0.00% 21,705 04/11/97 653,333 234,414 0.10% 7,000 03/31/99 -- -- 0.00% 3,800,000 03/24/97 3,230,000 -- 0.00% 5,000,000 08/11/97 3,500,000 -- 0.00% 8,500,000 08/06/96 8,500,000 -- 0.00% 3,000,000 04/24/97 3,000,000 2,100,000 0.90% 6,000 11/09/00 69,519 61,500 0.03% 3,833 06/01/99 -- -- 0.00% 8,267,451 04/07/98 8,267,451 796,156 0.34% 500,000 01/27/98 500,000 150,000 0.06% ------------ ------------ ---- 80,984,651 21,887,686 9.36% ============ ============ ====
43 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- NOTE 17 -- SUBSEQUENT EVENTS DIVIDENDS. Subsequent to March 31, 2002, the following Funds declared dividends from net investment income of: PER SHARE AMOUNT PAYABLE DATE RECORD DATE ------ ------------ ----------- GNMA FUND Class A $ 0.0350 April 03, 2002 March 28, 2002 Class B $ 0.0300 April 03, 2002 March 28, 2002 Class C $ 0.0300 April 03, 2002 March 28, 2002 Class I $ 0.0370 April 03, 2002 March 28, 2002 Class M $ 0.0320 April 03, 2002 March 28, 2002 Class Q $ 0.0350 April 03, 2002 March 28, 2002 Class T $ 0.0320 April 03, 2002 March 28, 2002 Class A $ 0.0360 May 03, 2002 April 30, 2002 Class B $ 0.0310 May 03, 2002 April 30, 2002 Class C $ 0.0310 May 03, 2002 April 30, 2002 Class I $ 0.0380 May 03, 2002 April 30, 2002 Class M $ 0.0330 May 03, 2002 April 30, 2002 Class Q $ 0.0360 May 03, 2002 April 30, 2002 Class T $ 0.0330 May 03, 2002 April 30, 2002 INTERMEDIATE BOND FUND Class A $ 0.0376 May 01, 2002 Daily Class B $ 0.0314 May 01, 2002 Daily Class C $ 0.0318 May 01, 2002 Daily Class I $ 0.0403 May 01, 2002 Daily STRATEGIC INCOME FUND Class A $ 0.0950 April 03, 2002 March 28, 2002 Class B $ 0.0920 April 03, 2002 March 28, 2002 Class C $ 0.0920 April 03, 2002 March 28, 2002 Class Q $ 0.0960 April 03, 2002 March 28, 2002 Class A $ 0.0750 May 03, 2002 April 30, 2002 Class B $ 0.0710 May 03, 2002 April 30, 2002 Class C $ 0.0710 May 03, 2002 April 30, 2002 Class Q $ 0.0770 May 03, 2002 April 30, 2002 HIGH YIELD FUND Class A $ 0.0300 April 03, 2002 March 28, 2002 Class B $ 0.0230 April 03, 2002 March 28, 2002 Class C $ 0.0230 April 03, 2002 March 28, 2002 Class M $ 0.0230 April 03, 2002 March 28, 2002 Class Q $ 0.0310 April 03, 2002 March 28, 2002 Class A $ 0.0300 May 03, 2002 April 30, 2002 Class B $ 0.0280 May 03, 2002 April 30, 2002 Class C $ 0.0280 May 03, 2002 April 30, 2002 Class M $ 0.0280 May 03, 2002 April 30, 2002 Class Q $ 0.0310 May 03, 2002 April 30, 2002 HIGH YIELD OPPORTUNITY FUND Class A $ 0.0700 May 01, 2002 Daily Class B $ 0.0650 May 01, 2002 Daily Class C $ 0.0650 May 01, 2002 Daily Class Q $ 0.0710 May 01, 2002 Daily Class T $ 0.0680 May 01, 2002 Daily ING CLASSIC MONEY MARKET FUND Class A $ 0.0011 May 01, 2002 Daily Class B $ 0.0006 May 01, 2002 Daily Class C $ 0.0006 May 01, 2002 Daily Class I $ 0.0031 May 01, 2002 Daily REORGANIZATION. The proposed reorganization of the High Yield Fund into the High Yield Opportunity Fund was approved by the shareholders of the High Yield Fund at a shareholder meeting held April 9, 2002. The reorganization will take place in late May of 2002. 44 ING GNMA Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 91.98% FEDERAL HOME LOAN MORTGAGE CORPORATION: 2.31% $ 6,434,978 6.500% due 06/01/16 $ 6,476,575 2,149,241 7.000% due 11/01/14 2,228,283 5,336,913 7.500% due 12/01/14-01/01/30 5,573,100 1,074,016 8.000% due 01/01/30 1,128,686 ------------- 15,406,644 ------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION: 1.32% 2,549,705 6.500% due 06/01/14-12/01/18 2,569,296 1,073,399 7.000% due 03/01/15 1,114,842 1,245,478 7.500% due 05/01/28 1,295,355 3,612,472 8.500% due 08/01/11-09/01/15 3,798,022 ------------- 8,777,515 ------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 88.35% 205,381 5.500% due 04/20/29 191,186 566,548 5.650% due 07/15/29 572,068 74,315,267 6.000% due 07/15/28-08/20/31 72,088,375 3,512,772 6.250% due 04/15/26-04/15/28 3,475,640 138,285 6.340% due 02/15/29 141,187 582,844 6.350% due 09/15/33 579,209 5,887,996 6.400% due 10/15/33-08/15/38 5,864,509 1,187,580 6.470% due 09/15/33 1,186,844 90,213,282 6.500% due 02/15/22-02/15/40 89,889,310 3,262,000 6.600% due 03/15/37 3,195,753 15,575,118 6.625% due 07/15/33-01/15/40 15,569,479 7,830,289 6.650% due 12/15/13-11/15/39 7,835,973 3,554,831 6.670% due 01/15/40 3,553,209 6,262,254 6.688% due 07/15/40 6,219,890 428,800 6.700% due 08/15/14-12/15/14 438,865 4,357,080 6.745% due 10/15/39 4,384,060 16,173,313 6.750% due 06/15/13-01/15/41 16,264,861 2,879,437 6.810% due 07/15/39 2,904,106 4,152,144 6.820% due 05/15/27-04/15/34 4,196,717 9,972,505 6.840% due 10/15/36 9,967,804 1,821,899 6.870% due 03/15/39 1,842,338 6,005,445 6.875% due 01/15/29-02/15/40 6,092,860 2,219,751 6.900% due 01/15/32 2,223,355 2,957,855 6.950% due 12/15/29 3,049,956 $88,013,816 7.000% due 07/15/22-12/15/35 $ 89,930,588 9,090,255 7.010% due 02/15/37 9,175,648 974,044 7.050% due 07/15/29 1,000,061 5,613,988 7.100% due 11/15/39 5,732,541 9,038,385 7.125% due 09/15/39 9,295,975 3,385,979 7.150% due 07/15/36 3,464,749 5,180,384 7.250% due 05/15/22-09/15/31 5,366,708 2,990,087 7.300% due 08/15/36 3,088,207 18,471,942 7.450% due 03/15/29 19,241,868 40,304,669 7.500% due 12/15/19-09/15/32 41,930,929 7,102,975 7.600% due 08/15/31-06/15/40 7,307,756 12,545,681 7.625% due 08/15/14-07/15/38 13,060,166 27,445,160 [1] 7.650% due 09/15/02-05/15/26 28,335,430 629,334 7.700% due 08/15/13 657,936 6,557,377 7.750% due 06/15/14-01/15/36 6,852,803 1,067,183 [1] 7.800% due 10/15/02-07/15/19 1,093,437 10,112,139 7.875% due 09/15/29-04/15/38 10,646,543 19,209,834 8.000% due 08/15/12-06/15/40 20,309,683 445,690 8.050% due 07/15/19-04/15/21 479,024 1,509,404 8.100% due 06/15/12-07/15/12 1,576,738 5,026,327 8.125% due 05/15/38 5,267,084 6,880,460 8.150% due 12/15/11-09/15/15 7,198,236 6,991,730 8.200% due 10/15/11-05/15/13 7,320,633 7,353,381 8.250% due 11/15/17-03/15/41 7,726,967 12,109,344 8.500% due 04/15/12-04/15/32 12,614,281 3,013,939 8.750% due 11/15/17-06/15/27 3,170,078 2,238,583 9.000% due 05/15/20-12/15/34 2,372,364 1,393,653 9.250% due 06/15/30 1,402,721 990,139 10.250% due 08/15/29 1,027,019 ------------- 588,373,727 ------------- Total U.S. Government Agency Obligations (Cost $602,277,699) 612,557,886 ------------- U.S. TREASURY OBLIGATIONS: 6.38% U.S. TREASURY BONDS: 2.47% $16,500,000 6.000% due 02/15/26 $ 16,423,308 ------------- 16,423,308 ------------- U.S. TREASURY NOTES: 3.91% 11,000,000 3.000% due 01/31/04 10,888,284 2,000,000 3.000% due 02/29/04 1,976,486 2,900,000 3.250% due 12/31/03 2,887,086 6,000,000 5.750% due 11/15/05 6,237,894 4,000,000 5.750% due 08/15/10 4,087,032 ------------- 26,076,782 ------------- Total U.S. Treasury Obligations (Cost $ 43,644,748) 42,500,090 ------------- Total Long-Term Investments (Cost $645,922,447) 655,057,976 ------------- SHORT TERM INVESTMENTS: 0.52% U.S. TREASURY OBLIGATIONS: 0.45% 3,000,000 U.S. Treasury Bill, 2.080% due 09/19/02 2,970,930 ------------- REPURCHASE AGREEMENT: 0.07% 470,000 State Street Repurchase Agreement dated 03/28/02, 1.620% due 04/01/02, $470,085 to be received upon repurchase (Collateralized by $435,000 U.S. Treasury Note, 6.875% Market Value $480,652 due 05/15/06) 470,000 ------------- Total Short-Term Investments (Cost $3,440,930) 3,440,930 ------------- TOTAL INVESTMENTS IN SECURITIES (COST $ 649,363,377)* 98.88% $ 658,498,906 ------- ------------- OTHER ASSETS AND LIABILITIES-NET 1.12% 7,487,596 ------- ------------- NET ASSETS 100.00% $ 665,986,502 ======= ============= * Cost for federal income tax purposes is $649,399,546. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 13,736,510 Gross Unrealized Depreciation (4,637,150) ------------- Net Unrealized Appreciation $ 9,099,360 ============= [1] Some or all of this security are construction loan securities issued on a when-issued basis. See Accompanying Notes to Financial Statements 45 ING Intermediate Bond PORTFOLIO OF INVESTMENTS as of March 31, 2002 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 33.27% AGRICULTURE: 1.49% $1,000,000 RJ Reynolds Tobacco Holdings, Inc., 7.375%, due 05/15/03 $ 1,029,038 ------------ AUTO MANUFACTURERS: 0.17% 125,000 Ford Motor Co., 7.450%, due 07/16/31 113,358 ------------ BANKS: 1.41% 230,000 KFW Int'l Finance, 4.750%, due 01/24/07 224,347 750,000 US Bank National Association Minneapolis, 6.300%, due 07/15/08 748,837 ------------ 973,184 ------------ BUILDING MATERIALS: 0.26% 170,000 @@ Hanson PLC, 7.785%, due 09/27/10 180,732 ------------ CHEMICALS: 0.87% 400,000 Eastman Chemical Co., 7.000%, due 04/15/12 397,712 200,000 Praxair, Inc., 6.375%, due 04/01/12 198,489 ------------ 596,201 ------------ COMMERCIAL SERVICES: 0.80% 250,000 Hertz Corp., 7.625%, due 08/15/07 245,937 300,000 McKesson Corp., 7.750%, due 02/01/12 302,976 ------------ 548,913 ------------ DIVERSIFIED FINANCIAL SERVICES: 2.69% 125,000 General Motors Acceptance Corp., 8.000%, due 11/01/31 125,468 300,000 Goldman Sachs Group, Inc., 6.600%, due 01/15/12 295,786 1,100,000 Household Finance Corp., 6.375%, due 10/15/11 1,039,874 150,000 John Deere Capital Corp., 7.000%, due 03/15/12 149,008 250,000 Lehman Brothers Holdings, Inc., 6.625%, due 01/18/12 245,790 ------------ 1,855,926 ------------ ELECTRIC: 1.11% $ 250,000 Florida Power & Light Co., 6.875%, due 12/01/05 $ 261,554 500,000 Niagra Mohawk Power Corp., 5.375%, due 10/01/04 501,826 ------------ 763,380 ------------ ENTERTAINMENT: 0.30% 200,000 International Game Technology, 8.375%, due 05/15/09 209,000 ------------ ENVIRONMENTAL CONTROL: 0.29% 200,000 # Allied Waste North America, 8.500%, due 12/01/08 203,000 ------------ FOOD: 1.04% 200,000 Smithfield Foods, Inc., 8.000%, due 10/15/09 204,500 500,000 # Tyson Foods, Inc., 7.250% due 10/01/06 511,739 ------------ 716,239 ------------ FOREST PRODUCTS AND PAPER: 1.76% 500,000 #,@@ Norske Skogindustrier AS, 7.625%, due 10/15/11 513,416 200,000 Union Camp Corp., 6.500%, due 11/15/07 198,843 510,000 # Weyerhaeuser Co., 7.375%, due 03/15/32 498,591 ------------ 1,210,850 ------------ GAS: 0.74% 500,000 Sempra Energy, 6.800%, due 07/01/04 511,814 ------------ HOME BUILDERS: 0.44% 300,000 Centex Corp., 7.500%, due 01/15/12 302,306 ------------ INSURANCE: 0.82% 320,000 # AIG SunAmerica Global Financing IX, 6.900%, due 03/15/32 317,753 250,000 Allstate Corp., 5.375%, due 12/01/06 248,029 ------------ 565,782 ------------ IRON/STEEL: 0.29% 200,000 AK Steel Corp., 7.875%, due 02/15/09 202,500 ------------ LODGING: 0.75% $ 250,000 Harrah's Operating Co., Inc., 8.000%, due 02/01/11 $ 261,260 250,000 MGM Mirage, 8.375%, due 02/01/11 257,500 ------------ 518,760 ------------ MEDIA: 4.25% 500,000 AMFM, Inc., 8.000%, due 11/01/08 525,000 1,000,000 Century Communications, 0.000%, due 03/15/03 885,000 450,000 Comcast Cable Communications, 6.750%, due 01/30/11 438,822 1,000,000 @@ Rogers Cablesystems Ltd., 10.000%, due 03/15/05 1,077,500 ------------ 2,926,322 ------------ MISCELLANEOUS MANUFACTURING: 1.37% 1,000,000 @@ Tyco International Group SA, 4.950%, due 08/01/03 944,760 ------------ OIL & GAS: 2.48% 300,000 Amerada Hess Corp., 7.125%, due 03/15/33 290,143 360,000 Devon Energy Corp., 7.950%, 04/15/32 364,191 500,000 Louis Dreyfus Natural Gas, 9.250%, due 06/15/04 542,220 500,000 @@,# Petroleus Mexicanos, 6.500%, due 02/01/05 508,750 ------------ 1,705,304 ------------ See Accompanying Notes to Financial Statements 46 ING Intermediate Bond PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- PHARMACEUTICALS: 0.70% $ 500,000 Bristol-Myers Squibb Co., 5.750%, due 10/01/11 $ 482,158 ------------ PIPELINES: 3.17% 250,000 Duke Energy Field Services LLC, 7.500%, due 08/16/05 255,975 250,000 Duke Energy Field Services LLC, 8.125%, due 08/16/30 255,319 460,000 EL Paso Corp., 7.000%, due 05/15/11 447,311 250,000 Kinder Morgan Energy Partners LP, 7.750%, due 03/15/32 253,699 400,000 Southern Natural Gas Co., 8.000%, due 03/01/32 402,124 190,000 Transcontinental Gas Pipe Line, 7.000%, due 08/15/11 173,915 400,000 Williams Cos., Inc., 6.200%, due 08/01/02 399,257 ------------ 2,187,600 ------------ REAL ESTATE: 0.31% 200,000 EOP Operating LP, 7.750%, due 11/15/07 210,969 ------------ REITS: 1.48% 1,000,000 HRPT Properties Trust, 6.750% due 12/18/02 1,016,921 ------------ RETAIL: 0.69% 500,000 Federated Department Stores, 7.000%, due 02/15/28 474,722 ------------ TELECOMMUNICATIONS: 1.98% 495,000 Citizens Communication Co., 7.625%, due 08/15/08 488,629 400,000 @@ Deutsche Telekom Int'l Finance BV, 8.000%, due 06/15/10 417,482 250,000 # Echostar DBS Corp., 9.125%, due 01/15/09 258,750 200,000 # Sprint Capital Corp., 7.900%, due 03/15/05 196,350 ------------ 1,361,211 ------------ TEXTILES: 0.26% 180,000 # Mohawk Industries Inc., 7.200%, due 04/15/12 181,076 ------------ TRANSPORTATION: 1.35% $ 929,908 FedEx Corp., 6.720%, due 01/15/22 $ 931,140 ------------ Total Corporate Bonds (Cost $ 22,899,082) 22,923,166 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS: 42.08% FEDERAL HOME LOAN MORTGAGE CORPORATION: 11.98% $1,946,819 2.000%, due 01/25/32 $1,939,170 578,340 2.250%, due 07/15/28 578,245 1,580,538 2.300%, due 10/15/24 1,583,628 1,600,000 4.875%, due 03/15/07 1,571,171 2,500,000 7.500%, due 05/01/32 TBA 2,581,250 ------------ 8,253,464 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION: 25.48% 220,000 5.000%, due 01/15/07 217,130 1,500,000 5.250%, due 04/15/07 1,496,385 1,500,000 6.000%, due 05/15/08 1,534,061 7,425,000 6.500%, due 05/01/32 TBA 7,357,715 2,400,000 6.500%, due 05/01/32 TBA 2,431,500 1,425,000 7.000%, due 05/01/32 TBA 1,445,484 500,000 7.125%, due 01/15/30 536,302 342,098 7.500%, due 04/01/30 354,542 1,841,809 7.500%, due 05/01/31 1,908,820 259,326 8.000%, due 05/01/30 272,455 ------------ 17,554,394 ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 3.91% 5,031,587 - 4.450%, due 06/16/31 468,518 583,713 7.000%, due 09/15/29 596,020 1,029,955 8.000%, due 01/20/31 1,080,270 379,971 10.000%, due 01/15/21 423,697 111,360 10.000%, due 03/15/19 124,108 ------------ 2,692,613 ------------ OTHER U.S. GOVERNMENT AGENCIES: 0.71% $ 500,000 Tennessee Valley Authority, 6.000%, due 03/15/13 $ 492,116 ------------ Total U.S. Government Agency Obligations (Cost $ 28,987,833) 28,992,587 ------------ U.S. TREASURY OBLIGATIONS: 11.08% U.S. TREASURY BONDS: 2.18% $1,282,000 5.375%, due 02/15/31 $ 1,203,979 225,000 9.125%, due 05/15/18 297,563 ------------ 1,501,542 ------------ U.S. TREASURY NOTES: 8.90% 3,803,000 3.500%, due 11/15/06 3,597,995 567,000 4.875%, due 02/15/12 544,165 300,000 6.125%, due 08/15/07 315,317 1,560,000 6.625%, due 05/15/07 1,674,685 ------------ 6,132,162 ------------ Total U.S. Treasury Obligations (Cost $ 7,727,546) 7,633,704 ------------ See Accompanying Notes to Financial Statements 47 ING Intermediate Bond PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 23.55% AIRLINES: 1.81% $ 500,000 Continental Airlines, Inc., 7.568%, due 12/01/06 $ 435,540 500,000 United AirLines, Inc., 6.602%, 09/01/13 425,750 446,465 US Airways Pass Through Trust, 9.010%, 07/20/20 384,507 ------------ 1,245,797 ------------ AUTOMOBILE: 1.47% 1,000,000 Ford Credit Auto Owner Trust, 6.650%, due 10/15/03 1,010,502 ------------ COMMERCIAL MORTGAGE BACKED SECURITIES: 1.22% 400,000 Morgan Stanley Capital, Inc., 7.020%, due 11/15/09 417,109 400,000 Salomon Brothers Mortgage Securities, Inc., 7.520%, due 12/18/09 426,972 ------------ 844,081 ------------ OTHER ASSET BACKED SECURITIES: 7.43% 585,392 # Garanti Trade Payment Rights Master Trust, 10.810%, due 06/15/04 580,592 2,158,043 Residential Asset Securities Corp., 2.080%, due 09/25/31 2,157,290 2,381,991 Residential Asset Securities Corp., 2.150%, due 06/25/32 2,381,980 ------------ 5,119,862 ------------ WHOLE LOAN COLLATERALIZED MORTGAGE OBLIGATION: 11.62% $ 994,459 Bank of America Mortgage Securities, 5.242%, due 02/25/32 $ 996,921 249,566 Bank of America Mortgage Securities, 6.500%, due 02/25/32 231,229 499,132 Bank of America Mortgage Securities, 6.500%, due 02/25/32 474,677 889,928 Citicorp Mortgage Securities, Inc., 6.250, due 11/25/16 892,238 513,683 Citicorp Mortgage Securities, Inc., 6.500, due 05/25/29 474,316 474,226 GE Capital Mortgage Services, Inc., 7.500%, due 06/25/26 486,625 472,238 Residential Accredit Loans, Inc., 7.750%, due 05/25/27 488,400 2,030,290 Residential Funding Mortgage Securities I, 6.750%, due 07/25/29 2,065,413 1,000,000 Residential Funding Mortgage Securities I, 2.350%, due 09/25/31 1,005,490 900,837 Wells Fargo Mortgage Backed Securities Trust, 6.000%, due 12/25/16 891,374 ------------ 8,006,683 ------------ Total CMO's and Asset Backed Securities (Cost $16,353,732) 16,226,925 ------------ PREFERRED STOCK: 0.78% MEDIA: 0.78% 523,200 & CSC Holdings, Inc. 537,588 ------------ Total Preferred Stock (Cost $ 639,472) 537,588 ------------ Total Long-Term Investments (Cost $76,607,665) 76,313,970 ------------ SHORT-TERM INVESTMENTS: 10.55% REPURCHASE AGREEMENT: 10.55% $7,267,410 State Street Repurchase Agreement dated 3/28/02, 1.820% due 4/01/02, $7,268,880 to be received upon repurchase (Collateralized by $3,785,000 FNMA 4.550% Market Value $3,845,397 due 07/23/03 and by $3,535,000 FNMA 4.250% Market Value $3,572,641 due 09/10/2003) $ 7,267,410 ------------ Total Short-Term Investments (Cost $7,267,410) 7,267,410 ------------ TOTAL INVESTMENTS IN SECURITIES (COST $ 83,875,075)* 121.31% $ 83,581,380 OTHER ASSETS AND LIABILITIES-NET -21.31% (14,680,402) ------- ------------ NET ASSETS 100.00% $ 68,900,978 ======= ============ # Securities purchased pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualfied institutional buyers. @@ Foreign Issuer & Payment-in-kind - - Interest only (IO) security * Cost for federal income tax purposes is $84,177,258. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 205,203 Gross Unrealized Depreciation (801,081) ------------ Net Unrealized Depreciation $ (595,878) ============ See Accompanying Notes to Financial Statements 48 ING Strategic Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 44.67% AEROSPACE/DEFENSE: 0.59% $ 432,000 XX Simula, Inc., 8.000%, due 05/01/04 $ 302,400 ------------ AUTO MANUFACTURERS: 0.81% 400,000 DaimlerChrysler Holding Corp., 7.750%, due 01/18/11 415,391 ------------ BANKS: 1.25% 155,000 @@ Banco Santander-Chile, 6.500%, due 11/01/05 157,552 500,000 Wachovia Corp., 4.950%, due 11/01/06 485,452 ------------ 643,004 ------------ BEVERAGES: 0.76% 400,000 The Coca-Cola Co., 4.000%, due 06/01/05 392,423 ------------ BUILDING MATERIALS: 0.45% 225,000 Nortek, Inc., 8.875%, due 08/01/08 231,750 ------------ CHEMICALS: 1.11% 500,000 Dow Chemical Co., 5.750%, due 12/15/08 480,032 725,000 ** Sterling Chemicals, Inc., 11.750%, due 08/15/06 90,625 ------------ 570,657 ------------ COMMERCIAL SERVICES: 0.68% 375,000 Mail-Well, Inc., 8.750%, due 12/15/08 348,750 ------------ DIVERSIFIED FINANCIAL SERVICES: 10.44% $ 600,000 American General Finance Corp., 2.120%, due 05/28/04 $ 600,149 600,000 Caterpillar Financial Services Corp., 2.061%, due 03/05/04 599,834 500,000 Citigroup, Inc., 5.000%, due 03/06/07 485,692 500,000 Ford Motor Credit Co., 6.500%, due 01/25/07 485,550 450,000 General Motors Acceptance Corp., 6.125%, due 09/15/06 445,854 900,000 # Goldman Sachs Group LP, 6.625%, due 12/01/04 942,884 500,000 Household Finance Corp., 5.750%, due 01/30/07 482,012 600,000 John Deere Capital Corp., 2.214%, due 10/04/04 588,881 250,000 Orion Power Holdings, Inc., 12.000%, due 05/01/10 291,250 400,000 Pemex Project Funding Master Trust, 9.125%, due 10/13/10 431,000 ------------ 5,353,106 ------------ ELECTRIC: 4.63% 205,000 Calpine Corp., 8.625%, due 08/15/10 161,189 100,000 Calpine Corp., 8.750%, due 07/15/07 78,092 78,000 East Coast Power LLC, 7.536%, due 06/30/17 68,132 400,000 @@ Empresa Nacional de Electricidad S.A. (Chile), 8.500%, due 04/01/09 400,412 20,000 @@ Enersis S.A. (Chile), 6.600%, due 12/01/26 19,889 400,000 Exelon Corp., 6.750%, due 05/01/11 399,434 500,000 Progress Energy, Inc., 7.750%, due 03/01/31 522,919 500,000 @@ Tenaga Nasional BHD, 7.625%, due 04/01/11 510,395 200,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 213,000 ------------ 2,373,462 ------------ ELECTRONICS: 0.47% $ 225,000 @@ Flextronics Intl., Ltd., 9.875%, due 07/01/10 $ 243,000 ------------ ENVIRONMENTAL CONTROL: 0.45% 225,000 Allied Waste North America, 8.875%, due 04/01/08 231,187 ------------ FOOD: 3.60% 450,000 Archer-Daniels-Midland Co., 7.000%, due 02/01/31 453,037 450,000 Conagra Foods, Inc., 9.750%, due 03/01/21 565,672 400,000 Delhaize America, Inc., 8.125%, due 04/15/11 424,366 400,000 Kroger Co., 7.500%, due 04/01/31 405,867 ------------ 1,848,942 ------------ FOREST PRODUCTS & PAPER: 0.20% 500,000 @@,** Doman Industries Ltd., 8.750%, due 03/15/04 102,500 ------------ HOLDING COMPANIES-DIVERSIFIED: 0.11% 50,000 Kansas City Southern Railway, 9.500%, due 10/01/08 54,312 ------------ IRON/STEEL: 0.10% 25,000 AK Steel Corp., 7.875%, due 02/15/09 25,313 25,000 Armco, Inc., 9.000%, due 09/15/07 25,437 ------------ 50,750 ------------ LODGING: 1.08% 250,000 Mandalay Resort Group, 9.250%, due 12/01/05 259,375 25,000 Prime Hospitality Corp., 9.750%, due 04/01/07 26,188 250,000 Station Casinos, Inc., 9.875%, due 07/01/10 269,375 ------------ 554,938 ------------ See Accompanying Notes to Financial Statements 49 ING Strategic Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- MEDIA: 3.87% $ 250,000 Adelphia Communications, 10.875%, due 10/01/10 $ 233,750 350,000 + Charter Communications Holdings LLC, 0/11.750%, due 01/15/10 236,250 325,000 EchoStar DBS Corp., 9.250%, due 02/01/06 334,750 350,000 Primedia, Inc., 8.875%, due 05/15/11 320,250 250,000 Sinclair Broadcast Group, Inc., 8.750%, due 12/15/07 256,250 600,000 Walt Disney Co., 4.875%, due 07/02/04 602,202 ------------ 1,983,452 ------------ MISCELLANEOUS MANUFACTURING: 1.05% 600,000 Tyco Intl. Group SA, 5.800%, due 08/01/06 536,238 ------------ OIL & GAS: 4.30% 600,000 Conocom, Inc., 5.900%, due 04/15/04 617,219 175,000 Energy Corp. of America, 9.500%, due 05/15/07 119,875 500,000 Kerr-McGee Corp., 7.875%, due 09/15/31 527,805 500,000 Marathon Oil Corp., 6.800%, due 03/15/32 470,386 300,000 Northern Offshore Ltd., 10.000%, due 05/15/05 190,500 300,000 The Premcor Refining Group, Inc., 8.375%, due 11/15/07 282,000 ------------ 2,207,785 ------------ PIPELINES: 1.00% 500,000 # Williams Cos., Inc., 8.750%, due 03/15/32 513,804 ------------ SOVEREIGN: 2.11% 200,000 @@ Dominican Republic Intl. Bond, 3.000%, due 08/30/24 155,964 500,000 @@ Finland Government Intl. Bond, 4.750%, due 03/06/07 488,365 400,000 @@ Quebec Province, 7.500%, due 09/15/29 435,961 ------------ 1,080,290 ------------ TELECOMMUNICATIONS: 4.99% $ 350,000 ** Adelphia Business Solutions, Inc., 12.000%, due 11/01/07 $ 8,750 500,000 # AT&T Corp., 8.000%, due 11/15/31 487,020 500,000 @@,** Call-Net Enterprises, Inc., 9.375%, due 05/15/09 147,500 450,000 Nextel Communications, Inc., 9.375%, due 11/15/09 300,375 275,000 NMS Communications Corp., 5.000%, due 10/15/05 175,656 400,000 Qwest Capital Funding, Inc., 7.750%, due 08/15/06 337,655 500,000 Sprint Capital Corp., 6.000%, due 01/15/07 459,078 250,000 @@ Tricom SA, 11.375%, due 09/01/04 185,625 1,000,000 ** WinStar Communications, Inc., 12.750%, due 04/15/10 100 500,000 WorldCom, Inc., 8.000%, due 05/15/06 445,674 100,000 +,** XO Communications, Inc., 0/9.450%, due 04/15/08 11,000 ------------ 2,558,433 ------------ TRANSPORTATION: 0.62% 325,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 316,875 ------------ Total Corporate Bonds (Cost $24,568,692) 22,913,449 ------------ U.S. TREASURY OBLIGATIONS: 5.00% 1,200,000 U.S. Treasury Bond, 5.375%, due 02/15/31 1,126,969 1,500,000 U.S. Treasury Note, 4.875%, due 02/15/12 1,439,591 ------------ Total U.S. Treasury Obligations (Cost $ 2,594,609) 2,566,560 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS: 29.89% FEDERAL HOME LOAN MORTGAGE CORPORATION: 5.82% $ 142,768 5.500%, due 01/01/14 $ 141,433 70,519 5.500%, due 02/01/14 69,859 1,998,370 6.500%, due 02/01/32 1,994,155 754,671 7.000%, due 06/01/29 770,212 3,753 9.000%, due 06/01/06 3,815 4,574 10.000%, due 10/01/03 4,724 ------------ 2,984,198 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION: 20.11% 1,997,559 6.000%, due 02/01/32 1,938,557 55,228 6.500%, due 02/01/09 56,982 459,349 6.500%, due 08/01/15 467,864 2,248,361 6.500%, due 06/01/28 2,253,308 1,685,062 6.500%, due 12/01/31 1,680,113 199,072 7.000%, due 03/01/15 206,758 1,529,533 7.500%, due 07/01/21 1,584,949 323,323 7.500%, due 11/01/29 335,086 1,657,563 7.500%, due 02/01/31 1,729,171 43,070 8.000%, due 08/01/30 45,250 5,696 9.500%, due 06/01/05 5,787 5,593 9.500%, due 07/01/06 5,782 6,895 9.500%, due 05/01/07 7,034 ------------ 10,316,641 ------------ See Accompanying Notes to Financial Statements 50 ING Strategic Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 3.96% $ 306,390 6.500%, due 06/15/29 $ 306,203 947,427 6.500%, due 05/15/31 945,961 168,438 7.500%, due 11/15/29 175,679 527,388 8.000%, due 06/20/30 553,130 45,643 8.000%, due 07/15/30 48,026 1,425 8.500%, due 02/15/21 1,546 148 11.500%, due 02/15/13 169 239 11.500%, due 07/15/13 273 ------------ 2,030,987 ------------ Total U.S. Government Agency Obligations (Cost $15,207,828) 15,331,826 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 1.74% MORTGAGE -- COMMERCIAL: 1.13% $ 310,000 # Allied Capital Commercial Mortgage Trust, 6.710%, due 12/25/04 $ 314,632 254,383 GMAC Commercial Mortgage Securities, Inc., 6.974%, due 05/15/08 265,775 ------------ 580,407 ------------ MORTGAGE -- RESIDENTIAL: 0.61% 300,000 Emergent Home Equity Loan Trust, 7.080%, due 12/15/28 311,888 977 (1),@@ Unikredit Realkredit, 6.000%, due 07/01/29 111 ------------ 311,999 ------------ Total CMO's and Asset-Backed Securities (Cost $ 853,783) 892,406 ------------ Shares Value ------ ----- PREFERRED STOCK: 0.66% DIVERSIFIED FINANCIAL SERVICES: 0.66% 21,444 & North Atlantic Trading, Inc. $ 337,743 ------------ TELECOMMUNICATIONS: 0.00% 2,101 &,**, XX Adelphia Business Solutions, Inc. 21 3,440 &, ** XO Communications, Inc. 34 ------------ 55 ------------ Total Preferred Stock (Cost $ 817,737) 337,798 ------------ MUTUAL FUNDS: 7.65% INVESTMENT COMPANIES: 7.65% 114,416 ING High Yield Bond - Class A 1,000,000 332,889 ING High Yield Opportunity - Class A 2,500,000 61,700 ING Prime Rate Trust 425,730 ------------ Total Mutual Funds (Cost $3,903,891) 3,925,730 ------------ Principal Amount - --------- WARRANTS: 0.00% DIVERSIFIED FINANCIAL SERVICES: 0.00% 250 XX,@ North Atlantic Trading, Inc. 3 ------------ Total Warrants (Cost $0) 3 ------------ Total Long-Term Investments (Cost $47,946,540) 45,967,772 ------------ Principal Amount Value - --------- ----- SHORT-TERM INVESTMENTS: 7.48% REPURCHASE AGREEMENT: 7.48% $3,838,000 State Street Repurchase Agreement dated 03/28/02, 1.620% due 04/01/02, $3,838,691 to be received upon repurchase (Collateralized by $4,145,000 U.S. Treasury Bonds, 5.500% Market Value $3,915,641 due 08/15/28) $ 3,838,000 Total Short-Term Investments (Cost $3,838,000) 3,838,000 TOTAL INVESTMENTS IN SECURITIES (COST $ 51,784,540)* 97.09% $ 49,805,772 OTHER ASSETS AND LIABILITIES-NET 2.91% 1,493,948 ------- ------------ NET ASSETS 100.00% $ 51,299,720 ======= ============ @ Non-income producing security @@ Foreign Issuer & Payment-in-kind + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. # Securities purchased pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. ** Defaulted Security XX Value of Securities obtained from one or more dealers making markets in the securities which have been adjusted based on the Fund's valuation procedures (1) Principal Amount presented in Danish Kroner * Cost for federal income tax purposes is $51,860,774. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 565,290 Gross Unrealized Depreciation (2,620,292) ------------ Net Unrealized Depreciation $ (2,055,002) ============ See Accompanying Notes to Financial Statements 51 ING High Yield Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 90.15% AEROSPACE/DEFENSE: 1.04% $ 1,900,000 Sequa Corp., 8.875%, due 04/01/08 $ 1,909,500 ------------ AGRICULTURE: 1.03% 900,000 DIMON, Inc., 9.625%, due 10/15/11 958,500 900,000 Standard Commercial Tobacco Co., 8.875%, due 08/01/05 931,500 ------------ 1,890,000 ------------ AIRLINES: 1.49% 3,150,000 Atlas Air, Inc., 9.375%, due 11/15/06 2,724,750 ------------ APPAREL: 0.37% 950,000 Cluett American Corp., 10.125%, due 05/15/08 669,750 ------------ AUTO PARTS & EQUIPMENT: 2.37% 2,400,000 American Axle and Manufacturing, Inc., 9.750%, due 03/01/09 2,568,000 1,900,000 Collins & Aikman Products Co., 11.500%, due 04/15/06 1,767,000 ------------ 4,335,000 ------------ BUILDING MATERIALS: 1.89% 1,360,000 Dayton Superior Corp., 13.000%, due 06/15/09 1,394,000 2,000,000 Nortek, Inc., 8.875%, due 08/01/08 2,060,000 ------------ 3,454,000 ------------ CHEMICALS: 2.44% 1,400,000 Applied Extrusion Technologies, Inc., 10.750%, due 07/01/11 1,491,000 950,000 Equistar Chemicals LP, 10.125%, due 09/01/08 983,250 1,000,000 Ferro Corp., 9.125%, due 01/01/09 1,038,788 900,000 MacDermid, Inc., 9.125%, due 07/15/11 940,500 ------------ 4,453,538 ------------ COMMERCIAL SERVICES: 6.18% $ 1,500,000 Mail-Well, Inc., 8.750%, due 12/15/08 $ 1,395,000 600,000 Neff Corp., 10.250%, due 06/01/08 411,000 1,000,000 Neff Corp., 10.250%, due 06/01/08 685,000 2,900,000 @@ Quebecor Media, Inc., 11.125%, due 07/15/11 3,161,000 1,000,000 Travelcenters Of America, Inc., 12.750%, due 05/01/09 1,105,000 2,025,000 United Rentals, Inc., 9.000%, due 04/01/09 2,060,438 1,400,000 United Rentals, Inc., 9.250%, due 01/15/09 1,442,000 1,000,000 United Rentals, Inc., 9.500%, due 06/01/08 1,035,000 ------------ 11,294,438 ------------ COSMETICS/PERSONAL CARE: 1.48% 1,900,000 Elizabeth Arden, Inc., 10.375%, due 05/15/07 1,705,250 1,000,000 Elizabeth Arden, Inc., 11.750%, due 02/01/11 1,005,000 ------------ 2,710,250 ------------ DIVERSIFIED FINANCIAL SERVICES: 2.13% 2,000,000 Madison River Capital LLC, 13.250%, due 03/01/10 1,570,000 1,900,000 # Meditrust 7.114%, due 08/15/04 1,859,625 450,000 # Von Hoffmann Press, Inc., 10.250%, due 03/15/09 459,563 ------------ 3,889,188 ------------ ELECTRIC: 2.61% 1,030,000 Calpine Corp., 7.625%, due 04/15/06 809,335 1,575,000 Calpine Corp., 8.625%, due 08/15/10 1,238,400 750,000 Calpine Corp., 8.750%, due 07/15/07 585,687 2,000,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 2,130,000 ------------ 4,763,422 ------------ ELECTRONICS: 1.36% $ 325,000 @@ Flextronics International Ltd, 8.750%, due 10/15/07 $ 333,125 2,000,000 @@ Flextronics International Ltd, 9.875%, due 07/01/10 2,160,000 ------------ 2,493,125 ------------ ENTERTAINMENT: 0.50% 900,000 # Isle of Capri Casinos, Inc., 9.000%, due 03/15/12 905,625 ------------ ENVIRONMENTAL CONTROL: 2.17% 3,900,000 Allied Waste North America, 10.000%, due 08/01/09 3,968,250 ------------ FOOD: 2.07% 1,500,000 Agrilink Foods, Inc., 11.875%, due 11/01/08 1,578,750 1,220,000 Fleming Cos, Inc., 10.125%, due 04/01/08 1,281,000 900,000 Fleming Cos, Inc., 10.625%, due 07/31/07 921,375 ------------ 3,781,125 ------------ FOREST PRODUCTS & PAPER: 2.80% 1,450,000 # Appleton Papers, Inc., 12.500%, due 12/15/08 1,428,250 2,650,000 Buckeye Technologies, Inc., 9.250%, due 09/15/08 2,345,250 1,400,000 @@ Paperboard Industries International, 8.375%, due 09/15/07 1,351,000 ------------ 5,124,500 ------------ HOLDING COMPANIES-DIVERSIFIED: 1.37% 2,500,000 Penhall International, Inc., 12.000%, due 08/01/06 2,512,500 ------------ HOME BUILDERS: 3.27% 900,000 KB Home, 8.625%, due 12/15/08 931,500 1,900,000 Ryland Group, Inc., 9.125%, due 06/15/11 2,014,000 3,000,000 Toll Corp., 8.125%, due 02/01/09 3,026,250 ------------ 5,971,750 ------------ See Accompanying Notes to Financial Statements 52 ING High Yield Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- HOME FURNISHINGS: 1.17% $ 900,000 Fedders North America, Inc., 9.375%, due 08/15/07 $ 625,500 1,450,000 Salton, Inc., 12.250%, due 04/15/08 1,511,625 ------------ 2,137,125 ------------ HOUSEHOLD PRODUCTS/WARES: 1.10% 1,900,000 American Greetings, 11.750%, due 07/15/08 2,014,000 ------------ IRON/STEEL: 0.18% 325,000 Armco, Inc., 9.000%, due 09/15/07 330,688 ------------ LODGING: 8.81% 450,000 #XX Boyd Gaming Corp., 8.750%, due 04/15/12 453,937 1,000,000 Extended Stay America, Inc., 9.875%, due 06/15/11 1,050,000 2,300,000 Mandalay Resort Group, 9.250%, due 12/01/05 2,386,250 2,900,000 MGM Mirage, 9.750%, due 06/01/07 3,146,500 2,950,000 Park Place Entertainment Corp., 8.875%, due 09/15/08 3,093,813 1,700,000 Prime Hospitality Corp., 9.750%, due 04/01/07 1,780,750 500,000 Station Casinos, Inc., 9.750%, due 04/15/07 522,600 875,000 Station Casinos, Inc., 9.875%, due 07/01/10 942,813 1,000,000 Venetian Casino Resort LLC, 12.250%, due 11/15/04 1,057,500 1,600,000 Venetian Casino Resort LLC, 14.250%, due 11/15/05 1,682,000 ------------ 16,116,163 ------------ MACHINERY-CONSTRUCTION & MINING: 2.31% 1,000,000 Terex Corp., 10.375%, due 04/01/11 1,087,500 2,440,000 Terex Corp., 8.875%, due 04/01/08 2,519,300 595,000 Terex Corp., 8.875%, due 04/01/08 614,338 ------------ 4,221,138 ------------ MACHINERY-DIVERSIFIED: 0.96% 1,800,000 Columbus McKinnon Corp., 8.500%, due 04/01/08 1,755,000 ------------ MEDIA: 10.70% $ 1,500,000 Adelphia Communications, 10.250%, due 11/01/06 $ 1,402,500 1,050,000 Adelphia Communications, 10.875%, due 10/01/10 981,750 2,900,000 @@ CanWest Media, Inc., 10.625%, due 05/15/11 3,204,500 2,000,000 Charter Communications Holdings, 11.125%, due 01/15/11 2,015,000 1,500,000 Charter Communications Holdings, 8.625%, due 04/01/09 1,365,000 1,500,000 Coaxial Communications, Inc., 10.000%, due 08/15/06 1,522,500 850,000 @@ # Corus Entertainment, Inc., 8.750%, due 03/01/12 881,875 2,100,000 Echostar DBS Corp., 9.250%, due 02/01/06 2,163,000 500,000 Echostar DBS Corp., 9.375%, due 02/01/09 522,500 1,000,000 # Gray Communication System, 9.250%, due 12/15/11 1,035,000 1,200,000 # Nextmedia Operating, Inc., 10.750%, due 07/01/11 1,293,000 1,400,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 1,190,000 2,300,000 Primedia, Inc., 7.625%, due 04/01/08 1,989,500 ------------ 19,566,125 ------------ MINING: 0.48% 900,000 Jorgensen, 9.500%, due 04/01/05 868,500 ------------ MISCELLANEOUS MANUFACTURER: 0.36% 900,000 Hexcel Corp., 9.750%, due 01/15/09 652,500 ------------ OIL & GAS: 2.94% 4,625,000 Energy Corp. Of America, 9.500%, due 05/15/07 3,168,125 1,360,000 Premcor Refining Group, Inc., 8.375%, due 11/15/07 1,278,400 1,000,000 Premcor Refining Group, Inc., 8.625%, due 08/15/08 945,000 ------------ 5,391,525 ------------ PACKAGING & CONTAINERS: 7.09% $ 1,400,000 AEP Industries, Inc., 9.875%, due 11/15/07 $ 1,421,000 1,325,000 (2),@@ Norampac, Inc., 9.375%, due 02/01/08 882,364 900,000 Owens-Illinois, Inc., 7.150%, due 05/15/05 864,000 2,160,000 Owens-Illinois, Inc., 7.850%, due 05/15/04 2,127,600 1,900,000 # Plastipak Holdings, Inc., 10.750%, due 09/01/11 2,078,125 1,308,000 Riverwood International Corp., 10.875%, due 04/01/08 1,363,590 3,900,000 Stone Container Corp., 9.750%, due 02/01/11 4,231,500 ------------ 12,968,179 ------------ REITS: 2.15% 900,000 # Felcor Lodging LP, 9.500%, due 09/15/08 958,500 2,900,000 Meristar Hospitality Corp., 9.125%, due 01/15/11 2,976,124 ------------ 3,934,624 ------------ RETAIL: 2.73% 2,000,000 Big 5 Corp., 10.875%, due 11/15/07 2,012,500 750,000 Guitar Center, Inc., 11.000%, due 07/01/06 776,250 2,088,000 Tuesday Morning Corp., 11.000%, due 12/15/07 2,202,840 ------------ 4,991,590 ------------ SEMICONDUCTORS: 3.93% 250,000 Amkor Technology, Inc., 9.250%, due 05/01/06 249,375 3,000,000 Amkor Technology, Inc., 9.250%, due 02/15/08 2,985,000 1,975,000 Fairchild Semiconductor International, Inc., 10.125%, due 03/15/07 2,063,875 4,675,000 ** Zilog, Inc., 9.500%, due 03/01/05 1,893,375 ------------ 7,191,625 ------------ See Accompanying Notes to Financial Statements 53 ING High Yield Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- TELECOMMUNICATIONS: 6.46% $ 4,000,000 ** Adelphia Business Solutions, Inc., 12.000%, due 11/01/07 $ 100,000 2,900,000 Alamosa Delaware, Inc., 12.500%, due 02/01/11 2,392,500 2,000,000 American Cellular Corp., 9.500%, due 10/15/09 1,480,000 4,000,000 @@ Call-Net Enterprises, Inc., 9.375%, due 05/15/09 1,180,000 1,000,000 Crown Castle International Corp., 10.750%, due 08/01/11 905,000 1,776,000 IWO Holdings, Inc., 14.000%, due 01/15/11 1,518,480 2,750,000 Nextel Communications, Inc., 9.375%, due 11/15/09 1,835,624 1,900,000 # Nextel Partners, Inc., 12.500%, due 11/15/09 1,282,500 450,000 Rogers Cantel, Inc., 9.750%, due 06/01/16 396,000 1,425,000 @@ Telewest Communications PLC, 9.625%, due 10/01/06 712,500 ------------ 11,802,604 ------------ TEXTILES: 0.58% 1,000,000 Simmons Co., 10.250%, due 03/15/09 1,063,750 ------------ TRANSPORTATION: 1.63% 3,055,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 2,978,625 ------------ Total Corporate Bonds (Cost $ 169,318,678) 164,834,472 ------------ Shares ------ COMMON STOCK: 0.00% TELECOMMUNICATIONS -- FIXED LINE:0.00% 900 @ Mpower Holding Corp. $ 36 ------------ Total Common Stock (Cost $ 3,897) 36 ------------ Principal Amount - --------- WARRANTS: 0.04% BUILDING MATERIALS: 0.02% 3,100 @ Dayton Superior Corp., Exp. 06/15/09 31,000 ------------ TRANSPORTATION: 0.02% 3,000 @ Travelcenters America, Inc., Exp. 11/14/10 30,750 ------------ Total Warrants (Cost $34,739) 61,750 ------------ Total Long-Term Investments (Cost $ 169,357,314) 164,896,258 ------------ Principal Amounts - --------- SHORT-TERM INVESTMENTS: 8.03% REPURCHASE AGREEMENT: 8.03% $14,683,000 State Street Repurchase Agreement dated 3/28/02, 1.620% due 4/01/02, $ 14,685,643 to be received upon repurchase (Collateralized by $13,630,000 US Treasury Note, 7.000% Market Value $14,980,433 due 07/15/06) $ 14,683,000 ------------ Total Short-Term Investments (Cost, $14,683,000) 14,683,000 ------------ TOTAL INVESTMENTS IN SECURITIES (COST $ 184,040,314)* 98.22% $179,579,258 OTHER ASSETS AND LIABILITIES-NET 1.78% 3,250,977 ------- ------------ NET ASSETS 100.00% $182,830,235 ======= ============ @ Non-income producing security # Securities purchased pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. @@ Foreign Issuer ** Defaulted Security XX Value of securities obtained from one or more dealers making markets in the securities which have been adjusted based on the Fund's valuation procedures. (2) Principal Amount presented in Canadian Dollars. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation 6,589,360 Gross Unrealized Depreciation (11,050,416) ------------ Net Unrealized Depreciation (4,461,056) ============ See Accompanying Notes to Financial Statements 54 ING High Yield Opportunity Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 82.77% AEROSPACE/DEFENSE: 0.90% $ 3,000,000 XX Simula, Inc., 8.000%, due 05/01/04 $ 2,100,000 ------------- APPAREL: 0.90% 3,000,000 Cluett American Corp., 10.125%, due 05/15/08 2,115,000 ------------- BUILDING MATERIALS: 3.27% 2,600,000 Dayton Superior Corp. 13.000%, due 06/15/09 2,665,000 1,725,000 @@,XX Intl. Utility Structures, Inc., 10.750%, due 02/01/08 948,750 2,456,000 @@,XX Intl. Utility Structures, Inc., 13.000%, due 02/01/08 675,400 3,250,000 Nortek, Inc., 8.875%, due 08/01/08 3,347,500 ------------- 7,636,650 ------------- CHEMICALS: 1.18% 2,000,000 Applied Extrusion Technologies, Inc., 10.750%, due 07/01/11 2,130,000 4,975,000 ** Sterling Chemicals, Inc., 11.750%, due 08/15/06 621,875 ------------- 2,751,875 ------------- COMMERCIAL SERVICES: 4.04% 3,325,000 Mail-Well, Inc., 8.750%, due 12/15/08 3,092,250 6,035,000 Neff Corp., 10.250%, due 06/01/08 4,133,975 2,000,000 Travelcenters of America, Inc., 12.750%, due 05/01/09 2,210,000 ------------- 9,436,225 ------------- COMPUTERS: 0.26% 4,000,000 ** Globix Corp., 12.500%, due 02/01/10 600,000 ------------- DIVERSIFIED FINANCIAL SERVICES: 6.24% 3,424,354 #,& Hollinger Participation Trust, 12.125%, due 11/15/10 3,304,502 5,050,000 Madison River Capital LLC, 13.250%, due 03/01/10 3,964,250 4,400,000 Orion Power Holdings, Inc., 12.000%, due 05/01/10 5,126,000 2,000,000 # Stone Container Finance, 11.500% due 08/15/06 2,170,000 ------------- 14,564,752 ------------- ELECTRIC: 4.77% $ 3,000,000 AES Corp., 8.750%, due 12/15/02 $ 2,805,000 1,000,000 AES Corp., 9.375%, due 09/15/10 785,000 3,120,000 Calpine Corp., 8.625%, due 08/15/10 2,453,212 1,000,000 Calpine Corp., 8.750%, due 07/15/07 780,916 4,050,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 4,313,250 ------------- 11,137,378 ------------- ELECTRONICS: 1.69% 3,650,000 @@ Flextronics Intl. Ltd., 9.875%, due 07/01/10 3,942,000 ------------- ENVIRONMENTAL CONTROL: 1.41% 3,200,000 Allied Waste North America, 8.875%, due 04/01/08 3,288,000 ------------- FOREST PRODUCTS & PAPER: 2.69% 2,000,000 # Appleton Papers Inc., 12.500%, due 12/15/08 1,970,000 1,215,000 Buckeye Technologies, Inc., 8.500%, due 12/15/05 1,099,575 8,575,000 @@,** Doman Industries Ltd., 8.750%, due 03/15/04 1,757,875 1,500,000 @@ Paperboard Industries Intl., 8.375%, due 09/15/07 1,447,500 ------------- 6,274,950 ------------- HOLDING COMPANIES-DIVERSIFIED: 2.78% 2,750,000 Kansas City Southern Railway, 9.500%, due 10/01/08 2,987,188 3,500,000 Penhall Intl., Inc., 12.000%, due 08/01/06 3,517,500 ------------- 6,504,688 ------------- INTERNET: 0.97% 3,750,000 ** Exodus Communications, Inc., 11.250%, due 07/01/08 787,500 7,000,000 ** Exodus Communications, Inc., 11.625%, due 07/15/10 1,470,000 ------------- 2,257,500 ------------- IRON/STEEL: 1.84% $ 1,925,000 AK Steel Corp., 7.875%, due 02/15/09 $ 1,949,062 1,715,000 AK Steel Corp., 9.125%, due 12/15/06 1,796,463 550,000 Armco, Inc., 9.000%, due 09/15/07 559,625 ------------- 4,305,150 ------------- LEISURE TIME: 0.31% 1,000,000 Trump Atlantic City Associates, 11.250%, due 05/01/06 715,000 ------------- LODGING: 6.35% 3,000,000 Hollywood Casino Shreveport, 13.000%, due 08/01/06 3,232,500 2,250,000 Mandalay Resort Group, 9.250%, due 12/01/05 2,334,375 3,500,000 Park Place Entertainment Corp., 8.875%, due 09/15/08 3,670,625 2,000,000 Prime Hospitality Corp., 9.750%, due 04/01/07 2,095,000 3,250,000 Station Casinos, Inc., 9.875%, due 07/01/10 3,501,875 ------------- 14,834,375 ------------- MACHINERY-CONSTRUCTION & MINING: 1.77% 4,015,000 Terex Corp., 8.875%, due 04/01/08 4,145,488 ------------- MACHINERY-DIVERSIFIED: 2.60% 2,756,000 Columbus McKinnon Corp., 8.500%, due 04/01/08 2,687,100 6,500,000 Numatics, Inc., 9.625%, due 04/01/08 3,380,000 ------------- 6,067,100 ------------- See Accompanying Notes to Financial Statements 55 ING High Yield Opportunity Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- MEDIA: 11.36% $ 4,000,000 Adelphia Communications, 10.250%, due 11/01/06 $ 3,740,000 3,750,000 Charter Communications Holdings, 11.125%, due 01/15/11 3,778,125 7,500,000 ** Classic Cable, Inc., 9.375%, due 08/01/09 1,125,000 12,390,000 ** Classic Cable, Inc., 10.500%, due 03/01/10 1,858,500 2,800,000 Echostar DBS Corp., 9.250%, due 02/01/06 2,884,000 500,000 Echostar DBS Corp., 9.375%, due 02/01/09 522,500 3,500,000 + Insight Communications, 0/12.250%, due 02/15/11 2,310,000 1,300,000 Jones Intl. Networks Ltd., 11.750%, due 07/01/05 669,500 1,500,000 # Nextmedia Operating, Inc., 10.750%, due 07/01/11 1,616,250 3,795,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 3,225,750 3,500,000 Primedia, Inc., 7.625%, due 04/01/08 3,027,500 300,000 Primedia, Inc., 8.875%, due 05/15/11 274,500 1,000,000 Sinclair Broadcast Group, Inc., 8.750%, due 12/15/07 1,025,000 4,750,000 **,XX Source Media, Inc., 12.000%, due 11/01/04 475,000 ------------- 26,531,625 ------------- MISCELLANEOUS MANUFACTURING: 0.95% 3,500,000 Park-Ohio Industries, Inc., 9.250%, due 12/01/07 2,222,500 ------------- OIL & GAS: 5.89% 8,110,000 Energy Corp. of America, 9.500%, due 05/15/07 5,555,350 6,400,000 @@ Northern Oil ASA, 10.000%, due 05/15/05 4,064,000 3,200,000 Premcor Refining Group, Inc., 8.375%, due 11/15/07 3,008,000 1,200,000 Premcor Refining Group, Inc., 8.625%, due 08/15/08 1,134,000 ------------- 13,761,350 ------------- PACKAGING & CONTAINERS: 2.10% $ 2,290,000 Owens-Illinois, Inc., 7.850%, due 05/15/04 $ 2,255,650 2,050,000 Riverwood Int'l Corp., 10.625%, due 08/01/07 2,183,250 684,035 #,&,XX Russell-Stanley Holdings, Inc., 9.000%, due 11/30/08 454,883 ------------- 4,893,783 ------------- RETAIL: 0.43% 1,000,000 Big 5 Corp., 10.875%, due 11/15/07 1,006,250 ------------- SEMICONDUCTORS: 2.63% 3,000,000 Amkor Technology, Inc., 9.250%, due 05/01/06 2,992,500 7,750,000 ** ZiLog, Inc., 9.500%, due 03/01/05 3,138,750 ------------- 6,131,250 ------------- TELECOMMUNICATIONS: 13.64% 21,225,000 ** Adelphia Business Solutions, Inc., 12.000%, due 11/01/07 530,625 555,000 ** Adelphia Business Solutions, Inc., 13.000%, due 04/15/03 15,262 1,500,000 Alamosa Delaware, Inc., 12.500%, due 02/01/11 1,237,500 3,000,000 American Cellular Corp., 9.500%, due 10/15/09 2,220,000 700,000 @@,** Call-Net Enterprises, Inc., 8.000%, due 08/15/08 175,000 6,500,000 @@,**,+ Call-Net Enterprises, Inc., 0/8.940%, due 08/15/08 1,592,500 6,000,000 @@,** Call-Net Enterprises, Inc., 9.375%, due 05/15/09 1,770,000 3,400,000 ** Concentric Network Corp., 12.750%, due 12/15/07 442,000 1,500,000 Crown Castle Int'l Corp., 10.750%, due 08/01/11 1,357,500 3,600,000 ** ICG Services, Inc., 10.000%, due 02/15/08 198,000 900,000 ITC Deltacom, Inc., 8.875%, due 03/01/08 202,500 1,000,000 ITC Deltacom, Inc., 9.750%, due 11/15/08 225,000 4,000,000 Iwo Holdings, Inc., 14.000%, due 01/15/11 3,420,000 9,581,938 Metromedia Intl. Group, Inc., 10.500%, due 09/30/07 4,886,788 $ 4,600,000 Nextel Communications, Inc., 9.375%, due 11/15/09 $ 3,070,500 6,160,000 NMS Communications Corp. 5.000%, due 10/15/05 3,934,700 2,500,000 @@ Rogers Cantel, Inc., 9.375%, due 06/01/08 2,318,750 3,800,000 #,**,X SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 5,000,000 #,**,X SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 8,500,000 #,**,X SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 6,050,000 @@ Telewest Communications PLC, 9.625%, due 10/01/06 3,025,000 8,267,451 #,**,X US Interactive, 12.000%, due 04/17/05 796,156 6,250,000 ** WinStar Communications, Inc., 12.750%, due 04/15/10 625 4,100,000 +,** XO Communications, Inc., 0/9.450%, due 04/15/08 451,000 ------------- 31,869,406 ------------- TRANSPORTATION: 1.80% 4,315,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 4,207,125 ------------- Total Corporate Bonds (Cost $260,115,299) 193,299,420 ------------- COLLATERALIZED MORTGAGE OBLIGATIONS (CMO'S): 0.06% DIVERSIFIED FINANCIAL SERVICES: 0.06% 500,000 #,XX Westways Funding II Ltd., 18.370%, due 01/29/03 150,000 ------------- Total CMO's (Cost $500,000) 150,000 ------------- See Accompanying Notes to Financial Statements 56 ING High Yield Opportunity Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- COMMON STOCK: 0.17% OIL & GAS: 0.00% 866,408 @,XX Orion Refining Corp. $ 8,664 ------------- PACKAGING & CONTAINERS: 0.08% 100,000 @,#,XX Russell-Stanley Holdings, Inc. 175,000 ------------- RETAIL: 0.00% 220,738 @,X International Fast Food Corp. -- ------------- TELECOMMUNICATIONS: 0.08% 61,806 @ Adelphia Business Solutions 2,472 89,000 @,@@,XX Completel Europe NV 42,720 483,445 @,X International Wireless Communications Holdings, Inc. 4,834 2,350 @,X Jordan Telecommunications 122,200 ------------- 172,226 ------------- TRANSPORTATION: 0.01% 2,000 @,@@ CHC Helicopter Corp. 33,460 ------------- Total Common Stock (Cost $23,897,703) 389,350 ------------- PREFERRED STOCK: 5.00% DIVERSIFIED FINANCIAL SERVICES: 5.00% 740,726 @,& North Atlantic Trading Co. 11,666,434 ------------- TELECOMMUNICATIONS: 0.00% 10,371 @,&,XX Adelphia Business Solutions, Inc. 104 43,148 @,& XO Communications, Inc. 431 28,440 @,& XO Communications, Inc.-Series B 284 ------------- 819 ------------- Total Preferred Stock (Cost $25,617,459) 11,667,253 ------------- Principal Amount Value - --------- ----- WARRANTS: 0.13% COMMERCIAL SERVICES: 0.00% 92,950 @,XX Comforce Corp., Exp. 12/01/09 $ 930 ------------- DIVERSIFIED FINANCIAL SERVICES: 0.00% 5,480 @,XX North Atlantic Trading Co., Exp. 06/15/07 55 ------------- ELECTRONICS: 0.00% 100 @,X Electronic Retailing Systems, Exp. 02/01/04 1 ------------- METAL FABRICATE/HARDWARE: 0.00% 10,000 @,@@,X Int'l Utility Structures, Inc., Exp. 02/01/03 -- ------------- MISCELLANEOUS MANUFACTURING: 0.10% 21,705 @,XX Packaged Ice, Inc., Exp. 04/15/04 234,414 ------------- TELECOMMUNICATIONS: 0.00% 10,000 @,X Cellnet Data Systems, Inc., Exp. 09/15/07 100 6,600 @,@@ ICG Communications, Inc., Exp. 09/15/05 66 7,000 @,X Poland Telekom, Inc., Exp. 03/31/03 -- 3,833 @,X US Interactive, Exp. 04/17/05 -- ------------- 166 ------------- TRANSPORTATION: 0.03% 6,000 @ Travelcenters of America, Inc., Exp. 11/14/10 61,500 ------------- Total Warrants (Cost $932,855) 297,066 ------------- Total Long-Term Investments (Cost $311,063,316) 205,803,089 ------------- Principal Amount Value - --------- ----- SHORT-TERM INVESTMENTS: 8.94% REPURCHASE AGREEMENT: 8.94% $20,880,000 State Street Repurchase Agreement dated 03/28/02, 1.620% due 04/01/02, $20,883,758 to be received upon repurchase (Collateralized by $17,090,000 U.S. Treasury Bond, 8.125% Market Value $21,300,788 due 08/15/21) $ 20,880,000 ------------- Total Short-Term Investments (Cost $20,880,000) 20,880,000 ------------- TOTAL INVESTMENTS IN SECURITIES (COST $ 331,943,316)* 97.07% $ 226,683,089 OTHER ASSETS AND LIABILITIES-NET 2.93% 6,843,427 ------- ------------- NET ASSETS 100.00% $ 233,526,516 ======= ============= @ Non-income producing security @@ Foreign Issuer + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. # Securities purchased pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. ** Defaulted Security X Fair value determined by ING Valuation Committee appointed by the Funds' Board of Directors/Trustees. XX Value of Securities obtained from one or more dealers making markets in the securities which have been adjusted based on the Fund's valuation procedures & Payment-in-kind * Cost for federal income tax purposes is $332,135,807. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 8,347,716 Gross Unrealized Depreciation (113,800,434) ------------- Net Unrealized Depreciation $(105,452,718) ============= See Accompanying Notes to Financial Statements 57 ING Classic Money Market Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- ASSET-BACKED COMMERCIAL PAPER: 21.42% $ 5,000,000 Ciesco LP, 1.790%, due 04/22/02 $ 4,994,779 5,000,000 Ciesco LP, 1.800%, due 04/25/02 4,994,000 5,000,000 Corporate Asset Funding Corp., 1.780%, due 04/16/02 4,996,292 4,164,000 Delaware Funding Corp., 1.810%, due 05/08/02 4,156,254 5,000,000 Delaware Funding Corp., 1.820%, due 04/30/02 4,992,669 7,000,000 Delaware Funding Corp., 1.880%, due 06/10/02 6,974,411 5,000,000 Edison Asset Securitization 1.810%, due 05/07/02 4,990,950 5,000,000 Edison Asset Securitization 1.820%, due 05/22/02 4,987,108 7,000,000 Edison Asset Securitization 1.880%, due 06/04/02 6,976,604 5,000,000 Edison Asset Securitization 1.940%, due 08/12/02 4,964,164 7,345,000 Enterprise Funding Corp., 1.630%, due 04/11/02 7,341,674 4,045,000 Enterprise Funding Corp., 1.800%, due 04/12/02 4,042,775 5,000,000 Enterprise Funding Corp., 1.800%, due 04/30/02 4,992,750 5,014,000 Enterprise Funding Corp., 1.820%, due 04/26/02 5,007,663 5,000,000 Park Avenue Receivable, 1.800%, due 04/02/02 4,999,750 5,000,000 Park Avenue Receivable, 1.800%, due 04/18/02 4,995,750 5,000,000 Park Avenue Receivable, 1.800%, due 04/23/02 4,994,500 5,000,000 Park Avenue Receivable, 1.810%, due 04/10/02 4,997,737 4,006,000 Park Avenue Receivable, 1.840%, due 04/29/02 4,000,267 5,000,000 Preferred Receivable Funding, 1.800%, due 04/01/02 5,000,000 5,000,000 Windmill Funding Corp., 1.790%, due 05/09/02 4,990,554 5,000,000 Windmill Funding Corp., 1.800%, due 04/19/02 4,995,500 5,000,000 Windmill Funding Corp., 1.810%, due 04/02/02 4,999,749 ------------ Total Asset-Backed Commercial Paper (Cost $118,385,900) 118,385,900 ------------ COMMERCIAL PAPER: 15.89% FIRE, MARINE AND CASUALTY INSURANCE: 1.81% 5,000,000 AIG Funding, Inc., 1.760%, due 04/04/02 4,999,267 5,000,000 AIG Funding, Inc., 1.830%, due 05/20/02 4,987,546 ------------ 9,986,813 ------------ FOREIGN BANK & BRANCHES: 0.90% 5,000,000 UBS Finance (DE), 1.850%, 06/06/02 4,983,042 ------------ MANAGEMENT SERVICES: 1.80% 5,000,000 Verizon Global Funding, 2.080%, 09/04/02 4,954,933 5,000,000 Verizon Global Funding, 2.320%, 04/30/02 4,990,656 ------------ 9,945,589 ------------ PERSONAL CREDIT INSTITUTIONS: 6.14% 5,000,000 General Electric Capital Corp., 1.990%, due 07/11/02 4,972,085 7,000,000 Household Finance Corp., 1.730%, due 04/09/02 6,997,309 5,000,000 Household Finance Corp., 1.860%, due 05/02/02 4,991,992 5,000,000 Transamerica Finance Corp., 1.780%, due 04/08/02 4,998,269 7,000,000 Transamerica Finance Corp., 1.780%, due 05/15/02 6,984,771 5,000,000 Transamerica Finance Corp., 1.890%, due 06/19/02 4,979,262 ------------ 33,923,688 ------------ SECURITY BROKERS, DEALERS, AND FLOTATION COMPANIES: 3.97% 5,000,000 Morgan Stanley Dean Witter and Co., 1.790%, due 04/15/02 4,996,519 5,000,000 Morgan Stanley Dean Witter and Co., 1.800%, due 05/13/02 4,989,500 7,000,000 Morgan Stanley Dean Witter and Co., 1.840%, due 05/16/02 6,983,900 5,000,000 Salomon Smith Barney Holdings, 1.8300%, due 05/16/02 4,988,563 ------------ 21,958,482 ------------ TOILET PREPARATIONS: 1.27% 7,000,000 Gillette Co., 2.160% , due 04/22/02 6,991,180 ------------ Total Commercial Paper (Cost $87,788,794) 87,788,794 ------------ CORPORATE NOTES: 27.21% BANK HOLDING COMPANIES: 11.07% 9,570,000 Bank of America Corp., 7.350%, due 04/03/02 9,571,236 5,000,000 Bank One Corp., 1.920%, due 04/26/02 5,000,634 3,000,000 Chase Manhattan Corp., 1.970%, due 07/08/02 3,001,330 5,000,000 Chase Manhattan Corp., 1.990%, due 09/11/02 5,003,377 3,000,000 CitiCorp., 2.099%, due 06/24/02 3,000,815 7,000,000 Fleet Boston Financial Corp., 2.000%, due 05/01/02 7,001,211 6,000,000 Nationsbank Corp., 2.180%, due 06/25/02 6,003,262 3,000,000 Nationsbank Corp., 2.260%, due 08/23/02 3,003,799 12,000,000 Wells Fargo and Co., 1.979%, due 10/30/02 12,011,233 7,500,000 Wells Fargo and Co., 6.500%, due 09/03/02 7,587,702 ------------ 61,184,599 ------------ COMMERCIAL BANKS: 1.09% 6,000,000 Citigroup, Inc., 1.870%, due 07/12/02 6,000,170 ------------ See Accompanying Notes to Financial Statements 58 ING Classic Money Market Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- FEDERAL & FEDERALLY-SPONSORED CREDIT: 0.91% $ 5,000,000 Sallie Mae, 1.194%, due 08/15/02 $ 5,000,000 ------------ NATIONAL COMMERCIAL BANKS: 5.25% 4,000,000 Bank of America NA, 1.970%, due 05/20/02 4,000,702 5,000,000 Bank One NA Illinois, 1.970%, due 04/07/03 5,006,558 5,000,000 Fleet National Bank, 1.995%, due 09/03/02 5,003,266 7,000,000 Fleet National Bank, 2.060%, due 03/06/03 7,011,625 8,000,000 Wells Fargo Bank NA, 1.840%, due 01/21/03 8,000,000 ------------ 29,022,151 ------------ PERSONAL CREDIT INSTITUTIONS: 2.09% 7,000,000 Associates Corp. NA, 1.960%, due 05/01/02 7,001,031 2,500,000 General Electric Capital Corp., 5.350%, due 11/18/02 2,549,378 2,000,000 General Electric Capital Corp., 5.500%, due 04/15/02 2,002,819 ------------ 11,553,228 ------------ SECURITY BROKERS, DEALERS, AND FLOTATION COMPANIES: 3.18% 5,000,000 Merrill Lynch and Co., 2.070%, due 04/08/02 5,000,361 2,500,000 Merrill Lynch and Co., 2.079%, due 05/31/02 2,500,719 5,000,000 Merrill Lynch and Co., 4.300%, due 04/24/02 5,000,000 5,000,000 Merrill Lynch and Co., 7.250%, due 07/26/02 5,051,639 ------------ 17,552,719 ------------ TELEPHONE COMMUNICATIONS: 3.62% 10,000,000 BellSouth Corp., 4.287%, due 04/26/02 9,999,911 5,000,000 BellSouth Telecommunications, 1.910%, due 04/04/03 5,000,000 5,000,000 SBC Communications, Inc., 4.250%, due 06/05/02 5,000,000 ------------ 19,999,911 ------------ Total Corporate Notes (Cost $150,312,778) 150,312,778 ------------ CERTIFICATES OF DEPOSIT: 29.33% FOREIGN BANK AND BRANCHES: 23.18% 10,000,000 Abbey National Treasury Services PLC, 2.010%, due 07/25/02 10,000,318 5,000,000 Abbey National Treasury Services PLC, 4.520%, due 04/17/02 4,999,829 5,000,000 ABN Amro Bank NV, 1.905%, due 06/11/02 5,001,221 7,000,000 ABN Amro Bank NV, 4.545%, due 04/17/02 7,008,200 5,000,000 Barclays Bank PLC, 2.130%, due 05/28/02 5,001,875 7,000,000 Barclays Bank PLC, 4.120%, due 05/09/02 7,016,896 5,000,000 Barclays Bank PLC, 4.200%, due 05/21/02 5,016,127 4,000,000 Barclays Bank PLC, 4.290%, due 04/25/02 3,999,786 5,000,000 Canadian Imperial Bank NY Yankee, 1.880%, due 05/08/02 4,999,581 7,000,000 Credit Suisse First Boston, 1.800%, due 05/14/02 7,000,083 5,000,000 Dexia Bank, 1.900%, due 06/03/02 5,000,085 7,000,000 Lloyds Bank PLC, 2.200%, due 04/26/02 7,001,728 10,000,000 Rabobank Nederland, 1.835%, due 07/05/02 10,000,131 7,000,000 Rabobank Nederland, 2.000%, due 09/03/02 7,001,157 7,000,000 Rabobank Nederland, 2.850%, due 03/24/03 6,997,303 7,000,000 Royal Bank Scotland, 3.610%, due 09/06/02 7,047,855 5,000,000 Toronto Dominion Bank Ltd., 3.655%, due 10/04/02 5,000,124 7,000,000 UBS AG Stamford CT Yankee, 1.790%, due 07/22/02 7,000,000 7,000,000 UBS AG Stamford CT Yankee, 1.860%, due 07/31/02 7,000,000 6,000,000 UBS AG Stamford CT Yankee, 3.638%, due 09/27/02 5,999,854 ------------ 128,092,153 ------------ NATIONAL COMMERCIAL BANKS: 6.15% $ 5,000,000 Bank One NA Illinois, 4.100%, due 05/06/02 5,000,000 10,000,000 Southtrust Bank NA, 2.000%, due 06/03/02 10,000,000 7,000,000 State Street Bank and Trust, 1.790%, due 04/10/02 7,000,000 7,000,000 State Street Bank and Trust, 1.880%, due 06/12/02 7,000,000 5,000,000 State Street Bank and Trust, 2.010%, due 07/19/02 5,000,000 ------------ 34,000,000 ------------ Total Certificates of Deposit (Cost $162,092,153) 162,092,153 ------------ REPURCHASE AGREEMENT: 5.50% 30,393,000 State Street Repurchase Agreement dated 03/28/02, 1.820% due 04/01/02, $ 30,399,146 to be received upon repurchase (Collateralized by $29,035,000 FNMA, 6.625% Market Value $31,002,295, due 11/15/10) 30,393,000 ------------ TOTAL INVESTMENTS IN SECURITIES (COST $ 548,972,625)* 99.35% $548,972,625 OTHER ASSETS AND LIABILITIES-NET 0.65% 3,603,786 ------ ------------ NET ASSETS 100.00% $552,576,411 ====== ============ * Also represents cost for income tax purposes. See Accompanying Notes to Financial Statements 59 SHAREHOLDER MEETING (Unaudited) - -------------------------------------------------------------------------------- A special meeting of shareholders of the ING Retail Funds (formerly Pilgrim Retail funds) and Variable Products held February 21, 2002, at the offices of ING, 7337 East Doubletree Ranch Road, Scottsdale, AZ 85258. A brief description of each matter voted upon as well as the results are outlined below:
SHARES VOTED AGAINST OR SHARES BROKER TOTAL SHARES VOTED FOR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ---------------- -------- --------- -------- ------------ 1. To elect twelve (12) members of the Boards of Directors or Trustees to hold office until the election and qualification of their successors. ING High Yield Fund (formerly Pilgrim High Yield Fund) Paul S. Doherty 46,176,643 1,004,493 -- -- 47,181,136 J. Michael Earley 46,201,604 979,532 -- -- 47,181,136 R. Barbara Gitenstein 46,208,976 972,160 -- -- 47,181,136 Walter H. May 46,203,177 977,959 -- -- 47,181,136 Thomas J. McInerney 46,194,036 987,100 -- -- 47,181,136 Jock Patton 46,197,265 983,871 -- -- 47,181,136 David W.C. Putnam 46,173,260 1,007,876 -- -- 47,181,136 Blaine E. Rieke 46,184,821 996,315 -- -- 47,181,136 Robert C. Salipante 46,206,782 974,354 -- -- 47,181,136 John G. Turner 46,206,520 978,616 -- -- 47,185,136 Roger B. Vincent 46,210,297 970,839 -- -- 47,181,136 Richard A. Wedemeyer 46,201,639 979,497 -- -- 47,181,136 ING GNMA Income Fund (formerly Pilgrim GNMA Income Fund) Paul S. Doherty 53,821,224 1,448,657 -- -- 55,269,881 J. Michael Earley 53,840,904 1,428,977 -- -- 55,269,881 R. Barbara Gitenstein 53,776,043 1,493,838 -- -- 55,269,881 Walter H. May 53,802,977 1,466,904 -- -- 55,269,881 Thomas J. McInerney 53,823,075 1,446,806 -- -- 55,269,881 Jock Patton 53,840,084 1,429,797 -- -- 55,269,881 David W.C. Putnam 53,850,492 1,419,389 -- -- 55,269,881 Blaine E. Rieke 53,822,913 1,446,968 -- -- 55,269,881 Robert C. Salipante 53,796,603 1,473,278 -- -- 55,269,881 John G. Turner 53,797,818 1,472,063 -- -- 55,269,881 Roger B. Vincent 53,828,021 1,441,860 -- -- 55,269,881 Richard A. Wedemeyer 53,812,896 1,456,985 -- -- 55,269,881 ING Classic Money Market Fund (formerly ING Pilgrim Money Market Fund) Paul S. Doherty 188,883,011 6,731,516 -- -- 195,614,527 J. Michael Earley 188,986,979 6,627,548 -- -- 195,614,527 R. Barbara Gitenstein 189,028,491 6,586,036 -- -- 195,614,527 Walter H. May 189,019,946 6,594,581 -- -- 195,614,527 Thomas J. McInerney 189,020,476 6,594,051 -- -- 195,614,527 Jock Patton 189,100,508 6,514,019 -- -- 195,614,527 David W.C. Putnam 189,094,902 6,519,625 -- -- 195,614,527 Blaine E. Rieke 188,855,888 6,758,639 -- -- 195,614,527 Robert C. Salipante 189,048,154 6,566,373 -- -- 195,614,527 John G. Turner 189,064,033 6,550,494 -- -- 195,614,527 Roger B. Vincent 189,029,849 6,584,678 -- -- 195,614,527 Richard A. Wedemeyer 189,085,689 6,528,838 -- -- 195,614,527
60 SHAREHOLDER MEETING (Unaudited) (Continued) - --------------------------------------------------------------------------------
SHARES VOTED AGAINST OR SHARES BROKER TOTAL SHARES VOTED FOR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ---------------- -------- --------- -------- ------------ ING Intermediate Bond Fund (formerly Pilgrim Intermediate Bond Fund) Paul S. Doherty 4,488,887 25,155 -- -- 4,514,042 J. Michael Earley 4,488,974 25,068 -- -- 4,514,042 R. Barbara Gitenstein 4,487,142 26,900 -- -- 4,514,042 Walter H. May 4,488,974 25,068 -- -- 4,514,042 Thomas J. McInerney 4,488,337 25,705 -- -- 4,514,042 Jock Patton 4,488,974 25,068 -- -- 4,514,042 David W.C. Putnam 4,488,974 25,068 -- -- 4,514,042 Blaine E. Rieke 4,488,887 25,155 -- -- 4,514,042 Robert C. Salipante 4,488,887 25,155 -- -- 4,514,042 John G. Turner 4,488,887 25,155 -- -- 4,514,042 Roger B. Vincent 4,488,974 25,068 -- -- 4,514,042 Richard A. Wedemeyer 4,488,887 25,155 -- -- 4,514,042 ING High Yield Opportunity Fund (formerly Pilgrim High Yield Fund II) Paul S. Doherty 19,811,718 639,664 -- -- 20,451,382 J. Michael Earley 19,819,311 632,071 -- -- 20,451,382 R. Barbara Gitenstein 19,814,390 636,992 -- -- 20,451,382 Walter H. May 19,812,085 639,297 -- -- 20,451,382 Thomas J. McInerney 19,820,146 631,236 -- -- 20,451,382 Jock Patton 19,816,309 635,073 -- -- 20,451,382 David W.C. Putnam 19,817,753 633,629 -- -- 20,451,382 Blaine E. Rieke 19,812,251 639,131 -- -- 20,451,382 Robert C. Salipante 19,817,364 634,018 -- -- 20,451,382 John G. Turner 19,816,649 634,733 -- -- 20,451,382 Roger B. Vincent 19,819,047 632,335 -- -- 20,451,382 Richard A. Wedemeyer 19,813,179 638,203 -- -- 20,451,382 ING Strategic Income Fund (formerly Pilgrim Strategic Income Fund) Paul S. Doherty 4,320,843 25,974 -- -- 4,346,817 J. Michael Earley 4,320,843 25,974 -- -- 4,346,817 R. Barbara Gitenstein 4,320,843 25,974 -- -- 4,346,817 Walter H. May 4,320,843 25,974 -- -- 4,346,817 Thomas J. McInerney 4,320,843 25,974 -- -- 4,346,817 Jock Patton 4,320,843 25,974 -- -- 4,346,817 David W.C. Putnam 4,320,843 25,974 -- -- 4,346,817 Blaine E. Rieke 4,320,843 25,974 -- -- 4,346,817 Robert C. Salipante 4,320,843 25,974 -- -- 4,346,817 John G. Turner 4,320,843 25,974 -- -- 4,346,817 Roger B. Vincent 4,320,843 25,974 -- -- 4,346,817 Richard A. Wedemeyer 4,320,843 25,974 -- -- 4,346,817 2. To Approve amendments to Declarations of Trust or Trust Instruments, as the case may be, for some of the Funds to, among other things, permit the Boards to determine the number of Directors/Trustees to the Funds. ING Classic Money Market Fund 155,266,418 4,965,212 8,329,569 27,053,329 195,614,528 ING Intermediate Bond Fund 3,362,941 45,186 8,054 1,097,862 4,514,043 3. To Approve Plans of Reorganization to change only the form of corporate organization of some of the Funds without changing the substance or investment aspects of the Funds.[a][b] ING High Yield Fund 25,481,558 493,032 1,198,065 20,008,482 47,181,137 ING GNMA Income Fund, Inc. 35,824,691 1,137,007 1,693,666 16,614,517 55,269,881 ING High Yield Opportunity Fund 11,739,943 359,365 534,340 7,817,735 20,451,383 ING Strategic Income Fund 2,751,083 9,747 33,970 1,552,018 4,346,818
61 SHAREHOLDER MEETING (Unaudited) (Continued) - --------------------------------------------------------------------------------
SHARES VOTED AGAINST OR SHARES BROKER TOTAL SHARES VOTED FOR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ---------------- -------- --------- -------- ------------ 4. To Confirm PricewaterhouseCoopers LLP as current independent auditors of certain Funds. ING Classic Money Market Fund 187,664,720 1,527,213 6,422,595 -- 195,614,528 ING High Yield Fund 45,673,807 403,979 1,103,351 -- 47,181,137 ING GNMA Income Fund, Inc. 53,435,758 663,447 1,309,667 -- 55,408,872 ING High Yield Opportunity Fund 19,596,147 253,116 602,120 -- 20,451,383 ING Intermediate Bond Fund 4,496,199 10,662 7,182 -- 4,514,043 ING Strategic Income Fund 4,301,603 12,590 32,625 -- 4,346,818 6. To transact such other business as may properly come before the Special Meeting or any adjournment (s) or postponement(s) thereof. ING Classic Money Market Fund 181,502,551 2,173,865 11,938,111 -- 195,614,527 ING High Yield Fund 44,805,106 694,969 1,681,062 -- 47,181,137 ING GNMA Income Fund, Inc. 51,435,758 1,257,920 2,576,203 -- 55,269,881 ING High Yield Opportunity Fund 19,016,841 399,466 1,035,076 -- 20,451,383 ING Intermediate Bond Fund 4,425,626 62,479 25,938 -- 4,514,043 ING Strategic Income Fund 4,234,872 28,485 83,461 -- 4,346,818
A special meeting of shareholders of the ING High Yield Fund held March 14, 2002, at the offices of ING, 7337 East Doubletree Ranch Road, Scottsdale, AZ 85258. A brief description of each matter voted upon as well as the results are outline below: 1. To approve an Agreement and Plan of Reorganization (the "Reorganization Agreement") by and among High Yield Fund and Pilgrim High Yield Fund II ("High Yield Fund II") providing for the merger of High Yield Fund with and into High Yield Fund II, which will be renamed the "ING High Yield Opportunity Fund."[c] ING High Yield Fund 20,826,386 658,061 871,078 -- 22,355,525 2. To transact such other business, not currently contemplated, that may properly come before the Special Meeting in the discretion of the proxies or their substitutes.[c] ING High Yield Fund 20,568,412 728,301 1,058,812 -- 22,355,525
- ---------- [a] The special Meeting of Shareholders of the ING Retail Funds was adjourned to March 21, 2002, to permit the further solicitation of shareholders of the ING GNMA Income Fund for their proxies relating to the proposal. The results shown are for the February 21 and March 21, 2002 meetings. [b] The special Meeting of Shareholders of the ING Retail Funds was adjourned to March 21, 2002, April 9, 2002 and then to April 16, 2002 to permit the further solicitation of shareholders of the ING High Yield and ING High Yield Opportunity Funds for their proxies relating to the proposal. The results shown are for the February 21 and March 21, 2002 meetings. [c] The special Meeting of Shareholders of the ING High Yield Fund was adjourned until April 9, 2002 to permit the further solicitation of shareholders for their proxies relating to this proposal. The results shown are for the March 14, 2002 meeting. 62 TAX INFORMATION (Unaudited) - -------------------------------------------------------------------------------- Dividends paid during the year ended March 31, 2002 were as follows: FUND NAME TYPE PER SHARE AMOUNT - --------- ---- ---------------- ING GNMA Income Fund Class A NII $ 0.4720 Class B NII $ 0.4110 Class C NII $ 0.4110 Class I NII $ 0.1060 Class M NII $ 0.4333 Class Q NII $ 0.4720 Class T NII $ 0.4370 ING Intermediate Bond Fund Class A NII $ 0.5253 Class B NII $ 0.4489 Class C NII $ 0.4465 Class I NII $ 0.0708 Class A STCG $ 0.6711 Class B STCG $ 0.6711 Class C STCG $ 0.6711 ING Strategic Income Fund Class A NII $ 0.8690 Class B NII $ 0.8300 Class C NII $ 0.8300 Class Q NII $ 0.8820 ING High Yield Fund Class A NII $ 0.3550 Class B NII $ 0.3210 Class C NII $ 0.3210 Class M NII $ 0.3210 Class Q NII $ 0.3670 All Classes ROC $ 0.0850 ING High Yield Opportunity Fund Class A NII $ 0.9941 Class B NII $ 0.9322 Class C NII $ 0.9337 Class Q NII $ 1.0058 Class T NII $ 0.9674 ING Classic Money Market Class A NII $ 0.0280 Class B NII $ 0.0220 Class C NII $ 0.0219 Class I NII $ 0.0365 - ---------- NII -- Net investment income STCG -- Short-term capital gain ROC -- Return of capital The above figure may differ from those cited elsewhere in this report due to differences in the calculation of income and gains for Securities and Exchange Commissions (book) purposes 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 Funds. In January 2002, shareholders, excluding corporate shareholders, received an IRS Form 1099 DIV regarding the federal tax status of the dividends and distributions received by them in calendar 2001. 63 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) - -------------------------------------------------------------------------------- The business and affairs of the Funds are managed under the direction of the Funds' Board of Directors/Trustees. Information pertaining to the Directors/Trustees and Officers of the Funds is set forth below:
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Non-Interested Directors: Paul S. Doherty Director/Trustee 10-29-99 Retired. Mr. Doherty was 106 Mr. Doherty is a Trustee 7337 E. Doubletree Ranch Rd. to Present formerly President and of the GCG Trust (February Scottsdale, AZ 85258 Partner, Doherty, Wallace, 2002 to present). Age: 67 Pillsbury and Murphy, P.C.,Attorneys (1996 to 2001); a Director of Tambrands, Inc. (1993 to 1998); and a Trustee of each of the funds managed by Northstar Investment Management Corporation (1993 to 1999). J. Michael Earley Director/Trustee 2-22-02 to President and Chief 106 Mr. Earley is a Trustee 7337 E. Doubletree Ranch Rd. Present Executive Officer of Bankers of the GCG Trust (1997 to Scottsdale, AZ 85258 Trust Company, N.A. (1992 present). Age: 56 to present). R. Barbara Gitenstein Director/Trustee 2-22-02 to President of the College of 106 Dr. Gitenstein is a Trustee 7337 E. Doubletree Ranch Rd. Present New Jersey (1999 to of the GCG Trust (1997 to Scottsdale, AZ 85258 present); Executive Vice present). Age: 53 President and Provost at Drake University (1992 to 1998). Walter H. May Director/Trustee 10-29-99 Retired. Mr. May was 106 Mr. May is a Trustee for 7337 E. Doubletree Ranch Rd. to Present formerly Managing Director the Best Prep Charity (1991 Scottsdale, AZ 85258 and Director of Marketing to present) and the GCG Age: 65 for Piper Jaffray, Inc. (an Trust (February 2002 to investment present). banking/underwriting firm). Mr. May was formerly a Trustee of each of the funds managed by Northstar Investment Management Corporation (1996 to 1999). Jock Patton Director/Trustee 8-28-95 to Private Investor. Mr. Patton 106 Mr. Patton is a Trustee 7337 E. Doubletree Ranch Rd. Present was formerly Director and of the GCG Trust (February Scottsdale, AZ 85258 Chief Executive Officer of 2002 to present); He is Age: 56 Rainbow Multimedia Group, also Director of Hypercom, Inc. (January 1999 to Inc. and JDA Software December 2001); Director of Group, Inc. (January 1999 Stuart Entertainment, Inc.; to present); National Directory of Artisoft, Inc. Airlines, Inc.; and BG (1994 to 1998); President Associates, Inc. and co-owner of StockVal, Inc. (November 1992 to June 1997) and a Partner and Director of the law firm of Streich Lang, P.A. (1972 to 1993).
64 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Non-Interested Directors: David W.C. Putnam Director/Trustee 10-29-99 President and Director of 106 Mr. Putnam is a Trustee of 7337 E. Doubletree Ranch Rd. to Present F.L. Putnam Securities GCG Trust (February 2002 to Scottsdale, AZ 85258 Company, Inc. and its present); Director of F.L. Age: 62 affiliates. Mr. Putnam is Putnam Securities Company, also President, Secretary Inc. (June 1978 to and Trustee of The Principled present); F.L. Putnam Equity Market Fund. Mr. Investment Management Putnam was formerly a Company (December 2001 to Director/Trustee of Trust present); Asian American Realty Corp., Anchor Bank and Trust Company Investment Trust, Bow Ridge (June 1992 to present); and Mining Co., and each of the Notre Dame Health Care funds managed by Center (1991 to present). Northstar Investment He is also a Trustee of The Management Corporation Principled Equity Market (1994 to 1999). Fund (November 1996 to present); Progressive Capital Accumulation Trust (August 1998 to present); Anchor International Bond Trust (December 2000 to present); F.L. Putnam Foundation (December 2000 to present); Mercy Endowment Foundation (1995 to present);and an Honorary Trustee of Mercy Hospital (1973 to present). Blaine E. Rieke Director/Trustee 2-26-01 to General Partner of 106 Mr. Rieke is a 7337 E. Doubletree Ranch Rd. Present Huntington Partners, an Director/Trustee of the Scottsdale, AZ 85258 investment partnership Morgan Chase Trust Co. Age: 68 (1997 to present). Mr. Rieke (January 1998 to present) was formerly Chairman and and the GCG Trust (February Chief Executive Officer of 2002 to present). Firstar Trust Company (1973 to 1996). Mr. Rieke was formerly the Chairman of the Board and a Trustee of each of the funds managed by ING Investment Management Co. LLC. (1998 to 2001). Roger B. Vincent Director/Trustee 2-22-02 to President of Springwell 106 Mr. Vincent is a Trustee of 7337 E. Doubletree Ranch Rd. Present Corporation, a corporate the GCG Trust (1994 to Scottsdale, AZ 85258 advisory firm (1989 to present) and a Director of Age: 56 present). Mr. Vincent was AmeriGas Propane, Inc. formerly a Director of (1998 to present). Tatham Offshore, Inc. (1996 to 2000) and Petrolane, Inc. (1993 to 1995).
65 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Non-Interested Directors: Richard A. Wedemeyer Director/Trustee 2-26-01 to Vice President - Finance and 106 Mr. Wedemeyer is a Trustee 7337 E. Doubletree Ranch Rd. Present Administration - of the of Touchstone Consulting Scottsdale, AZ 85258 Channel Corporation, an Group (1997 to present) and Age: 65 importer of specialty alloy the GCG Trust (February aluminum products (1996 to 2002 to present). present). Mr. Wedemeyer was formerly Vice President - Finance and Administration - of Performance Advantage, Inc., a provider of training and consultation services (1992 to 1996), and Vice President - Operations and Administration- of Jim Henson Productions (1979 to 1997). Mr. Wedemeyer was a Trustee of each of the funds managed by ING Investment Management Co. LLC. (1998 to 2001). Interested Directors: R. Glenn Hilliard(1) Director/Trustee 2-26-02 to Chairman and CEO of ING 106 Mr. Hilliard serves as a ING Americas Present Americas and a member of member of the Board of 5780 Powers Ferry Road its Americas Executive Directors of the Clemson NW Atlanta, GA 30327 Committee (1999 to University Foundation, the Age: 59 present). Mr. Hilliard was Board of Councilors for the formerly Chairman and CEO Carter Center, a Trustee of of ING North America, the Woodruff Arts Center encompassing the U.S., and sits on the Board of Mexico and Canada regions Directors for the High (1994 to 1999). Museum of Art. Mr. Hilliard is also a Trustee of GCG Trust (February 2002 to present).
66 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Interested Directors: Thomas J. McInerney(2) Director/Trustee 2-26-01 to Chief Executive Officer, ING 156 Mr. McInerney serves as a 7337 E. Doubletree Ranch Rd. Present U.S. Financial Services Director/Trustee of Aeltus Scottsdale, AZ 85258 (October 2001 to present); Investment Management, Age: 45 President, Chief Executive Inc. (1997 to present); Officer, and Director of each of the Aetna Funds Northern Life Insurance (April 2002 to present); Company (2001 to present); Ameribest Life Insurance and President and Director Co. (2001 to present); of Aetna Life Insurance and Equitable Life Insurance Annuity Company (1997 to Co. (2001 to present); present), Aetna Retirement First Columbine Life Holdings, Inc. (1997 to Insurance Co. (2001 to present), Aetna Investment present); Golden American Adviser Holding Co. (2000 Life Insurance Co. (2001 to present), and Aetna to present); Life Insurance Retail Holding Company Company of Georgia (2001 (2000 to present). Mr. to present); Midwestern McInerney was formerly United Life Insurance Co. General Manager and Chief (2001 to present); Executive Officer of ING ReliaStar Life Insurance Worksite Division (since Co. (2001 to present); December 2000 to October Security Life of Denver 2001); President of Aetna (2001 to present); Security Financial Services (August Connecticut Life Insurance 1997 to December 2000); Co. (2001 to present); Head of National Accounts Southland Life Insurance and Core Sales and Co. (2001 to present); USG Marketing for Aetna U.S. Annuity and Life Company Healthcare (April 1996 to (2001 to present); United March 1997); Head of Life and Annuity Insurance Corporate Strategies for Co. Inc (2001 to present); Aetna Inc. (July 1995 to and the GCG Trust (February April 1996); and has held a 2002 to present). Mr. variety of line and McInerney is a member of corporate staff positions the Board of the National since 1978. Commission on Retirement Policy, the Governor's Council on Economic Competitiveness and Technology of Connecticut, the Board of Directors of the Connecticut Business and Industry Association, the Board of Trustees of the Bushnell, theBoard for the Connecticut Forum, and the Board of the Metro Hartford Chamber of Commerce, and is Chairman of Concerned Citizens for Effective Government.
67 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Interested Directors: John G. Turner(3) Chairman and 10-29-99 President, Turner Investment 106 Mr. Turner serves as a 7337 E. Doubletree Ranch Rd. Director/Trustee to Present Company (since January member of the Board of the Scottsdale, AZ 85258 2002). Mr. Turner was GCG Trust. Mr. Turner also Age: 62 formerly Vice Chairman of serves as a Director of the ING Americas (2000 to Hormel Foods Corporation 2001); Chairman and Chief (May 2000 to present), Executive Officer of Shopko Stores, Inc. (August ReliaStar Financial Corp. and 1999 to present), and M.A. ReliaStar Life Insurance Mortenson Co. (March 2002 Company (1993 to 2000); to present) Chairman of ReliaStar United Services Life Insurance Company (1995 to 1998); Chairman of ReliaStar Life Insurance Company of New York (1995 to 2001); Chairman of Northern Life Insurance Company (1992 to 2000); Chairman and Director/Trustee of the Northstar affiliated investment companies (1993 to 2001) and Director, Northstar Investment Management Corporation and its affiliates (1993 to 1999).
- ---------- (1) Mr. Hilliard is an "interested person", as defined by the Investment Company Act of 1940, as amended (the "1940 Act"), because of his relationship with ING Americas, an affiliate of ING Investments, LLC. (2) Mr. McInerney is an "interested person", as defined by the 1940 Act, because of his affiliation with ING U.S. Worksite Financial Services, an affiliate of ING Investments, LLC. (3) Mr. Turner is an "interested person", as defined by the 1940 Act, because of his former affiliation with ING Americas, an affiliate of ING Investments, LLC. 68 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Officers: James M. Hennessy President, March President and Chief -- -- 7337 E. Doubletree Ranch Rd. Chief 2002 to Executive Officer of ING Scottsdale, AZ 85258 Executive Present Capital Corporation, LLC, Age: 52 Officer, and (for the ING Funds Services, LLC, ING Chief ING Funds) Advisors, Inc., ING Operating Investments, LLC, Lexington Officer Funds Distributor, Inc., Express America T.C. Inc. President, February and EAMC Liquidation Corp. Chief 2001 to (since December 2001); Executive March Executive Vice President and Officer, and 2002 (for Chief Operating Officer of Chief the Pilgrim ING Quantitative Operating Funds) Management, Inc. (since Officer October 2001) and ING Funds Distributor, Inc. (since Chief July 2000 June 2000). Formerly, Senior Operating to Executive Vice President Officer February (June 2000 to December 2001(for 2000) and Secretary (April the Pilgrim 1995 to December 2000) of Funds) ING Capital Corporation, LLC, ING Funds Services, LLC, ING Investments, LLC, ING Advisors, Inc., Express America T.C. Inc., and EAMC Liquidation Corp.; and Executive Vice President, ING Capital Corporation, LLC and its affiliates (May 1998 to June 2000) and Senior Vice President, ING Capital Corporation, LLC and its affiliates (April 1995 to April 1998). Stanley D. Vyner Executive March Executive Vice President of -- -- 7337 E. Doubletree Ranch Rd. Vice President 2002 to ING Advisors, Inc. and ING Scottsdale, AZ 85258 Present Investments, LLC (since July Age: 51 (for the 2000) and Chief Investment ING Funds) Officer of the International Portfolios, ING Investments, Executive July 1996 LLC (since July 1996). Vice President to March Formerly, President and 2002 (for Chief Executive Officer of the ING Investments, LLC international (August 1996 to August portfolios 2000). of the Pilgrim Funds)
69 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Officers: Mary Lisanti Executive March Executive Vice President of -- -- 7337 E. Doubletree Ranch Rd. Vice President 2002 to ING Investments, LLC and Scottsdale, AZ 85258 Present ING Advisors, Inc. (since Age: 45 (for the November 1999) and of ING ING Funds) Quantitative Management, Inc. (since July 2000); Chief Executive May 1998 Investment Officer of the Vice President to March Domestic Equity Portfolios, 2002 ING Investments, LLC (since (for the 1999). Formerly, Executive domestic Vice President and Chief equity Investment Officer for the portfolios Domestic Equity Portfolios of the of Northstar Investment Pilgrim Management Corporation, Funds) whose name changed to Pilgrim Advisors, Inc. and subsequently became part of ING Investments, LLC (May 1998 to October 1999); Portfolio Manager with Strong Capital Management (May 1996 to 1998); a Managing Director and Head of Small- and Mid- Capitalization Equity Strategies at Bankers Trust Corp. (1993 to 1996). Michael J. Roland Executive March Executive Vice President, -- -- 7337 E. Doubletree Ranch Rd. Vice 2002 to Chief Financial Officer and Scottsdale, AZ 85258 President, Present Treasurer of ING Funds Age: 43 Assistant (for the Services, LLC, ING Funds Secretary and ING Funds) Distributor, Inc., ING Principal Advisors, Inc., ING Financial Investments, LLC, ING Officer Quantitative Management, Inc., Lexington Funds Senior Vice June 1998 Distributor, Inc., Express President and to March America T.C. Inc. and EAMC Principal 2002 (for Liquidation Corp. (since Financial the Pilgrim December 2001). Formerly, Officer Funds) Senior Vice President, ING Funds Services, LLC, ING Investments, LLC, and ING Funds Distributor, Inc. (June 1998 to December 2001) and Chief Financial Officer of Endeavor Group (April 1997 to June 1998). Ralph G. Norton III Senior Vice March Senior Vice President of ING -- -- 7337 E. Doubletree Ranch Rd. President 2002 to Investment Advisors, Inc. Scottsdale, AZ 85258 Present and ING Investments, LLC Age: 42 (for the (since October 2001) and ING Funds) Chief Investment Officer of the Fixed Income Portfolios, Senior Vice August ING Investments, LLC (since President 2001 to October 2001). Formerly, March Senior Market Strategist, 2002 (for Aeltus Investment the fixed Management, Inc. (January income 2001 to August 2001) and portfolios Chief Investment Officer, of the ING Investments, LLC (1990 Pilgrim to January 2001). Funds)
70 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Officers: Robert S. Naka Senior Vice March Senior Vice President and -- -- 7337 E. Doubletree Ranch Rd. President and 2002 to Assistant Secretary of ING Scottsdale, AZ 85258 Assistant Present Funds Services, LLC, ING Age: 38 Secretary (for the Funds Distributor, Inc., ING ING Funds) Advisors, Inc., ING Investments, LLC, ING Senior Vice November Quantitative Management, President and 1999 to Inc. (since October 2001) Assistant March and Lexington Funds Secretary 2002 (for Distributor, Inc. (since the Pilgrim December 2001). Formerly, Funds) Vice President, ING Investments, LLC (April 1997 Assistant July 1994 to October 1999), ING Funds Secretary to Services, LLC (February 1997 November to August 1999) and 1999 (for Assistant Vice President, ING the Pilgrim Funds Services, LLC (August Funds) 1995 to February 1997). Robyn L. Ichilov Vice President March Vice President of ING Funds -- -- 7337 E. Doubletree Ranch Rd. and Treasurer 2002 to Services, LLC (since October Scottsdale, AZ 85258 Present 2001) and ING Investments, Age: 34 (for the LLC (since August 1997); ING Funds) Accounting Manager, ING Investments, LLC (since Vice President May 1998 November 1995). and Treasurer to March 2002 (for the Pilgrim Funds) Vice President November 1997 to May 1998 (for the Pilgrim Funds) Kimberly A. Anderson Vice President March Vice President for ING -- -- 7337 E. Doubletree Ranch Rd. and Secretary 2002 to Quantitative Management, Scottsdale, AZ 85258 Present Inc. (since October 2001); Age: 37 (for the Vice President and Assistant ING Funds) Secretary of ING Funds Services, LLC, ING Funds February Distributor, Inc., ING 2001 to Advisors, Inc., ING March Investments, LLC (since 2002(for October 2001) and the Pilgrim Lexington Funds Distributor, Funds) Inc. (since December 2001). Formerly, Assistant Vice President of ING Funds Services, LLC (November 1999 to January 2001) and has held various other positions with ING Funds Services, LLC for more than the last five years.
71 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Officers: Lourdes R. Bernal Vice President March Vice President of ING -- -- 7337 E. Doubletree Ranch Rd. 2002 to Investments, LLC (since Scottsdale, AZ 85258 Present January 2002). Prior to Age: 32 (for joining ING Investments, LLC certain in 2002, Ms. Bernal was a ING Funds) Senior Manager in the Investment Management February Practice, 2002 to PricewaterhouseCoopers LLP Present (July 2000 to December (for the 2001); Manager, Pilgrim PricewaterhouseCoopers LLP Funds) (July 1998 to July 2000); Manager, Coopers & Lybrand LLP (July 1996 to June 1998); Senior Associate, Coopers & Lybrand LLP (July 1992 to June 1996); and Associate, Coopers & Lybrand LLP (August 1990 to June 1992). Todd Modic Assistant Vice March Director of Financial -- -- 7337 E. Doubletree Ranch Rd. President 2002 to Reporting of ING Scottsdale, AZ 85258 Present Investments, LLC (since Age: 34 (for the March 2001). Formerly, certain Director of Financial ING Funds) Reporting, Axient Communications, Inc. (May August 2000 to January 2001) and 2001 to Director of Finance, March Rural/Metro Corporation 2002 (for (March 1995 to May 2000). the Pilgrim Funds) Maria M. Anderson Assistant Vice March Assistant Vice President of -- -- 7337 E. Doubletree Ranch Rd. President 2002 to ING Funds Services, LLC Scottsdale, AZ 85258 Present (since October 2001). Age: 43 (for Formerly, Manager of Fund certain Accounting and Fund ING Funds) Compliance, ING Investments, LLC (September August 1999 to November 2001); 2001 to Section Manager of Fund March Accounting, Stein Roe 2002 (for Mutual Funds (July 1998 to the Pilgrim August 1999); and Financial Funds) Reporting Analyst, Stein Roe Mutual Funds (August 1997 to July 1998). Denis P. Jamison Senior Vice March Senior Vice President, ING -- -- 7337 E. Doubletree Ranch Rd. President and 2002 to Investments, LLC (since July Scottsdale, AZ 85258 Senior Present 2000). Formerly, Senior Vice Age: 54 Portfolio (for President, Lexington Manager certain Management Corporation (GNMA ING Funds) (which was acquired by ING Income Fund, Investments, LLC's parent Money July 2000 company in July 2000) (July Market Fund to March 1981 to July 2000). and 2002 (for Lexington certain Money Pilgrim Market Trust) Funds)
72 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Officers: Robert K. Kinsey Vice President March Vice President, ING -- -- 7337 E. Doubletree Ranch Rd. and Portfolio 2002 to Investments, LLC (since Scottsdale, AZ 85258 Manager Present March 1999). Formerly, Vice Age: 43 (Strategic (for President and the Fixed Income Fund) certain Income Portfolio Manager, ING Funds) Federated Investors (January 1995 to March 1999); and May 1999 Principal and Sub-Adviser, to March Harris Investment 2002 (for Management (July 1992 to certain January 1995). Pilgrim Funds) Andy Mitchell Vice President March Vice President, ING -- -- 7337 E. Doubletree Ranch Rd. and Co- 2002 to Investments, LLC (since July Scottsdale, AZ 85258 Portfolio Present 2000). Formerly, Senior Age: 38 Manager (for Credit Analyst, Katonah (High Yield certain Capital (March 2000 to July and High ING Funds) 2000); Vice President and Yield Senior High Yield Analyst, Opportunity October Merrill Lynch Asset Funds) 2000 to Management (March 1998 March to March 2000); and 2002 (for Assistant Vice President and certain Senior High Yield Analyst, Pilgrim Schroder Capital Funds) Management (March 1994 to March 1998). Roseann G. McCarthy Assistant Vice March Assistant Vice President, ING -- -- 7337 E. Doubletree Ranch Rd. President and 2002 to Investments, LLC (since July Scottsdale, AZ 85258 Portfolio Present 2000). Formerly, Assistant Age: 34 Manager (for Vice President, Lexington (GNMA certain Management Corporation Income Fund ING Funds) (which was acquired by ING and Investments, LLC's parent Lexington July 2000 company in July 2000) (April Money to March 1990 - July 2000). Market Trust) 2002 (for certain Pilgrim Funds) Edwin Schriver Senior Vice March Senior Vice President (since -- -- 7337 E. Doubletree Ranch Rd. President and 2002 to November 1999) and Senior Scottsdale, AZ 85258 Senior Present Portfolio Manager (since Age: 56 Portfolio (for October 2001) for ING Manager certain Investments, LLC. Formerly, (Strategic ING Funds) Senior High Yield Analyst, Income, High Dreyfus Corporation (April Yield and October 1998 to November 1999); High Yield 2000 to and President, Cresent City Opportunity March Research (July 1993 to April Funds) 2002 (for 1998). certain Pilgrim Funds)
73 DIRECTOR/TRUSTEE AND OFFICER INFORMATION (Unaudited) (Continued) - --------------------------------------------------------------------------------
NUMBER OF PRINCIPAL PORFOLIOS IN OTHER TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED PAST FIVE YEARS DIRECTOR DIRECTOR ------- -------------- ----------- --------------- -------- -------- Officers: Russ Stiver Vice President March Vice President, ING -- -- 7337 E. Doubletree Ranch Rd. and Co- 2002 to Investments, LLC (since May Scottsdale, AZ 85258 Portfolio Present 2000). Formerly, Acting Vice Age: 39 Manager (for President, ING Investments, (High Yield certain LLC (April 1999 to April and ING Funds) 2000) and Portfolio HighYield Manager, Manulife Financial Opportunity October (November 1996 to April Funds) 2000 to 2000). March 2002 (for certain Pilgrim
74 ING Funds Distributor, Inc. offers the funds listed below. Investors may obtain a copy of a prospectus of any ING Fund by calling ING Funds Distributor, Inc. at (800) 992-0180. Please read the prospectus carefully before investing or sending money. INTERNATIONAL EQUITY DOMESTIC EQUITY VALUE FUNDS ING Asia-Pacific Equity Fund ING Financial Services Fund ING Emerging Countries Fund ING Large Company Value Fund ING European Equity Fund ING MagnaCap Fund ING International Fund ING Tax Efficient Equity Fund ING International Growth Fund ING Value Opportunity Fund ING International SmallCap Growth Fund ING SmallCap Value Fund ING International Value Fund ING MidCap Value Fund ING Precious Metals Fund ING Russia Fund DOMESTIC EQUITY AND INCOME FUNDS ING Equity and Income Fund INTERNATIONAL GLOBAL EQUITY ING Convertible Fund ING Global Technology Fund ING Balanced Fund ING Global Real Estate Fund ING Growth and Income Fund ING Worldwide Growth Fund FIXED INCOME FUNDS DOMESTIC EQUITY FUNDS ING Bond Fund ING Growth Fund ING Classic Money Market Fund* ING Growth + Value Fund ING Government Fund ING Growth Opportunities Fund ING GNMA Income Fund ING LargeCap Growth Fund ING High Yield Opportunity Fund ING MidCap Opportunities Fund ING High Yield Bond Fund ING Small Company Fund ING Intermediate Bond Fund ING SmallCap Opportunities Fund ING Lexington Money Market Trust* ING Technology Fund ING National Tax Exempt Bond Fund ING Biotechnology Fund ING Money Market Fund* ING Aeltus Money Market Fund* DOMESTIC EQUITY INDEX FUNDS ING Strategic Income Fund ING Index Plus LargeCap Fund ING Index Plus MidCap Fund GENERATION FUNDS ING Index Plus SmallCap Fund ING Ascent Fund ING Research Enhanced Index Fund ING Crossroads Fund ING Legacy Fund LOAN PARTICIPATION FUNDS ING Prime Rate Trust ING Senior Income Fund * An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. INVESTMENT MANAGER ING Investments, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 ADMINISTRATOR ING Funds Services, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 DISTRIBUTOR ING Funds Distributor, Inc. 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 1-800-334-3444 TRANSFER AGENT DST Systems, Inc. P.O. Box 419368 Kansas City, Missouri 64141-6368 CUSTODIAN State Street Bank & Trust 801 Pennsylvania Avenue Kansas City, Missouri 64105 LEGAL COUNSEL Dechert 1775 Eye Street, N.W. Washington, D.C. 20006 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1670 Broadway, Suite 1000 Denver, Colorado 80202 Prospectus containing more complete information regarding the Funds, including charges and expenses, may be obtained by calling ING Funds Distributor, Inc., at 1-800-992-0180. Please read the prospectus carefully before you invest or send money. [LION LOGO] ING FUNDS FII&QANN033102-052002 -----END PRIVACY-ENHANCED MESSAGE-----