N-30D 1 e-8554.txt ANNUAL REPORT DATED 03/31/2002 ANNUAL REPORT March 31, 2002 CLASSES A, B, C, M, AND T FIXED INCOME FUNDS ING GNMA Income [PHOTO] ING National Tax-Exempt Bond ING Intermediate Bond ING Strategic Income ING High Yield ING High Yield Opportunity ING High Yield Bond MONEY MARKET FUNDS ING Money Market ING Classic Money Market ING Lexington Money Market Trust [LION LOGO] ING FUNDS (formerly the Pilgrim Funds) TABLE OF CONTENTS -------------------------------------------------------------------------------- President's Letter ............................... 1 Portfolio Managers' Reports ...................... 2 Index Descriptions ............................... 19 Report of Independent Accountants ................ 21 Statements of Assets and Liabilities ............. 22 Statements of Operations ......................... 26 Statements of Changes in Net Assets .............. 28 Financial Highlights ............................. 33 Notes to Financial Statements .................... 43 Portfolios of Investments ........................ 61 Shareholder Meeting Results ...................... 84 Tax Information .................................. 89 Director/Trustee and Officer Information ......... 90 PRESIDENT'S LETTER -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the March 31, 2002 Annual Report for the ING Funds (formerly, the Pilgrim Funds). There are ten 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, 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 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 A shares, excluding sales charges, provided a total return of 4.38% 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 --------------------------------------------------------------------------------
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 3/31/02 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ING GNMA Income Fund Class A With Sales Charge $ 9,531 $10,560 $10,792 $11,425 $12,601 $13,207 $14,870 $15,848 $16,113 $18,154 $18,948 ING GNMA Income Fund Class A Without Sales Charge $10,000 $11,080 $11,323 $11,988 $13,222 $13,857 $15,603 $16,629 $16,907 $19,048 $19,882 Lehman Brothers Mortgage-Backed Securities Index $10,000 $11,108 $11,259 $11,936 $13,188 $13,973 $15,531 $16,505 $16,877 $19,011 $20,226 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 --------------------------------------------------------------------------------------- SINCE INCEPTION SINCE INCEPTION SINCE INCEPTION OF CLASS B OF CLASS C OF CLASS M AND T 1 YEAR 5 YEAR 10 YEAR 10/6/00 10/13/00 2/26/01 ------ ------ ------- ------- -------- ------- Including Sales Charge: Class A(1) -0.58% 6.44% 6.60% -- -- -- Class B(2) -1.40% -- -- 4.72% -- -- Class C(3) 2.66% -- -- -- 7.18% -- Class M(4) 0.65% -- -- -- -- 1.94% Class T(5) 0.00% -- -- -- -- 2.21% Excluding Sales Charge: Class A 4.38% 7.49% 7.11% -- -- -- Class B 3.53% -- -- 7.35% -- -- Class C 3.65% -- -- -- 7.18% -- Class M 4.03% -- -- -- -- 5.00% Class T 3.96% -- -- -- -- 4.93% Lehman Brothers Mortgage-Backed Securities Index 6.39% 7.68% 7.30% 8.83%(6) 8.83%(6) 6.45%(7)
Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING GNMA Income Fund against the 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. The Fund's performance is shown both with and without the imposition of sales charges. 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 4%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Reflects deduction of the maximum Class M sales charge of 3.25% (5) Reflects deduction of the Class T deferred sales charge of 4% and 3%, respectively, for the 1 year and since inception returns. (6) Since inception performance for index is shown from 10/1/00. (7) 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 19. 3 ING NATIONAL TAX-EXEMPT BOND FUND Portfolio Managers' Report -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Robert Schonbrunn, Managing Director and Portfolio Manager; Alan Segars, CFA, Managing Director and Portfolio Manager, ING Furman Selz Capital Management LLC. GOAL: The ING National Tax-Exempt Bond Fund (the "Fund") seeks to provide investors with a high level of current income that is exempt from Federal income taxes, consistent with preservation of capital. Using a disciplined investment philosophy the Fund invests in a diversified portfolio of tax-exempt bonds. In selecting specific issues the following criteria are used under normal market conditions: * Minimum rating of BBB by S&P or Baa by Moody's or if not rated have comparable quality. * Not more than 25% of the Fund's total assets will be invested in municipal securities: (1) whose issuers are located in the same state; and (2) whose interest payments are derived from revenues of similar projects. * At least 80% of the Fund's total assets will be invested in municipal securities. * At least 80% of the Fund's total assets will be invested in securities whose interest is not a preference item for purposes of the Federal alternative minimum tax. MARKET OVERVIEW: In the twelve months ending March 31, 2002 the Municipal bond market experienced a significant increase of the yield curve as short-term interest rates dropped to below the 2% level while long- term rates held in a reasonably tight band around 5%. The economy experienced a short and shallow recession, which climaxed after the terrorist attack on September 11th. The Federal Reserve aggressively cut the Fed Funds rate eleven times in 2001 bringing it to 1.75%. A combination of inventory rebuilding, low energy prices, mild winter weather and low interest rates re-energized the economy in the first quarter of 2002. Capital spending remains weak, but consumer sentiment is improving despite unemployment problems. Inflation is extremely low and is not expected to rise significantly in the near future. The three-year Municipal bond maturity level had the best twelve-month performance, and the ten-year Municipal bond maturity had the lowest. Within the revenue bond sector, hospital bonds had the highest returns while housing bonds earned the lowest returns. PERFORMANCE: For the year ended March 31, 2002, the Fund's Class A shares, excluding sales charges, provided a total return of 2.25% compared to 3.81% for the Lehman Brothers Municipal Bond Index and 5.35% for the Lehman Brothers Aggregate Bond Index. PORTFOLIO SPECIFICS: The Fund is conservatively positioned in higher quality issues rated Aa1by Moody's, and AA+ by Standard and Poors. The average coupon is 5.59%, which provides a high cash flow. The Fund's duration at 7.10 years is below the Lehman Brothers Municipal Bond Index of 7.57 years. There are imbedded calls in most of the issues held, and as short-term interest rates declined the probability of some of the issues being called increased. The Fund has attempted to limit the exposure to short calls to reduce volatility. Using swapping programs the Fund has taken advantage of periodic overvaluation and under valuation in different states caused by supply and demand conditions. The Fund holds an 8.2% weighting in Hospitals (the best performing sector) compared to approximately 3% in the Lehman Municipal Bond Index. MARKET OUTLOOK: The recession was shallow and short lived, and by most measures, the current assessment of the economy is extremely positive. After a series of good economic reports in the first quarter, the recovery currently appears to be stronger than had initially been expected. The bond market anticipated the turn in economic activity and, since November 2001, interest rates have moved higher across the whole yield curve. It is our expectation that Municipal short-term interest rates will rise in response to the stronger economy, while longer rates, which reflect market expectations of inflation, remain good value because of the benign inflation outlook. The Municipal bond market responds, like other markets, to increased economic activity, but it has many elements particular to it. One of the most important of these is the volatile supply and demand of municipal paper. We expect increased issuance balanced by continued strong demand and believe the Fund may be well positioned for the period ahead. 4 ING NATIONAL Portfolio Managers' Report TAX-EXEMPT BOND FUND -------------------------------------------------------------------------------- 11/8/99 3/31/00 3/31/01 3/31/02 ------- ------- ------- ------- ING National Tax-Exempt Bond Class A Fund With Sales Charge $ 9,524 $ 9,638 $10,689 $10,929 ING National Tax-Exempt Bond Fund Class A Without Sales Charge $10,000 $10,120 $11,224 $11,476 Lehman Brothers Municipal Bond Index $10,000 $10,325 $11,452 $11,889 Lehman Brothers Aggregate Bond Index $10,000 $10,171 $11,445 $12,057 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ------------------------------------ SINCE INCEPTION 1 YEAR 11/8/99 ------ ------- Including Sales Charge: Class A (1) -2.58% 3.77% Class B (2) -3.33% 3.89% Class C (3) 0.70% 5.14% Excluding Sales Charge: Class A 2.25% 5.90% Class B 1.59% 5.07% Class C 1.69% 5.14% Lehman Brothers Municipal Bond Index 3.81% 7.42%(4) Lehman Brothers Aggregate Bond Index 5.35% 8.05%(4) Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING National Tax-Exempt Bond Fund against the Lehman Brothers Municipal Bond Index and the Lehman Brothers Aggregate Bond Index. The Indices have an inherent performance advantage over the Fund since they have no cash in their portfolios, impose no sales charges and incur no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Since inception performance for index is shown from 11/01/99. 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. Investments in municipal obligations pose special risks. To the extent that the Fund's assets are invested in municipal obligations payable from revenue or similar projects, the Fund will be subject to the peculiar risks presented by such projects. Income received from the Fund may be subject to state and local taxes, as well as the federal alternative minimum tax. See accompanying index descriptions on page 19. 5 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 year ended March 31, 2002, the Fund's class A shares, excluding sales charges, provided a total return of 9.27% compared to 5.35% for the Lehman Brothers Aggregate Bond Index. 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. 6 Portfolio Manager's Report ING INTERMEDIATE BOND FUND --------------------------------------------------------------------------------
12/15/98 3/31/99 3/31/00 3/31/01 3/31/02 -------- ------- ------- ------- ------- ING Intermediate Bond Fund Class A With Sales Charge $ 9,524 $ 9,451 $ 9,538 $11,162 $12,197 ING Intermediate Bond Fund Class A Without Sales Charge $10,000 $ 9,923 $10,015 $11,720 $12,807 Lehman Brothers Aggregate Bond Index $10,000 $ 9,980 $10,167 $11,441 $12,053
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ------------------------------------ SINCE INCEPTION 1 YEAR 12/15/98 ------ -------- Including Sales Charge: Class A (1) 4.06% 6.22% Class B (2) 3.51% 6.21% Class C (3) 7.26% 7.00% Excluding Sales Charge: Class A 9.27% 7.81% Class B 8.37% 6.99% Class C 8.24% 7.00% Lehman Brothers Aggregate Bond Index 5.35% 5.76%(4) 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. The Fund's performance is shown both with and without the imposition of sales charges. 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 PORTFOLIO MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Since inception performance for index is shown from 12/01/98. 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 19. 7 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 A shares, excluding sales charges, provided a total return of 0.26% 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. 8 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 A With Sales Charge $ 9,527 $ 9,860 $ 9,918 $10,345 $10,371 ING Strategic Income Fund Class A Without Sales Charge $10,000 $10,350 $10,411 $10,859 $10,886 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 ------ ------- Including Sales Charge: Class A (1) -4.52% 1.00% Class B (2) -4.81% 1.32% Class C (3) -1.10% 1.99% Excluding Sales Charge: Class A 0.26% 2.33% Class B -0.18% 1.98% Class C -0.17% 1.99% Lehman Brothers Aggregate Bond Index 5.35% 6.37%(4) 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. The Fund's performance is shown both with and without the imposition of sales charges. 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) 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 19. 9 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 A shares, excluding sales charges, provided a total return of 0.30% 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. 10 Portfolio Managers' Report ING HIGH YIELD FUND --------------------------------------------------------------------------------
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 3/31/02 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ING High Yield Fund Class A With Sales Charge $ 9,518 $11,059 $12,072 $12,587 $14,599 $16,664 $19,558 $18,473 $17,584 $14,920 $14,964 ING High Yield Fund Class A Without Sales Charge $10,000 $11,619 $12,684 $13,225 $15,338 $17,508 $20,549 $19,410 $18,475 $15,676 $15,723 Lehman Brothers High Yield Bond Index $10,000 $11,535 $12,686 $13,295 $15,227 $17,003 $19,439 $19,293 $19,352 $19,498 $20,148 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ---------------------------------------------------------------------- SINCE INCEPTION SINCE INCEPTION OF CLASS B AND M OF CLASS C 1 YEAR 5 YEAR 10 YEAR 7/17/95 5/27/99 ------ ------ ------- ------- ------- Including Sales Charge: Class A(1) -4.36% -3.07% 4.11% -- -- Class B(2) -5.09% -3.13% -- 0.81% -- Class C(3) -1.53% -- -- -- -7.67% Class M(4) -3.58% -3.24% -- 0.60% -- Excluding Sales Charge: Class A 0.30% -2.13% 4.63% -- -- Class B -0.66% -2.89% -- 0.81% -- Class C -0.64% -- -- -- -7.67% Class M -0.37% -2.61% -- 1.10% -- Lehman Brothers High Yield Bond Index 0.65% 3.23% 6.99% 4.97%(5) 0.26%(6)
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. The Fund's performance is shown both with and without the imposition of sales charges. 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 2%, respectively, for the 1 year and 5 year returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Reflects deduction of the maximum Class M sales charge of 3.25%. (5) Since inception performance for index is shown from 8/1/95. (6) Since inception performance for index is shown from 6/1/99. 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 19. 11 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 A shares, excluding sales charges, provided a total return of -1.84% 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. 12 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 A With Sales Charge $ 9,527 $ 9,542 $ 9,650 $10,154 $ 8,983 $ 8,817 ING High Yield Opportunity Fund Class A Without Sales Charge $10,000 $10,016 $10,129 $10,658 $ 9,428 $ 9,254 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 SINCE INCEPTION OF CLASS A, B AND C OF CLASS T 1 YEAR 3/27/98 3/31/00 ------ ------- ------- Including Sales Charge: Class A (1) -6.47% -3.09% -- Class B (2) -6.82% -2.81% -- Class C (3) -3.46% -2.52% -- Class T (4) -5.64% -- -8.59% Excluding Sales Charge: Class A -1.84% -1.91% -- Class B -2.49% -2.49% -- Class C -2.60% -2.52% -- Class T -2.18% -- -7.48% Credit Suisse First Boston High Yield Bond Index 3.33% 0.90%(5) 2.04%(6) 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. The Fund's performance is shown both with and without the imposition of sales charges. 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 2%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Reflects deduction of the Class T deferred sales charge of 4% and 3%, respectively, for the 1 year and since inception returns. (5) Since inception performance for index is shown from 04/01/98. (6) Since inception performance for index is shown from 04/01/00. 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 19. 13 ING HIGH YIELD BOND FUND Portfolio Managers' Report -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Greg Jacobs, CFA; Kurt Kringelis, CFA, ING Investment Management, LLC. GOAL: The ING High Yield Bond Fund (the "Fund") seeks to provide investors with high levels of current income and total return by investing at least 80% of its total assets in high yield bonds. MARKET OVERVIEW: Several factors including a decelerating economy, the September 11th terrorist attacks, increasing default rate, tightening bank credit requirements, Enron and a wireline telecommunications meltdown contributed to an extremely volatile high yield market over the last year. For the twelve months ending March 31, 2002, the Lehman Brothers High Yield Bond Index had a total return of 0.65%. During the last twelve months, the best performing sectors were mainly consumer-oriented sectors such as retail with a 20.5% return; healthcare 15.8%; gaming at 13.2%, and lodging 12.5%. Other outperforming sectors included capital goods 14.4%; media 12.4%; paper 11.2%, and chemicals 7.2%. Over the same time period, the worst performing high yield sector was wireline telecommunications with a -59.7% return followed by internet/data -21.1% return; airlines -13.9%; wireless telecommunications -11.0% and financial institutions -4.8%. The higher quality portion of the high yield universe significantly outperformed the rest of the market over the last 12 months. BB-rated securities, on average, had a 7.9% total return over the last twelve months outperforming B-rated securities by 950 basis points, Caa-rated securities by 2200 basis points and Ca/D-rated securities by 110 basis points. The out-performance is largely due to the post September 11th flight to quality, and the deterioration of the telecommunications sector. PERFORMANCE: For the year ended March 31, 2002, the Fund's Class A shares, excluding sales charges, provided a total return of 1.94% compared to 0.65% for the Lehman Brothers High Yield Bond Index. PORTFOLIO SPECIFICS: The Fund's outperformance during the past 12 months can be primarily attributed to two broad portfolio strategies: First, in April 2001, the portfolio's exposure to wireline telecommunications was reduced. This was due primarily to concern over operational, valuation and liquidity issues. The portfolio was underweight wireline relative to the index for most of the last twelve months, and had no exposure for most of the year. This strategy had a very positive impact on performance as the sector had a total return of -59.7% for the twelve-month period. Second, in June, July and August 2001, the portfolio was defensively repositioned into higher quality, liquid securities. This strategy was implemented because the Portfolio Managers were becoming less comfortable with the timing and magnitude of a 2001 economic recovery. While this strategy was not related to the events of September 11th, it left the portfolio well positioned for the post 9-11 environment. As a result, the portfolio outperformed the index by 241 basis points during the month of October. MARKET OUTLOOK: While the last twelve months were among the most volatile in recent history, the market has stabilized significantly in 2002. With the economy rebounding and default rates peaking, liquidity is returning to the high yield market, and consistent inflows from retail and institutional investors have provided strong demand. U.S. domestic high yield had a strong first quarter in 2002 relative to other fixed income assets. In the face of a weakening Treasury market, the Lehman Brothers High Yield Bond Index had a total return of 1.68%, outperforming Investment Grade Credit by 195 basis points and Treasuries by 231 basis points. As a result of the strong first quarter performance, the average spread to Treasury of the Lehman Brothers High Yield Bond Index tightened by 99 basis points during the first quarter. The high yield market currently appears to be near fair value. Current market levels have largely priced in the apparent economic recovery. While further spread tightening may occur in the near term, a rising interest rate environment may offset the total return impact. From a fundamental standpoint, the credit quality of the high yield universe is beginning to marginally improve. Default rates appear to have peaked, corporate leverage is declining, and issuers' management is showing fiscal restraint by reigning in capital expenditures and preserving liquidity. If these trends continue, the high yield market should gain fundamental strength. Correspondingly, the market could see a trend of gradual spread tightening over the next one to two years. 14 Portfolio Managers' Report ING HIGH YIELD BOND FUND -------------------------------------------------------------------------------- 12/15/98 3/31/99 3/31/00 3/31/01 3/31/02 -------- ------- ------- ------- ------- ING High Yield Bond Fund Class A With Sales Charge $ 9,524 $ 9,906 $10,256 $10,902 $11,113 ING High Yield Bond Fund Class A Without Sales Charge $10,000 $10,401 $10,769 $11,447 $11,668 Lehman Brothers High Yield Bond Index $10,000 $10,196 $10,011 $10,263 $10,330 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 2002 ------------------------------------ SINCE INCEPTION 1 YEAR 12/15/98 ------ -------- Including Sales Charge: Class A (1) -2.94% 3.26% Class B (2) -3.38% 3.30% Class C (3) 0.27% 4.02% Excluding Sales Charge: Class A 1.94% 4.80% Class B 1.29% 4.03% Class C 1.21% 4.02% Lehman Brothers High Yield Bond Index 0.65% 0.98%(4) Based on a $10,000 initial investment, the graph and table above illustrate the total return of ING High Yield Bond 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. The Fund's performance is shown both with and without the imposition of sales charges. 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Since inception performance for index is shown from 12/01/98. 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. See accompanying index descriptions on page 19. 15 ING MONEY MARKET FUND Portfolio Managers' Report -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Denis P. Jamison, CFA; Roseann G. McCarthy, Co-Portfolio Managers, ING Investments, LLC. GOAL: The ING Money Market Fund (the "Fund") seeks to provide a high level of current income while preserving capital and liquidity. The portfolio may achieve this objective by investing in short-term U.S. Government Securities and U.S. dollar denominated high quality money market instruments. Money market securities are considered high quality if rated A-1 or better by Standard & Poor's Ratings Group or P-1 by Moody's Investor Services, Inc. These securities are determined to present minimal credit risk. MARKET OVERVIEW: The Federal Reserve continued to guide short-term interest rates lower during their final meetings of 2001. The committee set a new standard for easing monetary policy by lowering the overnight federal funds rate eleven separate occasions. By the end of the year, short-term interest rates stood at a forty year low of 1.75%. More recently, however, the Federal Reserve has taken its foot off of the monetary accelerator and shifted its bias directive to neutral from weakness. Data suggesting an economic recovery became more encouraging during the first quarter of 2002. For starters, the anemic manufacturing sector appears to be strengthening as evidenced by two consecutive strong readings from the Institute for Supply Management's (ISM, formerly NAPM) Index of manufacturing activity. In particular, the strength in the new orders component suggests strong gains in near term factory orders and production. Moreover, consumers continue to add momentum to an economy beginning to wake up. The various consumer reports have registered significant improvement in consumer attitudes in recent months. In all, first quarter GDP estimates have swelled from 1% to almost 6% as positive economic data filters through. However, the labor market still appears to be soft. The unemployment rate rebounded to 5.7% recently and payroll gains have been nearly offset by downward revisions to prior months data. Moreover, the March increase was not broad based and the manufacturing sector continued its 20th straight month of job losses. The March employment report underscores the cautious approach businesses have adopted as the economy recovers. Many firms have relied on temporary workers rather than hiring permanent employees or have simply extended the workweek. In the commercial paper market, issuance of nonfinancial securities dropped precipitously by the end of 2001, nearly 34% from the prior year. The slowdown in the economy substantially reduced companies' needs for short-term funds that are typically used to finance inventory. So far in 2002, the commercial paper market has experienced three upgrades compared to 23 downgrades. Many of these companies have been forced to find alternative means of financing to the unsecured commercial paper market. Opportunities have been found in the corporate bond and asset-backed markets. PORTFOLIO SPECIFICS: We extended the average maturity of the Fund to 28 days by the end of the first quarter. During the slowdown we have been hesitant to extend the maturity of the portfolio much further because of the heightened credit risk associated with weaker business conditions, as noted by the earlier mentioned number of downgrades. The Federal Reserve's easing cycle has ended. Therefore, we will purchase those securities that offer the most attractive rate compared to the daily Federal Funds target. This strategy will allow us to add a little bit more yield in this low rate environment while also preserving the credit quality of the portfolio. Additionally, we do not expect to extend the average maturity of the Fund much more in anticipation of a shift in Fed policy in the coming months. MARKET OUTLOOK: The combination of stronger economic data and the neutral bias of monetary policy has helped forward rates to imply a high degree of Fed tightening by year end. While we anticipate the Fed may raise overnight rates, we expect the moves could occur later rather than sooner, and much slower than anticipated in the various futures market. The Fed may tighten only when an expansion is definite. Moreover, unrest in the Middle East coupled with escalating energy prices could certainly delay any Fed action. We do not anticipate the Federal Reserve to begin tightening monetary policy until at least the second half of the year. 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. 16 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. 17 ING LEXINGTON MONEY MARKET TRUST Portfolio Managers' Report -------------------------------------------------------------------------------- PORTFOLIO MANAGEMENT TEAM: Denis P. Jamison, CFA; Roseann G. McCarthy, Co-Portfolio Managers, ING Investments, LLC. GOAL: The ING Lexington Money Market Trust (the "Trust") seeks to provide high current income while preserving capital and liquidity. This objective is achieved by investing in short-term U.S. Government Securities and U.S. dollar denominated high quality money market instruments. The Trust primarily invests in the commercial paper of "First Tier" credits. First Tier obligations are those that are rated within the top two credit rating categories of all nationally recognized statistical rating organizations (NRSRO). These securities are determined to present minimal credit risk. MARKET OVERVIEW: The Federal Reserve continued to guide short-term interest rates lower during their final meetings of 2001. The committee set a new standard for easing monetary policy by lowering the overnight federal funds rate eleven separate occasions. By the end of the year, short-term interest rates stood at a forty year low of 1.75%. More recently, however, the Federal Reserve has taken its foot off of the monetary accelerator and shifted its bias directive to neutral from weakness. Data suggesting an economic recovery became more encouraging during the first quarter of 2002. For starters, the anemic manufacturing sector appears to be strengthening as evidenced by two consecutive strong readings from the Institute for Supply Management's (ISM, formerly NAPM) index of manufacturing activity. In particular, the strength in the new orders component suggests strong gains in near term factory orders and production. Moreover, consumers continue to add momentum to an economy beginning to wake up. The various consumer reports have registered significant improvement in consumer attitudes in recent months. In all, first quarter GDP estimates have swelled from 1% to almost 6% as positive economic data filters through. However, the labor market still appears to be soft. The unemployment rate rebounded to 5.7% recently and payroll gains have been nearly offset by downward revisions to prior months data. Moreover, the March increase was not broad based and the manufacturing sector continued its 20th straight month of job losses. The March employment report underscores the cautious approach businesses have adopted as the economy recovers. Many firms have relied on temporary workers rather than hiring permanent employees or have simply extended the workweek. In the commercial paper market issuance of nonfinancial securities dropped precipitously by the end of 2001, nearly 34% from the prior year. The slowdown in the economy substantially reduced companies' needs for short-term funds that are typically used to finance inventory. So far in 2002 the commercial paper market has experienced three upgrades compared to 23 downgrades. Many of these companies have been forced to find alternative means of financing to the unsecured commercial paper market. Opportunities have been found in the corporate bond and asset-backed markets. PORTFOLIO SPECIFICS: We extended the average maturity of the Trust to 32 days by the end of the first quarter. During the slowdown we have been hesitant to extend the maturity of the portfolio much further because of the heightened credit risk associated with weaker business conditions, as noted by the earlier mentioned number of downgrades. The Federal Reserve's easing cycle has ended. Therefore, we will purchase those securities that offer the most attractive rate compared to the daily Federal Funds target. This strategy will allow us to add a little bit more yield in this low rate environment while also preserving the credit quality of the portfolio. Additionally, we do not expect to extend the average maturity of the Trust much more in anticipation of a shift in Fed policy in coming months. MARKET OUTLOOK: The combination of stronger economic data and the neutral bias of monetary policy have helped forward rates to imply a high degree of Fed tightening by year end. While we anticipate the Fed may raise overnight rates, we expect the moves could occur later rather than sooner, and much slower than anticipated in the various futures market. The Fed may tighten only when an expansion is definite. Moreover, unrest in the Middle East coupled with escalating energy prices could certainly delay any Fed action. We do not anticipate the Federal Reserve to begin tightening monetary policy until at least the second half of the year. PRINCIPAL RISK FACTOR(S): An investment in the Trust is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Trust seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Trust. 18 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 MUNICIPAL BOND INDEX is a broad market performance benchmark for the tax-exempt bond market. To be included in the Lehman Brothers Municipal Bond Index, bonds must have a minimum credit rating of at least Baa. They must have an outstanding par value of at least $3 million and be issued as part of a transaction of at least $50 million. The index includes both zero coupon bonds and bonds subject to the Alternative Minimum tax. 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. The INSTITUTE FOR SUPPLY MANAGEMENT'S INDEX (ISM, FORMERLY NAPM) is an indicator of economic activity based on a survey of over 250 companies within 21 industries covering all 50 states. All indices are unmanaged. An investor cannot invest directly in an index. 19 (THIS PAGE INTENTIONALLY LEFT BLANK) 20 REPORT OF INDEPENDENT ACCOUNTANTS -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of the ING Funds Trust, ING Lexington Money Market Trust and the Board of Directors and Shareholders of ING Mutual Funds, 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 National Tax-Exempt Bond Fund (formerly Pilgrim National Tax-Exempt Bond Fund), ING Intermediate Bond Fund (formerly Pilgrim Intermediate Bond Fund), ING High Yield Bond Fund (formerly Pilgrim High Yield Bond Fund) and ING Classic Money Market Fund (formerly ING Pilgrim Money Market Fund), four of the ten funds comprising ING Funds Trust (formerly Pilgrim Funds Trust), ING Strategic Income Fund (formerly Pilgrim Strategic Income Fund), ING High Yield Opportunity Fund (formerly Pilgrim High Yield Fund II), and ING Money Market Fund (formerly Pilgrim Money Market Fund), three 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 c omprising ING Investment Funds, Inc. (formerly Pilgrim Investment Funds, Inc.), ING GNMA Income Fund, Inc. (formerly Pilgrim GNMA Income Fund, Inc.) and ING Lexington Money Market Trust (formerly Lexington Money Market Trust), each a "Fund" collectively the "Funds3, 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 reas onable 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. and ING Lexington Money Market Trust, the statements of changes in net assets and financial highlights were audited by other independent accountants whose reports 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 National Tax-Exempt Bond Fund, ING Intermediate Bond Fund, ING High Yield 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, ING Money Market 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 21 STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2002 --------------------------------------------------------------------------------
ING ING ING ING NATIONAL INTERMEDIATE STRATEGIC ING GNMA INCOME TAX-EXEMPT BOND BOND INCOME HIGH YIELD FUND FUND FUND FUND FUND ------------- ------------- ------------- ------------- ------------- ASSETS: Investments in securities at value* $ 655,057,976 $ 23,862,287 $ 76,313,970 $ 45,967,772 $ 164,896,258 Short-term investments at amortized cost 3,440,930 263,000 7,267,410 3,838,000 14,683,000 Cash -- 1,014 251,472 283,285 -- Receivables: Investment securities sold -- -- 17,998,036 1,392,165 -- Fund shares sold 6,519,726 -- 158,462 35,075 320,775 Dividends and interest 3,890,431 336,323 678,271 548,999 4,781,894 Prepaid expenses 95,238 127 11,257 14,223 9,371 Reimbursement due from manager -- 4,586 6,131 50,346 28,545 ------------- ------------- ------------- ------------- ------------- Total assets 669,004,301 24,467,337 102,685,009 52,129,865 184,719,843 ------------- ------------- ------------- ------------- ------------- 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 Payable to affiliates 566,051 18,758 56,582 47,602 227,697 Payable to custodian 237,236 -- -- -- 41,754 Other accrued expenses and liabilities 445,826 43,775 97,775 146,215 212,136 ------------- ------------- ------------- ------------- ------------- Total liabilities 3,017,799 62,533 33,784,031 830,145 1,889,608 ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 665,986,502 $ 24,404,804 $ 68,900,978 $ 51,299,720 $ 182,830,235 ============= ============= ============= ============= ============= NET ASSETS WERE COMPRISED OF: Paid-in capital $ 671,000,210 $ 23,645,299 $ 69,527,244 $ 63,368,989 $ 369,199,680 Accumulated net investment income (loss) 3,756,751 -- 25,666 323,172 (575,150) Accumulated net realized gain (loss) on investments and foreign currencies (17,905,988) 65,693 (358,237) (10,413,673) (181,333,204) Net unrealized appreciation (depreciation) of investments and foreign currencies 9,135,529 693,812 (293,695) (1,978,768) (4,461,091) ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 665,986,502 $ 24,404,804 $ 68,900,978 $ 51,299,720 $ 182,830,235 ============= ============= ============= ============= ============= * Cost of securities $ 645,922,447 $ 23,168,475 $ 76,607,665 $ 47,946,540 $ 169,357,314
See Accompanying Notes to Financial Statements 22 STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2002 --------------------------------------------------------------------------------
ING ING ING ING NATIONAL INTERMEDIATE STRATEGIC ING GNMA INCOME TAX-EXEMPT BOND INCOME HIGH YIELD FUND BOND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ CLASS A: Net assets $535,902,771 $ 22,868,492 $ 41,502,598 $ 34,386,676 $ 61,930,136 Shares authorized 730,000,000 unlimited unlimited unlimited 80,000,000 Par value $ 0.01 $ 0.001 $ 0.001 $ 0.00 $ 0.10 Shares outstanding 62,794,241 2,215,204 4,187,712 3,140,271 17,909,669 Net asset value and redemption price per share $ 8.53 $ 10.32 $ 9.91 $ 10.95 $ 3.46 Maximum offering price per share (4.75%)(1) $ 8.96 $ 10.83 $ 10.40 $ 11.50 $ 3.63 CLASS B: Net assets $ 79,301,877 $ 1,265,269 $ 11,216,470 $ 11,847,928 $111,177,019 Shares authorized 100,000,000 unlimited unlimited unlimited 80,000,000 Par value $ 0.01 $ 0.001 $ 0.001 $ 0.00 $ 0.10 Shares outstanding 9,328,749 122,719 1,133,000 1,108,856 32,180,338 Net asset value and redemption price per share(2) $ 8.50 $ 10.31 $ 9.90 $ 10.68 $ 3.45 Maximum offering price per share $ 8.50 $ 10.31 $ 9.90 $ 10.68 $ 3.45 CLASS C: Net assets $ 37,192,984 $ 271,043 $ 6,382,223 $ 4,963,936 $ 4,782,279 Shares authorized 50,000,000 unlimited unlimited unlimited 20,000,000 Par value $ 0.01 $ 0.001 $ 0.001 $ 0.00 $ 0.10 Shares outstanding 4,370,441 26,248 644,590 443,117 1,386,700 Net asset value and redemption price per share(2) $ 8.51 $ 10.33 $ 9.90 $ 11.20 $ 3.45 Maximum offering price per share $ 8.51 $ 10.33 $ 9.90 $ 11.20 $ 3.45 CLASS I: Net assets $ 1,615,042 n/a $ 9,799,687 n/a n/a Shares authorized 50,000,000 n/a unlimited n/a n/a Par value $ 0.01 n/a $ 0.001 n/a n/a Shares outstanding 189,100 n/a 988,422 n/a n/a Net asset value and redemption price per share $ 8.54 n/a $ 9.91 n/a n/a Maximum offering price per share $ 8.54 n/a $ 9.91 n/a n/a CLASS M: Net assets $ 495,030 n/a n/a n/a $ 4,921,968 Shares authorized 10,000,000 n/a n/a n/a 5,000,000 Par value $ 0.01 n/a n/a n/a $ 0.10 Shares outstanding 57,978 n/a n/a n/a 1,418,915 Net asset value and redemption price per share $ 8.54 n/a n/a n/a $ 3.47 Maximum offering price per share (3.25%)(3) $ 8.83 n/a n/a n/a $ 3.59 CLASS Q: Net assets $ 203,802 n/a n/a $ 101,180 $ 18,833 Shares authorized 50,000,000 n/a n/a unlimited 20,000,000 Par value $ 0.01 n/a n/a $ 0.00 $ 0.10 Shares outstanding 23,862 n/a n/a 9,770 5,450 Net asset value and redemption price per share $ 8.54 n/a n/a $ 10.36 $ 3.46 Maximum offering price per share $ 8.54 n/a n/a $ 10.36 $ 3.46 CLASS T: Net assets $ 11,274,996 n/a n/a n/a n/a Shares authorized 10,000,000 n/a n/a n/a n/a Par value $ 0.01 n/a n/a n/a n/a Shares outstanding 1,321,108 n/a n/a n/a n/a Net asset value and redemption price per share(2) $ 8.53 n/a n/a n/a n/a Maximum offering price per share $ 8.53 n/a n/a n/a 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 23 STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2002 --------------------------------------------------------------------------------
ING ING ING ING HIGH YIELD HIGH YIELD ING CLASSIC LEXINGTON OPPORTUNITY BOND MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND FUND TRUST ------------- ------------- ------------- ------------- ------------- ASSETS: Investments in securities at value* $ 205,803,089 $ 43,495,888 $ -- $ -- $ -- Short-term investments at amortized cost 20,880,000 5,168,000(1) 69,301,087 548,972,625 55,543,886 Cash -- 52,031 138,358 -- -- Receivables: Investment securities sold 1,850,056 434,104 -- -- -- Fund shares sold 239,072 -- 100 2,389,431 -- Dividends and interest 6,563,809 1,053,896 7 3,612,989 13 Other -- -- 66,899 -- 311 Prepaid expenses 33,752 10,622 8,920 25,897 12,642 Reimbursement due from manager 269,609 18,913 50,504 119,845 -- ------------- ------------- ------------- ------------- ------------- Total assets 235,639,387 50,233,454 69,565,875 555,120,787 55,556,852 ------------- ------------- ------------- ------------- ------------- LIABILITIES: Payable for investment securities purchased -- 3,128,098 -- -- -- Payable for fund shares redeemed 201,217 84,877 166,580 -- -- Payable to affiliates 307,069 41,871 25,810 308,896 37,359 Payable to custodian 140,588 -- -- 1,992,068 86,559 Other accrued expenses and liabilities 1,463,997 148,058 61,493 243,412 210,542 ------------- ------------- ------------- ------------- ------------- Total liabilities 2,112,871 3,402,904 253,883 2,544,376 334,460 ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 233,526,516 $ 46,830,550 $ 69,311,992 $ 552,576,411 $ 55,222,392 ============= ============= ============= ============= ============= NET ASSETS WERE COMPRISED OF: Paid-in capital $ 832,789,402 $ 52,235,220 $ 69,239,774 $ 552,611,722 $ 55,222,392 Accumulated net investment income (loss) (4,531,528) -- 78,256 -- -- Accumulated net realized loss on investments and foreign currencies (489,379,065) (5,853,862) (6,038) (35,311) -- Net unrealized appreciation (depreciation) of investments and foreign currencies (105,352,293) 449,192 -- -- -- ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 233,526,516 $ 46,830,550 $ 69,311,992 $ 552,576,411 $ 55,222,392 ============= ============= ============= ============= ============= * Cost of securities $ 311,063,316 $ 43,046,696 $ -- $ -- $ --
---------- (1) Short-term investments include a repurchase agreement at value of $5,168,000. See Accompanying Notes to Financial Statements 24 STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2002 --------------------------------------------------------------------------------
ING ING ING ING HIGH YIELD HIGH YIELD ING CLASSIC LEXINGTON OPPORTUNITY BOND MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND FUND TRUST ------------ ------------ ------------ ------------ ------------ CLASS A: Net assets $ 53,122,292 $ 38,524,697 $ 28,667,913 $549,999,170 $ 55,222,392 Shares authorized unlimited unlimited unlimited unlimited unlimited Par value $ 0.00 $ 0.001 $ 0.00 $ 0.001 $ 0.01 Shares outstanding 7,074,683 4,408,746 28,676,261 550,054,615 55,222,392 Net asset value and redemption price per share $ 7.51 $ 8.74 $ 1.00 $ 1.00 $ 1.00 Maximum offering price per share (4.75%)(1) $ 7.88 $ 9.18 $ 1.00 $ 1.00 $ 1.00 CLASS B: Net assets $143,741,803 $ 6,672,781 $ 30,241,286 $ 1,987,230 n/a Shares authorized unlimited unlimited unlimited unlimited n/a Par value $ 0.00 $ 0.001 $ 0.00 $ 0.001 n/a Shares outstanding 19,061,517 763,817 30,246,164 1,987,702 n/a Net asset value and redemption price per share(2) $ 7.54 $ 8.74 $ 1.00 $ 1.00 n/a Maximum offering price per share $ 7.54 $ 8.74 $ 1.00 $ 1.00 n/a CLASS C: Net assets $ 24,674,343 $ 1,633,072 $ 10,402,793 $ 589,915 n/a Shares authorized unlimited unlimited unlimited unlimited n/a Par value $ 0.00 $ 0.001 $ 0.00 $ 0.001 n/a Shares outstanding 3,274,654 186,894 10,406,444 589,777 n/a Net asset value and redemption price per share(2) $ 7.53 $ 8.74 $ 1.00 $ 1.00 n/a Maximum offering price per share $ 7.53 $ 8.74 $ 1.00 $ 1.00 n/a CLASS I: Net assets n/a n/a n/a $ 96 n/a Shares authorized n/a n/a n/a unlimited n/a Par value n/a n/a n/a $ 0.001 n/a Shares outstanding n/a n/a n/a 96 n/a Net asset value and redemption price per share n/a n/a n/a $ 1.00 n/a Maximum offering price per share n/a n/a n/a $ 1.00 n/a CLASS Q: Net assets $ 1,660,474 n/a n/a n/a n/a Shares authorized unlimited n/a n/a n/a n/a Par value $ 0.00 n/a n/a n/a n/a Shares outstanding 220,314 n/a n/a n/a n/a Net asset value and redemption price per share $ 7.54 n/a n/a n/a n/a Maximum offering price per share $ 7.54 n/a n/a n/a n/a CLASS T: Net assets $ 10,327,604 n/a n/a n/a n/a Shares authorized unlimited n/a n/a n/a n/a Par value $ 0.00 n/a n/a n/a n/a Shares outstanding 1,373,716 n/a n/a n/a n/a Net asset value and redemption price per share(2) $ 7.52 n/a n/a n/a n/a Maximum offering price per share $ 7.52 n/a n/a n/a n/a
---------- (1) Maximum offering price is computed at 100/95.25 of net asset value. On purchases of $50,000 or more, the price is reduced. (2) Redemption price per share may be reduced for any applicable contingent deferred sales charge. See Accompanying Notes to Financial Statements 25 STATEMENTS OF OPERATIONS for the year ended March 31, 2002 --------------------------------------------------------------------------------
ING ING ING ING NATIONAL INTERMEDIATE STRATEGIC ING GNMA INCOME TAX-EXEMPT BOND INCOME HIGH YIELD FUND BOND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ INVESTMENT INCOME: Dividends(1) $ -- $ -- $ 60,020 $ 144,031 $ -- Interest (net of foreign withholding tax)* 38,822,790 1,218,124 3,045,090 3,825,463 20,092,504 Other income 69,305 -- 11,811 -- 33,113 ------------ ------------ ------------ ------------ ------------ Total investment income 38,892,095 1,218,124 3,116,921 3,969,494 20,125,617 ------------ ------------ ------------ ------------ ------------ EXPENSES: Investment management fees 3,029,006 120,328 257,006 238,822 1,141,988 Distribution fees: Class A 1,231,066 79,222 133,075 131,234 143,286 Class B 629,174 9,617 66,289 75,778 1,217,290 Class C 244,330 4,691 47,701 39,390 49,844 Class M 2,557 -- -- -- 47,257 Class Q 1,478 -- -- 551 6 Class T 93,197 -- -- -- -- Transfer agent fees: Class A 728,053 27,529 50,517 59,180 98,886 Class B 92,827 1,156 8,751 16,221 210,030 Class C 35,985 581 6,411 8,346 8,598 Class I 144 -- 990 -- -- Class M 501 -- -- -- 10,900 Class Q 353 -- -- 22 1 Class T 21,614 -- -- -- -- Administrative and service fees 602,635 24,066 51,401 9,892 6,270 Shareholder reporting fees 329,697 10,251 18,443 10,229 80,560 Registration and filing fees 226,977 58,761 38,617 85,534 84,277 Professional fees 331,138 16,895 23,435 21,976 57,248 Custody and accounting fees 267,912 15,678 50,609 40,879 71,417 Directors' fees 31,489 890 2,345 1,710 7,897 Insurance fees 13,343 1,636 2,697 3,060 3,916 Miscellaneous fees 55,939 3,214 6,789 31,727 11,437 ------------ ------------ ------------ ------------ ------------ Total expenses 7,969,415 374,515 765,076 774,551 3,251,108 ------------ ------------ ------------ ------------ ------------ Less: Waived and reimbursed fees -- 100,186 94,760 197,052 178,851 ------------ ------------ ------------ ------------ ------------ Net expenses 7,969,415 274,329 670,316 577,499 3,072,257 ------------ ------------ ------------ ------------ ------------ Net investment income 30,922,680 943,795 2,446,605 3,391,995 17,053,360 ------------ ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gain (loss) on investments (913,597) 123,725 2,655,273 (1,228,830) (30,682,764) Net realized gain (loss) on foreign currencies -- -- -- (1,358,810) 3,431 Net change in unrealized appreciation (depreciation) of: Investments (6,963,619) (531,865) (1,001,657) (417,407) 12,052,732 Foreign currencies -- -- -- (281,963) (35) ------------ ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments and foreign currencies (7,877,216) (408,140) 1,653,616 (3,287,010) (18,626,636) ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 23,045,464 $ 535,655 $ 4,100,221 $ 104,985 $ (1,573,276) ============ ============ ============ ============ ============ * 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 26 STATEMENTS OF OPERATIONS for the year ended March 31, 2002 --------------------------------------------------------------------------------
ING ING ING ING HIGH YIELD HIGH YIELD ING CLASSIC LEXINGTON OPPORTUNITY BOND MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND FUND TRUST ------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME: Dividends $ 1,888,253 $ 358,359 $ -- $ -- $ -- Interest 28,907,026 3,657,724 3,125,913 19,389,576 1,858,328 Other income 7,474 4,523 -- -- 1,615 ------------- ------------- ------------- ------------- ------------- Total investment income 30,802,753 4,020,606 3,125,913 19,389,576 1,859,943 ------------- ------------- ------------- ------------- ------------- EXPENSES: Investment management fees 1,506,347 262,385 293,830 1,373,494 297,289 Distribution fees: Class A 179,326 116,341 126,785 4,036,188 -- Class B 1,560,107 57,873 321,659 23,109 -- Class C 274,311 13,394 167,901 18,613 -- Class Q 6,908 -- -- -- -- Class T 88,509 -- -- -- -- Transfer agent fees: Class A 96,745 85,824 111,397 508,015 125,477 Class B 294,809 14,939 69,432 2,335 -- Class C 51,337 3,435 32,359 1,958 -- Class I -- -- -- 939 -- Class Q 2,165 -- -- -- -- Class T 25,154 -- -- -- -- Administrative and service fees 36,807 40,367 126,495 -- 59,455 Shareholder reporting fees 149,459 32,391 20,805 150,435 52,046 Registration and filing fees 115,473 50,024 28,263 361,814 48,532 Professional fees 145,954 35,881 9,855 239,841 25,758 Custody and accounting fees 117,266 43,032 29,200 151,128 22,882 Directors' fees 10,966 3,458 2,227 22,980 5,894 Insurance fees 6,870 2,580 2,098 38,152 952 Miscellaneous fees 14,219 7,600 11,503 10,855 5,204 Merger fees 171,319 -- -- -- -- ------------- ------------- ------------- ------------- ------------- Total expenses 4,854,051 769,524 1,353,809 6,939,856 643,489 ------------- ------------- ------------- ------------- ------------- Less: Waived and reimbursed fees 701,773 190,871 50,504 2,737,023 59,455 ------------- ------------- ------------- ------------- ------------- Net expenses 4,152,278 578,653 1,303,305 4,202,833 584,034 ------------- ------------- ------------- ------------- ------------- Net investment income 26,650,475 3,441,953 1,822,608 15,186,743 1,275,909 ------------- ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized loss on investments (128,472,048) (4,081,069) (2,275) (7,895) -- Net change in unrealized appreciation of: Investments 93,237,035 1,415,683 -- -- -- Foreign currencies 2,631 -- -- -- -- ------------- ------------- ------------- ------------- ------------- Net realized and unrealized loss on investments and foreign currencies (35,232,382) (2,665,386) (2,275) (7,895) -- ------------- ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (8,581,907) $ 776,567 $ 1,820,333 $ 15,178,848 $ 1,275,909 ============= ============= ============= ============= =============
See Accompanying Notes to Financial Statements 27 STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
ING GNMA INCOME FUND ING NATIONAL TAX-EXEMPT BOND FUND --------------------------------------------- --------------------------------------------- YEAR THREE YEAR YEAR FIVE PERIOD ENDED MONTHS ENDED ENDED ENDED MONTHS ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000 2002 2001 2000(1) ------------- ------------- ------------- ------------- ------------- ------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 30,922,680 $ 6,099,260 $ 23,520,988 $ 943,795 $ 431,472 $ 998,241 Net realized gain (loss) on investments (913,597) 2,155,030 (3,100,065) 123,725 44,668 (102,700) Net change in unrealized appreciation (depreciation) of investments (6,963,619) 10,658,686 14,939,928 (531,865) 860,228 365,449 ------------- ------------- ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 23,045,464 18,912,976 35,360,851 535,655 1,336,368 1,260,990 ------------- ------------- ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (26,463,542) (5,337,765) (20,940,972) (897,732) (417,398) (986,356) Class B (2,926,862) (15,248) -- (31,003) (7,240) (6,239) Class C (1,103,400) (21,052) -- (15,060) (6,803) (5,646) 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) (943,795) (431,441) (998,241) ------------- ------------- ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 643,474,750 100,862,198 125,118,144 5,177,408 17,443,083 21,152,018 Net proceeds from shares issued in merger -- 121,277,768 -- -- -- -- Shares resulting from dividend reinvestments 25,992,838 4,928,490 19,059,996 919,080 419,386 991,319 ------------- ------------- ------------- ------------- ------------- ------------- 669,467,588 227,068,456 144,178,140 6,096,488 17,862,469 22,143,337 Cost of shares redeemed (524,205,659) (82,941,057) (163,864,918) (4,386,202) (18,006,608) (69,216) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 145,261,929 144,127,399 (19,686,778) 1,710,286 (144,139) 22,074,121 ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets 137,006,637 157,666,310 (5,266,899) 1,302,146 760,788 22,336,870 ------------- ------------- ------------- ------------- ------------- ------------- Net assets, beginning of period 528,979,865 371,313,555 376,580,454 23,102,658 22,341,870 5,000 ------------- ------------- ------------- ------------- ------------- ------------- Net assets, end of period $ 665,986,502 $ 528,979,865 $ 371,313,555 $ 24,404,804 $ 23,102,658 $ 22,341,870 ============= ============= ============= ============= ============= ============= Undistributed net investment income $ 3,756,751 $ 3,111,865 $ 2,580,016 $ -- $ 260 $ 229 ============= ============= ============= ============= ============= =============
---------- (1) The Fund commenced operations on November 8, 1999. See Accompanying Notes to Financial Statements 28 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 29 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 30 STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
ING HIGH YIELD BOND FUND ING MONEY MARKET FUND ------------------------------------------- --------------------------------------------------- YEAR FIVE YEAR YEAR NINE PERIOD 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(1) ------------ ------------ ------------- --------------- --------------- --------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 3,441,953 $ 1,660,339 $ 3,451,127 $ 1,822,608 $ 3,279,196 $ 1,623,290 Net realized gain (loss) on investments (4,081,069) 145,407 (1,738,019) (2,275) -- -- Net change in unrealized appreciation (depreciation) of investments 1,415,683 447,611 (1,140,527) -- -- -- ------------ ------------ ------------- --------------- --------------- --------------- Net increase in net assets resulting from operations 776,567 2,253,357 572,581 1,820,333 3,279,196 1,623,290 ------------ ------------ ------------- --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (2,880,814) (1,411,395) (3,026,673) (1,147,422) (2,280,631) -- Class B (454,223) (188,866) (259,285) (405,713) (570,299) -- Class C (106,763) (59,588) (104,775) (269,473) (446,529) -- Class X -- -- (80,495) -- -- -- Retail Classes -- -- -- -- -- (1,623,290) Net realized gain from investments Class A -- -- (186,445) -- -- -- Class B -- -- (16,236) -- -- -- Class C -- -- (6,007) -- -- -- Class X -- -- (5,161) -- -- -- ------------ ------------ ------------- --------------- --------------- --------------- Total distributions (3,441,800) (1,659,849) (3,685,077) (1,822,608) (3,297,459) (1,623,290) ------------ ------------ ------------- --------------- --------------- --------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 29,150,654 7,041,464 12,069,228 948,977,305 1,442,237,027 1,294,364,112 Shares resulting from dividend reinvestments 2,981,847 1,472,143 3,335,598 1,421,078 2,044,632 661,338 ------------ ------------ ------------- --------------- --------------- --------------- 32,132,501 8,513,607 15,404,826 950,398,383 1,444,281,659 1,295,025,450 Cost of shares redeemed (22,435,265) (8,856,718) (7,296,899) (1,013,894,905) (1,404,348,937) (1,202,129,120) ------------ ------------ ------------- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from capital share transactions 9,697,236 (343,111) 8,107,927 (63,496,522) 39,932,722 92,896,330 ------------ ------------ ------------- --------------- --------------- --------------- Net increase (decrease) in net assets 7,032,003 250,397 4,995,431 (63,498,797) 39,914,459 92,896,330 ------------ ------------ ------------- --------------- --------------- --------------- Net assets, beginning of period 39,798,547 39,548,150 34,552,719 132,810,789 92,896,330 -- ------------ ------------ ------------- --------------- --------------- --------------- Net assets, end of period $ 46,830,550 $ 39,798,547 $ 39,548,150 $ 69,311,992 $ 132,810,789 $ 92,896,330 ============ ============ ============= =============== =============== =============== Undistributed net investment income $ -- $ 937 $ 447 $ 78,256 $ 74,493 $ -- ============ ============ ============= =============== =============== ===============
---------- (1) The Fund commenced operations on July 12, 1999. See Accompanying Notes to Financial Statements 31 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 $ -- ============= ============= ============= ING LEXINGTON MONEY MARKET TRUST --------------------------------------------- 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 $ 1,275,909 $ 748,703 $ 4,349,652 Net realized gain on investments -- 271 -- ------------ ------------ ------------- Net increase in net assets resulting from operations 1,275,909 748,974 4,349,652 ------------ ------------ ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (1,276,180) (757,321) (4,341,034) ------------ ------------ ------------- Total distributions (1,276,180) (757,321) (4,341,034) ------------ ------------ ------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 28,781,871 16,156,660 85,250,442 Shares resulting from dividend reinvestments 1,227,271 724,771 4,121,169 ------------ ------------ ------------- 30,009,142 16,881,431 89,371,611 Cost of shares redeemed (37,963,635) (16,555,408) (124,370,412) ------------ ------------ ------------- Net increase (decrease) in net assets resulting from capital share transactions (7,954,493) 326,023 (34,998,801) ------------ ------------ ------------- Net increase (decrease) in net assets (7,954,764) 317,676 (34,990,183) ------------ ------------ ------------- Net assets, beginning of period 63,177,156 62,859,480 97,849,663 ------------ ------------ ------------- Net assets, end of period $ 55,222,392 $ 63,177,156 $ 62,859,480 ============ ============ ============= Undistributed net investment income $ -- $ -- $ 8,618 ============ ============ =============
See Accompanying Notes to Financial Statements 32 ING GNMA INCOME FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A --------------------------------------------------------------------------- YEAR THREE MONTHS ENDED ENDED YEAR ENDED DECEMBER 31, MARCH 31, MARCH 31, ---------------------------------------------- 2002 2001(5) 2000(4) 1999 1998 1997 ---- ------- ------- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.63 8.41 8.08 8.53 8.40 8.12 Income from investment operations: Net investment income $ 0.46 0.12 0.54 0.50 0.48 0.51 Net realized and unrealized gain (loss) on investments $ (0.09) 0.22 0.27 (0.45) 0.13 0.29 Total from investment operations $ 0.37 0.34 0.81 0.05 0.61 0.80 Less distributions from: Net investment income $ 0.47 0.12 0.48 0.50 0.48 0.52 Total distributions $ 0.47 0.12 0.48 0.50 0.48 0.52 Net asset value, end of period $ 8.53 8.63 8.41 8.08 8.53 8.40 TOTAL RETURN(1) % 4.38 4.09 10.36 0.58 7.52 10.20 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 535,903 449,460 368,615 376,580 273,591 158,071 Ratios to average net assets: Expenses(2) % 1.22 1.16 1.06 0.99 1.01 1.01 Net investment income(2) % 5.32 5.75 6.54 6.04 5.85 6.28 Portfolio turnover rate % 76 33 65 25 54 134 CLASS B CLASS C --------------------------------------- ------------------------------------- YEAR THREE MONTHS OCTOBER 6, YEAR THREE MONTHS OCTOBER 13, ENDED ENDED 2000(3) TO ENDED ENDED 2000(3) TO MARCH 31, MARCH 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, 2002 2001(5) 2000 2002 2001(5) 2000 ---- ------- ---- ---- ------- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.61 8.40 8.20 8.61 8.40 8.24 Income from investment operations: Net investment income $ 0.39 0.13 0.09 0.40 0.11 0.09 Net realized and unrealized gain (loss) on investments $ (0.09) 0.19 0.18 (0.09) 0.21 0.14 Total from investment operations $ 0.30 0.32 0.27 0.31 0.32 0.23 Less distributions from: Net investment income $ 0.41 0.11 0.07 0.41 0.11 0.07 Total distributions $ 0.41 0.11 0.07 0.41 0.11 0.07 Net asset value, end of period $ 8.50 8.61 8.40 8.51 8.61 8.40 TOTAL RETURN(1) % 3.53 3.70 3.32 3.65 3.69 2.82 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 79,302 47,406 866 37,193 13,744 1,833 Ratios to average net assets: Expenses(2) % 1.98 1.90 1.81 1.99 1.93 1.81 Net investment income(2) % 4.55 4.88 5.79 4.52 4.87 5.79 Portfolio turnover rate % 76 33 65 76 33 65 CLASS M CLASS T ------------------------ --------------------- YEAR FEB. 26, YEAR FEB. 26, ENDED 2001(3) TO ENDED 2001(3)TO MARCH 31, MARCH 31, MARCH 31, MARCH 31, 2002 2001 2002 2001 ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.63 8.51 8.63 8.51 Income from investment operations: Net investment income $ 0.41 0.04 0.43 0.04 Net realized and unrealized gain (loss) on investments $ (0.07) 0.08 (0.09) 0.08 Total from investment operations $ 0.34 0.12 0.34 0.12 Less distributions from: Net investment income $ 0.43 -- 0.44 -- Total distributions $ 0.43 -- 0.44 -- Net asset value, end of period $ 8.54 8.63 8.53 8.63 TOTAL RETURN(1) % 4.03 1.41 3.96 1.41 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 495 247 11,275 17,647 Ratios to average net assets: Expenses(2) % 1.73 1.61 1.61 1.54 Net investment income(2) % 4.81 4.88 4.94 5.02 Portfolio turnover rate % 76 33 76 33
---------- (1) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (2) Annualized for periods less than one year. (3) Commencement of offering of shares. (4) Effective July 26, 2000, ING Investments, LLC became the Investment Manager of the Fund. (5) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 33 FINANCIAL HIGHLIGHTS ING NATIONAL TAX-EXEMPT BOND FUND -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A CLASS B ----------------------------------- ----------------------------------- YEAR FIVE MONTHS PERIOD YEAR FIVE MONTHS PERIOD ENDED ENDED ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, MARCH 31, OCTOBER 31, 2002 2001(4) 2000(1) 2002 2001(4) 2000(1) ---- ------- ------- ---- ------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.50 10.11 10.00 10.48 10.09 10.00 Income from investment operations: Net investment income $ 0.41 0.19 0.48 0.34 0.17 0.38 Net realized and unrealized gain (loss) on investments $ (0.18) 0.39 0.11 (0.17) 0.39 0.11 Total from investment operations $ 0.23 0.58 0.59 0.17 0.56 0.49 Less distributions from: Net investment income $ 0.41 0.19 0.48 0.34 0.17 0.40 Total distributions $ 0.41 0.19 0.48 0.34 0.17 0.40 Net asset value, end of period $ 10.32 10.50 10.11 10.31 10.48 10.09 TOTAL RETURN(2): % 2.25 5.79 6.09 1.59 5.54 5.02 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 22,868 22,074 21,592 1,265 588 311 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.10 1.06 0.95 1.84 1.83 1.67 Gross expenses prior to expense reimbursement(3) % 1.52 1.50 2.12 2.16 2.17 2.32 Net investment income after expense reimbursement(3)(5) % 3.97 4.45 4.92 3.22 3.69 3.93 Portfolio turnover rate % 27 7 50 27 7 50 CLASS C ----------------------------------- YEAR FIVE MONTHS PERIOD ENDED ENDED ENDED MARCH 31, MARCH 31, OCTOBER 31, 2002 2001(4) 2000(1) ---- ------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.49 10.11 10.00 Income from investment operations: Net investment income $ 0.34 0.16 0.39 Net realized and unrealized gain (loss) on investments $ (0.16) 0.38 0.12 Total from investment operations $ 0.18 0.54 0.51 Less distributions from: Net investment income $ 0.34 0.16 0.40 Total distributions $ 0.34 0.16 0.40 Net asset value, end of period $ 10.33 10.49 10.11 TOTAL RETURN(2): % 1.69 5.34 5.29 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 271 440 439 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.83 1.81 1.68 Gross expenses prior to expense reimbursement(3) % 2.18 2.16 2.33 Net investment income after expense reimbursement(3)(5) % 3.21 3.70 4.00 Portfolio turnover rate % 27 7 50
---------- (1) Fund commenced operations on November 8, 1999. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (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 reimbursement to ING Investments, LLC within three years. See Accompanying Notes to Financial Statements 34 ING INTERMEDIATE BOND FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A CLASS B ----------------------------------------- ----------------------------------------- YEAR FIVE MONTHS YEAR PERIOD YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCT. 31, OCT. 31, MARCH 31, MARCH 31, OCT. 31, OCT. 31, 2002 2001(4) 2000 1999(1) 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.18 9.52 9.40 10.00 10.18 9.52 9.40 10.00 Income from investment operations: Net investment income $ 0.51 0.28 0.61 0.45 0.44 0.26 0.53 0.40 Net realized and unrealized gain (loss) on investments $ 0.42 0.66 0.12 (0.60) 0.40 0.66 0.13 (0.61) Total from investment operations $ 0.93 0.94 0.73 (0.15) 0.84 0.92 0.66 (0.21) Less distributions from: Net investment income $ 0.53 0.28 0.61 0.45 0.45 0.26 0.54 0.39 Net realized gains $ 0.67 -- -- -- 0.67 -- -- -- Total distributions $ 1.20 0.28 0.61 0.45 1.12 0.26 0.54 0.39 Net asset value, end of period $ 9.91 10.18 9.52 9.40 9.90 10.18 9.52 9.40 TOTAL RETURN(2): % 9.27 10.01 8.11 (1.46) 8.37 9.74 7.30 (2.13) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 41,503 33,597 29,893 32,013 11,216 2,807 1,523 1,958 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.15 1.13 1.00 0.96 1.90 1.88 1.74 1.70 Gross expenses prior to expense reimbursement(3) % 1.36 1.53 2.08 2.12 2.01 2.18 2.33 2.39 Net investment income after expense reimbursement(3)(5) % 4.93 6.94 6.48 5.38 4.09 6.20 5.71 4.83 Portfolio turnover rate % 1,216* 838 733 432 1,216* 838 733 432 CLASS C ----------------------------------------- YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCT. 31, OCT. 31, 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.19 9.52 9.40 10.00 Income from investment operations: Net investment income $ 0.44 0.26 0.54 0.42 Net realized and unrealized gain (loss) on investments $ 0.39 0.67 0.12 (0.63) Total from investment operations $ 0.83 0.93 0.66 (0.21) Less distributions from: Net investment income $ 0.45 0.26 0.54 0.39 Net realized gains $ 0.67 -- -- -- Total distributions $ 1.12 0.26 0.54 0.39 Net asset value, end of period $ 9.90 10.19 9.52 9.40 TOTAL RETURN(2): % 8.24 9.86 7.32 (2.10) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 6,382 4,470 5,248 1,082 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.90 1.85 1.73 1.71 Gross expenses prior to expense reimbursement(3) % 2.01 2.18 2.32 2.44 Net investment income after expense reimbursement(3)(5) % 4.20 6.37 5.74 4.94 Portfolio turnover rate % 1,216* 838 733 432
---------- (1) Fund commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (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 reimbursement to ING Investments, LLC within three years. * Portfolio turnover was greater than 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 35 FINANCIAL HIGHLIGHTS ING STRATEGIC INCOME FUND -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A ------------------------------------------------------------------------- NINE THREE YEAR MONTHS YEAR 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 $ 11.79 12.07 12.59 12.89 13.08 Income from investment operations: Net investment income $ 0.75 0.23 0.92 0.26 0.53 Net realized and unrealized gain (loss) on investments $ (0.72) 0.08 (0.52) (0.42) (0.08) Total from investment operations $ 0.03 0.31 0.40 (0.16) 0.45 Less distributions from: Net investment income $ 0.87 0.59 0.92 0.14 0.53 Net realized gain on investments $ -- -- -- -- 0.11 Total distributions $ 0.87 0.59 0.92 0.14 0.64 Net asset value, end of period $ 10.95 11.79 12.07 12.59 12.89 TOTAL RETURN(3): % 0.26 2.69 3.42 (1.23) 5.60 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 34,387 39,105 2,726 2,736 5,751 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.97 1.03 0.96 0.90 0.96 Gross expenses prior to expense reimbursement(4) % 1.34 1.73 2.64 1.56 1.98 Net investment income after expense reimbursement(4)(5) % 6.55 6.30 7.69 5.88 5.81 Portfolio turnover rate % 211 132 168 69 274 CLASS B ------------------------------------------------------------------------- NINE THREE YEAR MONTHS YEAR 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 $ 11.53 11.80 12.33 12.61 12.78 Income from investment operations: Net investment income $ 0.60 0.36 0.88 0.18 0.45 Net realized and unrealized gain (loss) on investments (0.62) (0.08) (0.53) (0.33) (0.05) Total from investment operations $ (0.02) 0.28 0.35 (0.15) 0.40 Less distributions from: Net investment income $ 0.83 0.55 0.88 0.13 0.46 Net realized gain on investments $ -- -- -- -- 0.11 Total distributions $ 0.83 0.55 0.88 0.13 0.57 Net asset value, end of period $ 10.68 11.53 11.80 12.33 12.61 TOTAL RETURN(3): % (0.18) 2.52 3.00 (1.20) 5.17 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 11,848 8,894 4,460 5,658 6,637 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.38 1.53 1.36 1.29 1.37 Gross expenses prior to expense reimbursement(4) % 1.75 2.55 3.04 1.95 2.42 Net investment income after expense reimbursement(4)(5) % 5.98 6.71 7.29 5.49 5.35 Portfolio turnover rate % 211 132 168 69 274 CLASS C ------------------------------------------------------------------------- NINE THREE YEAR MONTHS YEAR 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 $ 12.05 12.30 12.81 13.10 13.27 Income from investment operations: Net investment income $ 0.66 0.43 0.87 0.19 0.48 Net realized and unrealized loss on investments $ (0.68) (0.13) (0.51) (0.35) (0.06) Total from investment operations $ (0.02) 0.30 0.36 (0.16) 0.42 Less distributions from: Net investment income $ 0.83 0.55 0.87 0.13 0.48 Net realized gain on investments $ -- -- -- -- 0.11 Total distributions $ 0.83 0.55 0.87 0.13 0.59 Net asset value, end of period $ 11.20 12.05 12.30 12.81 13.10 TOTAL RETURN(3): % (0.17) 2.55 3.02 (1.21) 5.19 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 4,964 5,196 3,966 7,965 8,128 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.38 1.51 1.36 1.29 1.36 Gross expenses prior to expense reimbursement(4) % 1.75 2.55 3.04 1.95 2.41 Net investment income after expense reimbursement(4)(5) % 6.04 6.71 7.29 5.49 5.36 Portfolio turnover rate % 211 132 168 69 274
---------- (1) Commencement of offering of shares. (2) Effective May 24, 1999, ING Investments, LLC, became the Investment Manager of the Fund and the Fund changed its fiscal year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized (4) Annualized for periods less than one year. (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 36 ING HIGH YIELD FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share beneficial interest outstanding throughout each period.
CLASS A -------------------------------------------------------------------------- YEAR NINE MONTHS ENDED ENDED YEAR ENDED JUNE 30, MARCH 31, MARCH 31, -------------------------------------------- 2002 2001(5) 2000 1999 1998 1997 ---- ------- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 3.90 5.04 5.93 6.94 6.80 6.36 Income from investment operations: Net investment income $ 0.40 0.34 0.56 0.58 0.61 0.61 Net realized and unrealized gain (loss) on investments $ (0.40) (1.05) (0.85) (0.96) 0.16 0.43 Total from investment operations $ 0.00 (0.71) (0.29) (0.38) 0.77 1.04 Less distributions from: Net investment income $ 0.35 0.35 0.57 0.62 0.63 0.60 Tax return of capital $ 0.09 0.08 0.03 0.01 -- -- Total distributions $ 0.44 0.43 0.60 0.63 0.63 0.60 Net asset value, end of period $ 3.46 3.90 5.04 5.93 6.94 6.80 TOTAL RETURN(2): % 0.30 (14.66) (5.20) (5.57) 11.71 17.14 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 61,930 55,704 85,870 131,535 102,424 35,940 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.10 1.10 1.05 1.00 1.00 1.00 Gross expenses prior to expense reimbursement(3) % 1.19 1.20 1.17 1.12 1.17 1.42 Net investment income after expense reimbursement(3)(4) % 9.43 10.65 10.41 9.32 9.05 9.54 Portfolio turnover rate % 99 100 89 184 209 394 CLASS B -------------------------------------------------------------------------- YEAR NINE MONTHS ENDED ENDED YEAR ENDED JUNE 30, MARCH 31, MARCH 31, -------------------------------------------- 2002 2001(5) 2000 1999 1998 1997 ---- ------- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 3.89 5.03 5.92 6.92 6.78 6.36 Income from investment operations: Net investment income $ 0.31 0.32 0.53 0.53 0.58 0.57 Net realized and unrealized gain (loss) on investments $ (0.34) (1.06) (0.86) (0.96) 0.14 0.41 Total from investment operations $ (0.03) (0.74) (0.33) (0.43) 0.72 0.98 Less distributions from: Net investment income $ 0.32 0.32 0.53 0.56 0.58 0.56 Tax return of capital $ 0.09 0.08 0.03 0.01 -- -- Total distributions $ 0.41 0.40 0.56 0.57 0.58 0.56 Net asset value, end of period $ 3.45 3.89 5.03 5.92 6.92 6.78 TOTAL RETURN(2): % (0.66) (15.18) (5.91) (6.23) 10.90 16.04 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 111,177 140,183 199,618 261,589 154,303 40,225 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.85 1.85 1.80 1.75 1.75 1.75 Gross expenses prior to expense reimbursement(3) % 1.94 1.95 1.92 1.87 1.92 2.17 Net investment income after expense reimbursement(3)(4) % 8.75 9.89 9.66 8.57 8.30 8.64 Portfolio turnover rate % 99 100 89 184 209 394 CLASS C -------------------------------------------------- YEAR NINE MONTHS YEAR MAY 27, ENDED ENDED ENDED 1999(1) TO MARCH 31, MARCH 31, JUNE 30, JUNE 30, 2002 2001(5) 2000 1999 ---- ------- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 3.89 5.02 5.92 5.91 Income from investment operations: Net investment income $ 0.31 0.33 0.57 0.05 Net realized and unrealized gain (loss) on investments $ (0.34) (1.06) (0.90) 0.01 Total from investment operations $ (0.03) (0.73) (0.33) 0.06 Less distributions from: Net investment income $ 0.32 0.32 0.57 0.05 Tax return of capital $ 0.09 0.08 -- -- Total distributions $ 0.41 0.40 0.57 0.05 Net asset value, end of period $ 3.45 3.89 5.02 5.92 TOTAL RETURN(2): % (0.64) (15.00) (5.99) 0.34 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 4,782 5,505 5,930 551 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.85 1.85 1.80 1.75 Gross expenses prior to expense reimbursement(3) % 1.94 1.95 1.92 1.87 Net investment income after expense reimbursement(3)(4) % 8.74 9.88 9.66 8.57 Portfolio turnover rate % 99 100 89 184 CLASS M -------------------------------------------------------------------------- YEAR NINE MONTHS ENDED ENDED YEAR ENDED JUNE 30, MARCH 31, MARCH 31, -------------------------------------------- 2002 2001(5) 2000 1999 1998 1997 ---- ------- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 3.90 5.03 5.93 6.92 6.78 6.36 Income from investment operations: Net investment income $ 0.24 0.31 0.52 0.55 0.59 0.58 Net realized and unrealized gain (loss) on investments $ (0.26) (1.03) (0.85) (0.95) 0.14 0.41 Total from investment operations $ (0.02) (0.72) (0.33) (0.40) 0.73 0.99 Less distributions from: Net investment income $ 0.32 0.33 0.54 0.58 0.59 0.57 Tax return of capital $ 0.09 0.08 0.03 0.01 -- -- Total distributions $ 0.41 0.41 0.57 0.59 0.59 0.57 Net asset value, end of period $ 3.47 3.90 5.03 5.93 6.92 6.78 TOTAL RETURN(2): % (0.37) (14.82) (5.86) (5.85) 11.16 16.29 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 4,922 7,077 12,730 24,129 19,785 8,848 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.60 1.60 1.55 1.50 1.50 1.50 Gross expenses prior to expense reimbursement(3) % 1.69 1.70 1.67 1.62 1.67 1.92 Net investment income after expense reimbursement(3)(4) % 8.95 10.16 9.91 8.82 8.55 8.93 Portfolio turnover rate % 99 100 89 184 209 394
---------- (1) Commencement of offering of shares. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return 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. See Accompanying Notes to Financial Statements 37 FINANCIAL HIGHLIGHTS ING HIGH YIELD OPPORTUNITY FUND -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A --------------------------------------------------------------------------- NINE THREE YEAR MONTHS YEAR MONTHS YEAR MARCH 27, ENDED ENDED ENDED ENDED ENDED 1998 TO MARCH 31, MARCH 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31, 2002 2001(7) 2000 1999(2) 1999 1998(1) ---- ------- ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.69 10.80 11.57 11.66 12.72 12.70 Income from investment operations: Net investment income $ 0.88 0.84 1.18 0.28 1.12 0.01 Net realized and unrealized gain (loss) on investments $ (1.07) (2.09) (0.75) (0.09) (1.00) 0.01 Total from investment operations $ (0.19) (1.25) 0.43 0.19 0.12 0.02 Less distributions from: Net investment income $ 0.99 0.86 1.20 0.28 1.18 -- Total distributions $ 0.99 0.86 1.20 0.28 1.18 -- Net asset value, end of period $ 7.51 8.69 10.80 11.57 11.66 12.72 TOTAL RETURN(3): % (1.84) (11.87) 3.96 1.60 1.13 0.16 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 53,122 55,230 34,416 16,795 17,327 4,690 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.17 1.10 1.18 1.10 1.12 1.06 Gross expenses prior to expense reimbursement(4) % 1.45 1.32 1.37 1.37 1.53 1.06 Net investment income after expense reimbursement(4)(5) % 11.02 11.43 10.63 9.68 9.44 7.22 Portfolio turnover rate % 102 113 113 44 242 484 CLASS B --------------------------------------------------------------------------- NINE THREE YEAR MONTHS YEAR MONTHS YEAR MARCH 27, ENDED ENDED ENDED ENDED ENDED 1998 TO MARCH 31, MARCH 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31, 2002 2001(7) 2000 1999(2) 1999 1998(1) ---- ------- ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.71 10.81 11.58 11.66 12.71 12.69 Income from investment operations: Net investment income $ 0.81 0.81 1.11 0.27 1.04 0.01 Net realized and unrealized gain (loss) on investments $ (1.05) (2.10) (0.75) (0.09) (0.99) 0.01 Total from investment operations $ (0.24) (1.29) 0.36 0.18 0.05 0.02 Less distributions from: Net investment income $ 0.93 0.81 1.13 0.26 1.10 -- Total distributions $ 0.93 0.81 1.13 0.26 1.10 -- Net asset value, end of period $ 7.54 8.71 10.81 11.58 11.66 12.71 TOTAL RETURN(3): % (2.49) (12.22) 3.28 1.53 0.55 0.16 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 143,742 181,175 103,246 41,882 42,960 8,892 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.82 1.75 1.83 1.75 1.77 1.69 Gross expenses prior to expense reimbursement(4) % 2.10 1.97 2.02 2.02 2.18 1.69 Net investment income after expense reimbursement(4)(5) % 10.48 10.97 9.98 9.03 8.84 6.61 Portfolio turnover rate % 102 113 113 44 242 484 CLASS C --------------------------------------------------------------------------- NINE THREE YEAR MONTHS YEAR MONTHS YEAR MARCH 27, ENDED ENDED ENDED ENDED ENDED 1998 TO MARCH 31, MARCH 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31, 2002 2001(7) 2000 1999(2) 1999 1998(1) ---- ------- ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.71 10.81 11.58 11.66 12.71 12.69 Income from investment operations: Net investment income $ 0.80 0.81 1.10 0.27 1.04 0.01 Net realized and unrealized gain (loss) on investments $ (1.05) (2.10) (0.74) (0.09) (0.99) 0.01 Total from investment operations $ (0.25) (1.29) 0.36 0.18 0.05 0.02 Less distributions from: Net investment income $ 0.93 0.81 1.13 0.26 1.10 -- Total distributions $ 0.93 0.81 1.13 0.26 1.10 -- Net asset value, end of period $ 7.53 8.71 10.81 11.58 11.66 12.71 TOTAL RETURN(3): % (2.60) (12.22) 3.28 1.53 0.55 0.16 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 24,674 33,463 23,324 18,618 21,290 4,815 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.81 1.75 1.83 1.75 1.77 1.66 Gross expenses prior to expense reimbursement(4) % 2.09 1.97 2.02 2.02 2.18 1.66 Net investment income after expense reimbursement(4)(5) % 10.47 10.93 9.98 9.03 8.79 6.91 Portfolio turnover rate % 102 113 113 44 242 484 CLASS T ------------------------------------- NINE YEAR MONTHS MARCH 31, ENDED ENDED 2000(6) TO MARCH 31, MARCH 31, JUNE 30, 2002 2001(7) 2000 ---- ------- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.70 10.81 11.07 Income from investment operations: Net investment income $ 0.78 0.81 0.29 Net realized and unrealized gain (loss) on investments $ (0.99) (2.08) (0.25) Total from investment operations $ (0.21) (1.27) 0.04 Less distributions from: Net investment income $ 0.97 0.84 0.30 Total distributions $ 0.97 0.84 0.30 Net asset value, end of period $ 7.52 8.70 10.81 TOTAL RETURN(3): % (2.18) (12.07) (0.49) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 10,328 18,510 31,342 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.44 1.40 1.48 Gross expenses prior to expense reimbursement(4) % 1.72 1.63 1.67 Net investment income after expense reimbursement(4)(5) % 10.84 11.24 10.33 Portfolio turnover rate % 102 113 113
---------- (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 and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Investment Manager has voluntarily agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investments, LLC within three years. (6) Commencement of offering of shares. (7) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 38 ING HIGH YIELD BOND FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A ----------------------------------------------- YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCT. 31, OCT. 31, 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 9.36 9.24 9.96 10.00 Income from investment operations: Net investment income $ 0.78 0.39 0.85 0.67 Net realized and unrealized gain (loss) on investments $ (0.62) 0.12 (0.65) (0.04) Total from investment operations $ 0.16 0.51 0.20 0.63 Less distributions from: Net investment income $ 0.78 0.39 0.86 0.67 Net realized gain on investments $ -- -- 0.06 -- Total distributions $ 0.78 0.39 0.92 0.67 Net asset value, end of period $ 8.74 9.36 9.24 9.96 TOTAL RETURN(2): % 1.94 5.61 1.89 6.37 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 38,525 33,459 33,220 30,537 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.30 1.09 1.04 1.00 Gross expenses prior to expense reimbursement(3) % 1.79 1.63 2.16 2.32 Net investment income after expense reimbursement(3)(5) % 8.67 10.24 8.75 7.53 Portfolio turnover rate % 344 253 481 756 CLASS B ----------------------------------------------- YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCT. 31, OCT. 31, 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 9.36 9.23 9.96 10.00 Income from investment operations: Net investment income $ 0.72 0.36 0.78 0.60 Net realized and unrealized gain (loss) on investments $ (0.62) 0.14 (0.66) (0.05) Total from investment operations $ 0.10 0.50 0.12 0.55 Less distributions from: Net investment income $ 0.72 0.37 0.79 0.59 Net realized gain on investments $ -- -- 0.06 -- Total distributions $ 0.72 0.37 0.85 0.59 Net asset value, end of period $ 8.74 9.36 9.23 9.96 TOTAL RETURN(2): % 1.29 5.43 1.02 5.57 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 6,673 5,025 3,702 2,374 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.05 1.84 1.79 1.72 Gross expenses prior to expense reimbursement(3) % 2.44 2.28 2.41 2.64 Net investment income after expense reimbursement(3)(5) % 7.85 9.49 7.99 6.90 Portfolio turnover rate % 344 253 481 756 CLASS C ----------------------------------------------- YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCT. 31, OCT. 31, 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 9.36 9.23 9.96 10.00 Income from investment operations: Net investment income $ 0.71 0.37 0.78 0.62 Net realized and unrealized gain (loss) on investments $ (0.61) 0.12 (0.66) (0.06) Total from investment operations $ 0.10 0.49 0.12 0.56 Less distributions from: Net investment income $ 0.72 0.36 0.79 0.60 Net realized gain on investments $ -- -- 0.06 -- Total distributions $ 0.72 0.36 0.85 0.60 Net asset value, end of period $ 8.74 9.36 9.23 9.96 TOTAL RETURN(2): % 1.21 5.39 1.02 5.67 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 1,633 1,314 1,578 776 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.05 1.84 1.79 1.73 Gross expenses prior to expense reimbursement(3) % 2.44 2.29 2.40 2.66 Net investment income after expense reimbursement(3)(5) % 7.92 9.42 7.98 7.01 Portfolio turnover rate % 344 253 481 756
---------- (1) Fund commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (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 reimbursement to ING Investments, LLC within three years. See Accompanying Notes to Financial Statements 39 FINANCIAL HIGHLIGHTS ING MONEY MARKET FUND -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A CLASS B ------------------------------------ ------------------------------------ YEAR NINE MONTHS PERIOD YEAR NINE MONTHS PERIOD ENDED ENDED ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002(7) 2001(6) 2000(1) 2002(7) 2001(6) 2000(2) ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02* 0.04* 0.02* 0.01* 0.03* 0.03* Total from investment operations $ 0.02 0.04 0.02 0.01 0.03 0.03 Less distributions from: Net investment income $ 0.02 0.04 0.02 0.01 0.03 0.03 Total distributions $ 0.02 0.04 0.02 0.01 0.03 0.03 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 TOTAL RETURN(3): % 2.10 3.86 3.58 1.38 3.34 3.60 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 28,668 73,290 75,430 30,241 32,117 12,035 Ratios to average net assets: Net expenses after expense reimbursement/recoupment(4)(5) % 0.93** 0.91** 0.85** 1.70** 1.64** 1.60** Gross expenses prior to expense reimbursement/recoupment(4) % 0.99 0.74 2.28 1.75 1.50 3.03 Net investment income after expense reimbursement/recoupment(4)(5) % 2.26 5.23 5.18 1.26 4.31 3.96 CLASS C ------------------------------------ YEAR NINE MONTHS PERIOD ENDED ENDED ENDED MARCH 31, MARCH 31, JUNE 30, 2002(7) 2001(6) 2000(2) ------- ------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.01* 0.03* 0.02* Total from investment operations $ 0.01 0.03 0.02 Less distributions from: Net investment income $ 0.01 0.03 0.02 Total distributions $ 0.01 0.03 0.02 Net asset value, end of period $ 1.00 1.00 1.00 TOTAL RETURN(3): % 1.33 3.34 3.58 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 10,403 27,404 5,431 Ratios to average net assets: Net expenses after expense reimbursement/recoupment(4)(5) % 1.68** 1.59** 1.60** Gross expenses prior to expense reimbursement/recoupment(4) % 1.71 1.49 3.03 Net investment income after expense reimbursement/recoupment(4)(5) % 1.60 4.36 3.96
---------- (1) Commenced operations on November 24, 1999. (2) Commenced operations on July 12, 1999. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (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. (7) Effective May 21, 2001 ING Investments, LLC took over direct management of the Fund. * Recognition of net investment income by the Fund was affected by the timing of the declaration of dividends by the underlying investment company in which the Fund invested. ** Does not include expenses of the investment company in which the Fund invested. See Accompanying Notes to Financial Statements 40 ING CLASSIC MONEY MARKET FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A ---------------------------------------------------- YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCTOBER 31, OCTOBER 31, 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- 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 $ 0.03 0.02 0.06 0.04 Total from investment operations $ 0.03 0.02 0.06 0.04 Less distributions from: Net investment income $ 0.03 0.02 0.06 0.04 Total distributions $ 0.03 0.02 0.06 0.04 Net asset value, end of period $ 1.00 1.00 1.00 1.00 TOTAL RETURN(2): % 2.83 2.36 5.70 3.98 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 549,999 515,651 440,651 228,124 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 0.77 0.77 0.74 0.73 Gross expenses prior to expense reimbursement(3) % 1.27 1.30 1.42 1.67 Net investment income after expense reimbursement(3)(5) % 2.75 5.61 5.59 4.59 CLASS B ---------------------------------------------------- YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCTOBER 31, OCTOBER 31, 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- 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 $ 0.02 0.02 0.05 0.03 Total from investment operations $ 0.02 0.02 0.05 0.03 Less distributions from: Net investment income $ 0.02 0.02 0.05 0.03 Total distributions $ 0.02 0.02 0.05 0.03 Net asset value, end of period $ 1.00 1.00 1.00 1.00 TOTAL RETURN(2): % 2.21 2.11 5.03 3.31 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 1,987 2,714 2,706 1,173 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.37 1.41 1.38 1.41 Gross expenses prior to expense reimbursement(3) % 1.53 1.55 1.67 1.79 Net investment income after expense reimbursement(3)(5) % 2.27 5.10 4.93 3.85 CLASS C ---------------------------------------------------- YEAR FIVE MONTHS YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, OCTOBER 31, OCTOBER 31, 2002 2001(4) 2000 1999(1) ---- ------- ---- ------- 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 $ 0.02 0.02 0.05 0.03 Total from investment operations $ 0.02 0.02 0.05 0.03 Less distributions from: Net investment income $ 0.02 0.02 0.05 0.03 Total distributions $ 0.02 0.02 0.05 0.03 Net asset value, end of period $ 1.00 1.00 1.00 1.00 TOTAL RETURN(2): % 2.20 2.08 5.03 3.30 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 590 2,583 2,035 444 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.38 1.40 1.39 1.41 Gross expenses prior to expense reimbursement(3) % 1.53 1.55 1.67 1.78 Net investment income after expense reimbursement(3)(5) % 2.44 5.00 5.03 3.89
---------- (1) Fund commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (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 reimbursement to ING Investments, LLC within three years. See Accompanying Notes to Financial Statements 41 FINANCIAL HIGHLIGHTS ING LEXINGTON MONEY MARKET TRUST -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
YEAR THREE MONTHS ENDED ENDED YEAR ENDED DECEMBER 31, MARCH 31, MARCH 31, -------------------------------------------- 2002 2001(5) 2000(2) 1999 1998 1997 ---- ------- ------- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 Total from investment operations $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 Less distributions from: Net investment income $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 Total distributions $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 TOTAL RETURN(1): % 2.11 1.22 5.57 4.34 4.64 4.68 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 55,222 63,177 62,859 97,850 87,488 95,149 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 0.98 0.92 1.00 1.00 1.00 1.00 Gross expenses prior to expense reimbursement(4) % 1.08 0.92 1.08 1.01 1.05 1.04 Net investment income after expense reimbursement(3)(4) % 2.15 4.85 5.53 4.26 4.56 4.58
---------- (1) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (2) Effective July 26, 2000, ING Investments, LLC became the Investment Manager of the Trust. (3) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investment, LLC within three years. (4) Annualized for periods less than one year. (5) The Trust changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 42 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), ING Investment Funds, Inc. ("IIF", formerly Pilgrim Investment Funds, Inc.) and ING Lexington Money Market Trust (formerly Lexington Money Market Trust) 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. Four of the Portfolios in this report are ING National Tax-Exempt Bond Fund ("National Tax-Exempt Bond Fund", formerly Pilgrim National Tax-Exempt Bond Fund), ING Intermediate Bond Fund ("Intermediate Bond Fund", formerly Pilgrim Intermediate Bond Fund), ING High Yield Bond Fund ("High Yield Bond Fund", formerly Pilgrim High Yield 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. Three of the Portfolios in this report are ING Strategic Income Fund ("Strategic Income Fund", formerly Pilgrim Strategic Income Fund), ING High Yield Opportunity Fund ("High Yield Opportunity Fund", formerly Pilgrim High Yield Fund II) and ING Money Market Fund (formerly Pilgrim Money Market Fund). 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). ING Lexington Money Market Trust ("Money Market Trust", formerly Lexington Money Market Trust) is the single series of ING Lexington Money Market Trust, a Massachusetts business trust organized on June 30, 1977. The investment objective of each Fund is described in each Fund's prospectus. Prior to May 21, 2001, the date that ING Investments, LLC (formerly, ING Pilgrim Investments, LLC) took over direct management of the ING Money Market Fund, the Fund sought to achieve its investment objective by investing all its assets in Class A shares of the Primary Reserve Institutional Fund, a series of Reserve Institutional Trust, a registered open-end investment company. The Primary Reserve Institutional Fund declared dividends of its net investment income daily, which the ING Money Market Fund recorded as dividend income. In addition, the ING Money Market Fund incurred its own expenses. Each Fund offers at least three of the following classes of shares: Class A, Class B, Class C, Class I, Class M, Class Q and Class T except for Money Market Trust which only offers Class A Shares. 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 43 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- 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. 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 and High Yield Bond Fund contained twelve and two 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) and $14 (represents 0.00% of net assets) for the High Yield Opportunity Fund and High Yield Bond Fund, respectively. 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. 44 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- 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 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. National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Opportunity Fund, High Yield Bond Fund, ING Money Market Fund, ING 45 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- Classic Money Market Fund and Money Market Trust 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 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. 46 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- 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 $ -- $ -- National Tax-Exempt Bond Fund 8,251,272 6,113,400 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 High Yield Bond Fund 140,691,457 131,709,772 U.S. Government Securities not included above were as follows: PURCHASES SALES ------------ ------------ GNMA Fund $685,711,538 $449,327,817 National Tax-Exempt Bond Fund -- -- 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 -- -- High Yield Bond Fund 2,545,289 2,544,340 NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES GNMA Fund, Strategic Income Fund, High Yield Fund, High Yield Opportunity Fund, ING Money Market Fund and Money Market Trust 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 National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield 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: 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 National Tax-Exempt Bond and 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 High Yield Bond Fund -- 0.65%; for ING Money Market Fund -- 0.35%; for ING Classic Money Market Fund -- 0.25%; for Money Market Trust -- 0.50% for the first $500 million and 0.45% in excess of $500 million. The fees payable to the Manager were discounted for the National Tax-Exempt Bond Fund, the Intermediate Bond Fund, the High Yield 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. Prior to May 21, 2001, the Manager did not charge a management fee for ING Money Market Fund since the Fund invested solely in another open-end regulated investment company. However, the Fund compensated the Manager with an administrative fee, computed daily and payable monthly, at an annual rate of 0.25% of average daily net assets. Furman Selz Capital Management LLC (FSCM), a registered investment advisor, serves as subadvisor to the National Tax-Exempt Bond Fund pursuant to a subadvisory agreement between the Adviser and FSCM. For its sevices FSCM receives from the Adviser, a fee equal to 0.25% of the average daily net assets of the Fund. ING Investment Management LLC (IIM), a registered investment advisor, serves as subadvisor to the Intermediate Bond Fund, High Yield 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%, 0.325%, and 0.125%, respectively, of the average daily net assets of the Intermediate Bond Fund, High Yield 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, National Tax-Exempt Bond Fund, Intermediate Bond Fund, Strategic Income Fund, High Yield Opportunity Fund, High Yield Bond Fund, ING Money Market Fund and Money Market Trust pay the Administrator a fee calculated at an annual rate of 0.10% of each Fund's average daily net assets. During the year ended March 31, 2002, the Administrator waived the 0.10% fee for Money Market Trust. High Yield Fund has entered into a Service Agreement with IFS wherby IFS will act as 47 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- 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, High Yield Opportunity Fund and ING Money Market 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% National Tax-Exempt Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A 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% High Yield Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A ING Money Market Fund 0.25% 1.00% 1.00% N/A N/A N/A N/A ING Classic Money Market Fund 0.75% 1.00% 1.00% N/A N/A N/A N/A Money Market Trust N/A N/A N/A 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 National Tax-Exempt Bond Fund, Intermediate Bond Fund and High Yield 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 $168,993 as sales charges from the proceeds of Class A Shares sold, $151,017 from the proceeds of Class C Shares redeemed, and $760 from the proceeds of Class M Shares sold. 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 National Tax-Exempt Bond Fund 10,438 2,088 6,232 18,758 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 High Yield Bond Fund 23,849 3,669 14,353 41,871 ING Money Market Fund 23,476 2,334 -- 25,810 ING Classic Money Market Fund 119,694 1,012 188,190 308,896 Money Market Trust 23,459 13,900 -- 37,359
At March 31, 2002, Lion Connecticut Holdings, Inc., a wholly-owned indirect subsidiary of ING Groep N.V., held 89.9%, 41.2%, 38.1% and 56.1% of the shares outstanding of National Tax-Exempt Bond Fund, Intermediate Bond Fund, Strategic Income Fund and High Yield Bond 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. 48 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- 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 National Tax-Exempt Bond Fund 1.15% 1.90% 1.90% N/A N/A N/A 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% High Yield Bond Fund 1.30% 2.05% 2.05% N/A N/A N/A N/A ING Money Market Fund 1.50% 2.25% 2.25% N/A N/A N/A N/A ING Classic Money Market Fund 0.77% 1.41% 1.41% 0.31% N/A N/A N/A Money Market Trust 1.00% N/A N/A N/A 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. 49 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. 50 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES -------------------------------------------- -------------------------------------------- YEAR FIVE YEAR FIVE ENDED MONTHS ENDED PERIOD ENDED ENDED MONTHS ENDED PERIOD ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000(1) 2002 2001 2000(1) ------------ ------------ ------------ ------------ ------------ ------------ NATIONAL TAX-EXEMPT BOND FUND (NUMBER OF SHARES) Shares sold 385,229 1,636,567 2,048,913 68,805 34,375 32,812 Shares issued as reinvestment of dividends 84,914 39,507 91,486 1,483 316 240 Shares redeemed (357,753) (1,709,158) (4,501) (3,696) (9,407) (2,459) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 112,390 (33,084) 2,135,898 66,592 25,284 30,593 ============ ============ ============ ============ ============ ============ NATIONAL TAX-EXEMPT BOND FUND ($) Shares sold $ 4,047,524 $ 17,088,810 $ 20,400,991 $ 724,114 $ 354,273 $ 322,416 Shares issued as reinvestment of dividends 889,178 410,013 984,828 15,515 3,289 2,650 Shares redeemed (3,766,931) (17,888,862) (45,034) (38,798) (96,246) (24,143) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 1,169,771 $ (390,039) $ 21,340,785 $ 700,831 $ 261,316 $ 300,923 ============ ============ ============ ============ ============ ============ CLASS C SHARES -------------------------------------------- YEAR FIVE ENDED MONTHS ENDED PERIOD ENDED MARCH 31, MARCH 31, OCTOBER 31, 2002 2001 2000(1) ------------ ------------ ------------ NATIONAL TAX-EXEMPT BOND FUND (NUMBER OF SHARES) Shares sold 38,358 -- 42,818 Shares issued as reinvestment of dividends 1,373 586 380 Shares redeemed (55,451) (2,062) (4) ------------ ------------ ------------ Net increase (decrease) in shares outstanding (15,720) (1,476) 43,194 ============ ============ ============ NATIONAL TAX-EXEMPT BOND FUND ($) Shares sold $ 405,770 $ -- $ 428,611 Shares issued as reinvestment of dividends 14,387 6,084 3,841 Shares redeemed (580,473) (21,500) (39) ------------ ------------ ------------ Net increase (decrease) $ (160,316) $ (15,416) $ 432,413 ============ ============ ============
---------- (1) The fund commenced operations on November 8, 1999.
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 $550,587, that were converted into Class B shares on November 17, 2000. (3) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 51 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES -------------------------------------------- -------------------------------------------- YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ STRATEGIC INCOME FUND (NUMBER OF SHARES) Shares sold 4,697,482 518,725 604,669 674,202 408,264 235,490 Shares issued in merger -- 3,150,703 -- -- 92,272 -- Shares issued as reinvestment of dividends 226,982 4,630 11,483 31,890 4,913 16,764 Shares redeemed (5,100,284) (583,744) (607,655) (368,456) (112,217) (333,238) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding (175,820) 3,090,314 8,497 337,636 393,232 (80,984) ============ ============ ============ ============ ============ ============ STRATEGIC INCOME FUND ($) 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 outstanding 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 ============ ============ ============
52 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 -------------------------------------------- YEAR NINE ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 ------------ ------------ ------------ HIGH YIELD OPPORTUNITY FUND (NUMBER OF SHARES) Shares sold 793,691 1,019,125 835,807 Shares issued in merger -- 2,033,709 876,081 Shares issued as reinvestment of dividends 131,261 38,546 60,087 Shares redeemed (1,491,553) (1,406,811) (1,223,652) ------------ ------------ ------------ Net increase (decrease) in shares outstanding (566,601) 1,684,569 548,323 ============ ============ ============ HIGH YIELD OPPORTUNITY FUND ($) Shares sold $ 6,403,212 $ 29,857,628 $ 9,284,852 Shares issued in merger -- 17,904,896 9,698,640 Shares issued as reinvestment of dividends 1,024,746 365,478 667,948 Shares redeemed (11,855,613) (13,234,360) (13,540,976) ------------ ------------ ------------ Net increase (decrease) $ (4,427,655) $ 34,893,642 $ 6,110,464 ============ ============ ============ CLASS Q SHARES CLASS T SHARES -------------------------------------------- -------------------------------------------- YEAR NINE YEAR NINE ENDED MONTHS ENDED YEAR ENDED ENDED MONTHS ENDED PERIOD ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000 2002 2001 2000(1) ------------ ------------ ------------ ------------ ------------ ------------ HIGH YIELD OPPORTUNITY FUND (NUMBER OF SHARES) Shares sold 374,119 953,432 1,176,601 5,425 3,731 42,193 Shares issued in merger -- -- -- -- -- 3,237,823 Shares issued as reinvestment of dividends 24,396 30,998 38,331 137,220 115,386 45,794 Shares redeemed (527,306) (1,271,213) (857,666) (896,484) (890,992) (426,380) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding (128,791) (286,783) 357,266 (753,839) (771,875) 2,899,430 ============ ============ ============ ============ ============ ============ HIGH YIELD OPPORTUNITY FUND ($) Shares sold $ 3,014,721 $ 8,874,061 $ 12,941,570 $ 23,154 $ 36,929 $ 467,407 Shares issued in merger -- -- -- -- -- 35,837,128 Shares issued as reinvestment of dividends 191,409 300,645 431,200 1,073,078 1,098,699 495,594 Shares redeemed (4,139,454) (12,170,488) (9,622,674) (7,059,452) (8,630,230) (4,680,068) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ (933,324) $ (2,995,782) $ 3,750,096 $ (5,963,220) $ (7,494,602) $ 32,120,061 ============ ============ ============ ============ ============ ============
---------- (1) Class T Shares commenced operations on March 31, 2000. 53 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 ------------ ------------ ------------ ------------ ------------ ------------ HIGH YIELD BOND FUND (NUMBER OF SHARES) Shares sold 2,794,127 539,752 795,930 451,236 177,908(1) 263,509 Shares issued as reinvestment of dividends 302,345 139,603 308,536 26,235 12,429 17,410 Shares redeemed (2,261,582) (702,638) (572,787) (250,521) (54,389) (118,328) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 834,890 (23,283) 531,679 226,950 135,948 162,591 ============ ============ ============ ============ ============ ============ HIGH YIELD BOND FUND ($) Shares sold $ 24,410,505 $ 5,066,037 $ 7,879,297 $ 4,004,927 $ 1,730,356(1) $ 2,578,002 Shares issued as reinvestment of dividends 2,679,680 1,305,475 3,000,374 232,795 123,744 169,541 Shares redeemed (19,826,039) (6,625,140) (5,535,027) (2,217,572) (513,327) (1,156,802) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 7,264,146 $ (253,628) $ 5,344,644 $ 2,020,150 $ 1,340,773 $ 1,590,741 ============ ============ ============ ============ ============ ============ CLASS C SHARES CLASS X SHARES(2) ----------------------------------------- ----------------------------- FIVE FIVE YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, OCTOBER 31, MARCH 31, OCTOBER 31, 2002 2001 2000 2001 2000 ----------- ----------- ----------- ----------- ----------- HIGH YIELD BOND FUND (NUMBER OF SHARES) Shares sold 83,521 23,538 117,601 2,714 47,258 Shares issued as reinvestment of dividends 7,820 4,599 9,355 -- 8,397 Shares redeemed (44,804) (58,698) (33,988) (116,250)(1) (29,041) ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in shares outstanding 46,537 (30,561) 92,968 (113,536) 26,614 =========== =========== =========== =========== =========== HIGH YIELD BOND FUND ($) Shares sold $ 735,222 $ 220,015 $ 1,149,721 $ 25,056 $ 462,208 Shares issued as reinvestment of dividends 69,372 42,924 90,648 -- 75,035 Shares redeemed (391,654) (553,239) (328,499) (1,165,012)(1) (276,571) ----------- ----------- ----------- ----------- ----------- Net increase (decrease) $ 412,940 $ (290,300) $ 911,870 $(1,139,956) $ 260,672 =========== =========== =========== =========== ===========
---------- (1) Amounts reflect 115,804 of Class X shares, valued at $1,069,603, that were converted into Class B shares on November 17, 2000. (2) Effective November 17, 2000, Class X Shares are no longer being offered for sale.
CLASS A SHARES CLASS B SHARES --------------------------------------------------- -------------------------------------------- YEAR NINE YEAR NINE ENDED MONTHS ENDED PERIOD ENDED ENDED MONTHS ENDED PERIOD ENDED MARCH 31, MARCH 31, JUNE 30, MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000(1) 2002 2001 2000(2) ------------- --------------- --------------- ------------ ------------ ------------ ING MONEY MARKET FUND (NUMBER OF SHARES) Shares sold 747,016,244 1,150,554,753 1,169,128,592 53,297,901 68,493,003 61,428,458 Shares issued as reinvestment of dividends 896,286 1,351,356 401,613 339,135 431,723 197,336 Shares redeemed (792,532,461) (1,154,040,303) (1,094,099,819) (55,511,975) (48,838,827) (49,590,590) ------------- --------------- --------------- ------------ ------------ ------------ Net increase (decrease) in shares outstanding (44,619,931) (2,134,194) 75,430,386 (1,874,939) 20,085,899 12,035,204 ============= =============== =============== ============ ============ ============ ING MONEY MARKET FUND ($) Shares sold $ 747,016,244 $ 1,150,554,753 $ 1,169,128,592 $ 53,297,901 $ 68,493,003 $ 61,428,458 Shares issued as reinvestment of dividends 896,286 1,351,356 401,613 339,135 431,723 197,336 Shares redeemed (792,532,461) (1,154,036,641) (1,094,099,819) (55,511,975) (48,838,828) (49,590,590) ------------- --------------- --------------- ------------ ------------ ------------ Net increase (decrease) $ (44,619,931) $ (2,130,532) $ 75,430,386 $ (1,874,939) $ 20,085,898 $ 12,035,204 ============= =============== =============== ============ ============ ============ CLASS C SHARES ---------------------------------------------- YEAR NINE ENDED MONTHS ENDED PERIOD ENDED MARCH 31, MARCH 31, JUNE 30, 2002 2001 2000(2) ------------- ------------- ------------ ING MONEY MARKET FUND (NUMBER OF SHARES) Shares sold 148,663,160 223,189,271 63,807,062 Shares issued as reinvestment of dividends 185,657 261,553 62,389 Shares redeemed (165,850,469) (201,473,468) (58,438,711) ------------- ------------- ------------ Net increase (decrease) in shares outstanding (17,001,652) 21,977,356 5,430,740 ============= ============= ============ ING MONEY MARKET FUND ($) Shares sold $ 148,663,160 $ 223,189,271 $ 63,807,062 Shares issued as reinvestment of dividends 185,657 261,553 62,389 Shares redeemed (165,850,469) (201,473,468) (58,438,711) ------------- ------------- ------------ Net increase (decrease) $ (17,001,652) $ 21,977,356 $ 5,430,740 ============= ============= ============
---------- (1) Class A Shares commenced operations on July 12, 1999. (2) Class B and C Shares commenced operations on November 24, 1999. 54 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 $381,646, that were converted into Class B shares on November 17, 2000. (2) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 55 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) --------------------------------------------------------------------------------
CLASS A SHARES ----------------------------------------------- YEAR THREE ENDED MONTHS ENDED YEAR ENDED MARCH 31, MARCH 31, DECEMBER 31, 2002 2001 2000 ------------- ------------- ------------- MONEY MARKET TRUST (NUMBER OF SHARES) Shares sold 28,781,871 16,156,660 85,250,442 Shares issued as reinvestment of dividends 1,227,271 724,771 4,121,169 Shares redeemed (37,963,635) (16,555,408) (124,370,412) ------------- ------------- ------------- Net increase (decrease) in shares outstanding (7,954,493) 326,023 (34,998,801) ============= ============= ============= MONEY MARKET TRUST ($) Shares sold $ 28,781,871 $ 16,156,660 $ 85,250,442 Shares issued as reinvestment of dividends 1,227,271 724,771 4,121,169 Shares redeemed (37,963,635) (16,555,408) (124,370,412) ------------- ------------- ------------- Net increase (decrease) $ (7,954,493) $ 326,023 $ (34,998,801) ============= ============= =============
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. 56 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- 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-EXEMPT TAX RETURN INCOME INCOME OF CAPITAL ----------- ----------- ----------- GNMA Fund $31,300,756 $ -- $ -- National Tax-Exempt Bond Fund -- 943,795 -- 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 -- -- High Yield Bond Fund 3,441,800 -- -- ING Money Market Fund 1,822,608 -- -- ING Classic Money Market Fund 15,221,461 -- -- Money Market Trust 1,276,180 -- -- The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains, foreign currency transactions, organization costs and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. To the extent distributions exceed net investment income and/or net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. Accordingly, the following amounts have been increased (decreased) through reclassification as of March 31, 2002:
PAID-IN UNDISTRIBUTED NET ACCUMULATED NET REALIZED CAPITAL INVESTMENT INCOME GAINS (LOSSES) ON INVESTMENTS ----------- ----------------- ----------------------------- GNMA Fund $ -- $ 1,022,962 $(1,022,962) National Tax-Exempt Bond Fund 260 (260) -- 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) High Yield Bond Fund 1,090 (1,090) -- ING Money Market Fund -- 3,763 (3,763) ING Classic Money Market Fund (284) 27,700 (27,416) Money Market Trust -- 271 (271)
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 High Yield Bond Fund 5,388,610 2008 - 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 TAX-EXEMPT LONG-TERM INCOME INCOME CAPITAL GAINS ---------- ---------- ------------- GNMA Fund $3,756,752 $ -- $ -- National Tax-Exempt Bond Fund -- 3,160 65,693 Intermediate Bond Fund 482,366 -- 53,053 Strategic Income Fund 378,682 -- -- High Yield Opportunity Fund 1,061,218 -- -- High Yield Bond Fund 53,725 -- -- ING Money Market Fund 145,156 -- -- Money Market Trust 1,522 -- -- 57 NOTES TO FINANCIAL STATEMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- 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 High Yield Bond Fund 369,001 ING Money Market Fund 6,037 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, High Yield Opportunity Fund and ING Money Market Fund; October 31 for National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Bond Fund and ING Classic Money Market Fund; December 31 for GNMA Fund and Money Market Trust. This change was done to facilitate the administration of the Funds. 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. 58 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.
PRINCIPAL INITIAL PERCENT AMOUNT/ ACQUISITION OF NET FUND SECURITY SHARES DATE COST VALUE ASSETS ---- -------- ---------- ----------- ----------- ----------- ------- Strategic East Coast Power LLC, 7.536%,due 06/30/17 $ 78,000 04/14/99 $ 78,000 $ 68,132 0.13% Income Enersis S.A.(Chile)6.600%, due 12/01/26 20,000 02/23/99 19,074 19,889 0.04% FHLMC, 9.000%, due 06/01/06 3,753 01/24/97 3,840 3,815 0.01% FHLMC, 10.000%, due 10/01/03 4,574 01/23/96 4,687 4,724 0.01% FNMA, 9.500%, due 06/01/05 5,696 12/11/97 5,839 5,787 0.01% FNMA, 9.500%, due 07/01/06 5,593 01/29/96 5,782 5,782 0.01% FNMA, 9.500%, due 05/01/07 6,895 04/01/97 7,082 7,034 0.01% GNMA, 8.500%, due 02/15/21 1,425 04/01/97 1,471 1,546 0.00% North Atlantic Trading, Inc. 21,444 04/11/01 161,409 337,743 0.66% North Atlantic Trading, Inc. Warrants 250 04/11/01 -- 3 0.00% Simula, Inc., 8.000%, due 05/01/04 432,000 01/04/01 280,837 302,400 0.59% Tricom S.A. 11.375%,due 09/01/04 250,000 07/08/98 245,795 185,625 0.36% Unikredit Realkredit, 6.000%, due 07/01/29 977 10/16/98 149 111 0.00% ----------- ----------- ----- 813,965 942,591 1.83% =========== =========== ===== High Yield Dayton Superior Corp. Warrants 3,100 08/10/00 -- 31,000 0.02% Mpower Holding Corp. 900 06/28/99 3,897 36 0.00% Travelcenters America Inc. Warrants 3,000 01/31/01 34,739 30,750 0.02% ----------- ----------- ----- 38,636 61,786 0.04% =========== =========== ===== High Yield Opportunity Cellnet Data Systems, Inc. Warrants 10,000 09/24/97 -- 100 0.00% CHC Helicopter Corp. 2,000 12/14/00 12,358 33,460 0.01% Comforce Corp. Warrants 92,950 12/23/98 -- 930 0.00% Electronic Retailing System Warrants 100 03/31/00 -- 1 0.00% ICG Services, Inc., 10.000%, due 02/15/08 3,600,000 03/06/00 2,748,329 198,000 0.08% Int'l Utility Structures, Inc. Warrants 10,000 06/28/01 -- -- 0.00% Int'l Utility Structures, Inc., 10.750%, due 02/01/08 1,725,000 12/10/01 991,782 948,750 0.41% Int'l Utility Structures, Inc., 13.000%, due 02/01/08 2,456,000 08/01/01 828,382 675,400 0.29% International Fast Food Corp. 220,738 11/04/97 14,676,275 -- 0.00% International Wireless Communications Holdings, Inc. 483,445 08/09/96 8,452,566 4,834 0.00% Jordan Telecommunications 2,350 01/31/00 -- 122,200 0.05% Metromedia Intl. Group,Inc., 10.500%, due 09/30/07 9,581,938 05/24/98 9,571,273 4,886,788 2.09% North Atlantic Trading Co. 740,726 06/18/97 15,363,580 11,666,434 5.00% North Atlantic Trading Co. Warrants 5,480 06/18/97 210,003 55 0.00% Orion Refining Corp. 866,408 12/10/98 409,800 8,664 0.00% Packaged Ice, Inc. Warrants 21,705 04/11/97 653,333 234,414 0.10% Poland Telekom, Inc. Warrants 7,000 03/31/99 -- -- 0.00% SA Telecommunications, Inc., 10.000% due 08/15/06 3,800,000 03/24/97 3,230,000 -- 0.00% SA Telecommunications, Inc., 10.000% due 08/15/06 5,000,000 08/11/97 3,500,000 -- 0.00% SA Telecommunications, Inc., 10.000% due 08/15/06 8,500,000 08/06/96 8,500,000 -- 0.00% Simula, Inc., 8.000%, due 05/01/04 3,000,000 04/24/97 3,000,000 2,100,000 0.90% Travelcenters of America, Inc. Warrants 6,000 11/09/00 69,519 61,500 0.03% US Interactive Warrants 3,833 06/01/99 -- -- 0.00% US Interactive, 12.000%, due 04/17/05 8,267,451 04/07/98 8,267,451 796,156 0.34% Westways Funding II Ltd.,18.370% due 01/29/03 500,000 01/27/98 500,000 150,000 0.06% ----------- ----------- ----- 80,984,651 21,887,686 9.36% =========== =========== =====
59 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 NATIONAL TAX-EXEMPT BOND FUND Class A $ 0.0343 May 01, 2002 Daily Class B $ 0.0282 May 01, 2002 Daily Class C $ 0.0279 May 01, 2002 Daily 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 HIGH YIELD BOND FUND Class A $ 0.0545 May 01, 2002 Daily Class B $ 0.0493 May 01, 2002 Daily Class C $ 0.0492 May 01, 2002 Daily ING MONEY MARKET FUND Class A $ 0.0007 May 01, 2002 Daily Class B $ 0.0000 May 01, 2002 Daily Class C $ 0.0000 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 MONEY MARKET TRUST Class A $ 0.0007 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. 60 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 61 ING National Tax-Exempt Bond PORTFOLIO OF INVESTMENTS as of March 31, 2002 -------------------------------------------------------------------------------- Principal Amount Security Ratings(1) Value -------------------------------------------------------------------------------- MUNICIPAL SECURITIES: 97.77% CALIFORNIA: 4.12% $1,000,000 California State General Obligation, 5.000%, due 02/01/14 A1/A+ $ 1,006,500 ----------- COLORADO: 4.21% 1,000,000 Interlocken Metropolitan District Colorado Reference, Series A, 5.750%, due 12/15/19 NR/AA 1,027,240 ----------- CONNECTICUT: 4.28% 1,000,000 Connecticut State General Obligation, Series B, 5.500%, due 11/01/18 Aa2/AA 1,044,210 ----------- FLORIDA: 4.16% 1,000,000 Florida State Board of Education, Series A, MBIA Insured, 5.000%, due 06/01/14 NR/AAA 1,015,690 ----------- ILLINOIS: 13.83% 1,000,000 Chicago Illinois Board of Education, Chicago School Reform, AMBAC Insured 5.750%, due 12/01/27 Aaa/AAA 1,027,420 1,000,000 Chicago Illinois Skyway Toll Bridge, 5.500%, due 01/01/31 Aaa/AAA 1,001,780 1,250,000 De Kalb Ogle Etc. Counties, Illinois Community College District No. 523, FSA Insured, 5.750%, due 02/01/11 Aaa/NR 1,346,638 ----------- 3,375,838 ----------- INDIANA: 4.10% 1,000,000 Indianapolis Industrial Local Public Improvement Board, 5.750%, due 02/01/29 NR/AA 1,000,600 ----------- MASSACHUSETTS: 4.10% 1,000,000 Massachusetts State Port Authority Revenue, Series C, 5.750%, due 07/01/29 Aa3/A+ 1,000,240 ----------- NEVADA: 4.65% 1,100,000 Washoe County Nevada Gas & Water Facilities, 6.300%, due 12/01/14 Aaa/AAA 1,134,309 ----------- NEW YORK: 4.32% 1,000,000 New York State Dormitory Authority Revenue, Series A, FSA Insured, 5.500%, due 07/01/15 Aaa/AAA 1,053,200 ----------- OKLAHOMA: 8.43% 1,000,000 Oklahoma State Industrial Authority Revenue Reference, Health System Obligation Group, Series A, 6.000%, due 08/15/19 Aaa/AAA 1,051,220 1,000,000 Payne County Oklahoma Economic Development Authority, Student Housing Revenue, Collegiate Housing Foundation, Series A, 6.375%, due 06/01/30 Baa3/NR 1,006,090 ----------- 2,057,310 ----------- PENNSYLVANIA: 12.70% 1,000,000 Allegheny County Pennsylvania Port Authority Special Revenue, MBIA Insured, 6.000%, due 03/01/24 Aaa/AAA 1,107,980 1,000,000 Pennsylvania State Finance Authority, 6.600%, due 11/01/09 NR/A 1,068,990 1,000,000 Philadelphia Pennsylvania Hospitals & Higher Education Facilities Authority Revenue, Jefferson Health System, 5.000%, due 05/15/18 A1/AA- 922,260 ----------- 3,099,230 ----------- RHODE ISLAND: 8.25% 1,000,000 Rhode Island Clean Water Finance Agency Revenue, 5.000%, due 10/01/14 Aaa/AAA 1,012,090 1,000,000 Rhode Island State & Providence Plantations, 5.000%, due 06/01/15 Aaa/AAA 1,001,750 ----------- 2,013,840 ----------- TEXAS: 8.54% 1,000,000 Laredo Texas Independent School District, General Obligation, PSF Guaranteed, 5.500%, due 08/01/20 Aaa/AAA 1,014,690 1,050,000 San Felipe Del Rio Texas Independent School District, General Obligation, PSF Guaranteed, 5.500%, due 08/15/19 Aaa/AAA 1,069,330 ----------- 2,084,020 ----------- WASHINGTON: 7.75% 1,000,000 Seattle Washington Municipal Light & Power Revenue, Series B, MBIA Insured, 5.000%, due 06/01/24 Aaa/AAA 943,770 1,000,000 Washington State General Obligation, Series A, 5.000%, due 07/01/26 Aaa/AAA 948,900 ----------- 1,892,670 ----------- WEST VIRGINIA: 4.33% 1,000,000 West Virginia State Hospital Finance Authority, Hospital Revenue, Oak Hill Hospital, Series B, 6.750%, due 09/01/30 A2/NR 1,057,390 ----------- Total Municipal Securities (Cost $23,168,475) 23,862,287 ----------- Principal Amount Security Value -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 1.08% REPURCHASE AGREEMENT: 1.08% 263,000 State Street Repurchase Agreement dated 03/28/02, 1.820% due 04/01/02, $263,053 to be received upon repurchase (Collateralized by $265,000 FNMA 4.550%, Market Value $269,230, due 07/23/03) 263,000 ----------- Total Short-Term Investments (Cost $263,000) 263,000 ----------- TOTAL INVESTMENTS IN SECURITIES (COST $23,431,475)* 98.85% $24,125,287 OTHER ASSETS AND LIABILITIES-NET 1.15% 279,517 ------ ----------- NET ASSETS 100.00% $24,404,804 ====== =========== * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 747,339 Gross Unrealized Depreciation (53,527) ----------- Net Unrealized Appreciation $ 693,812 =========== (1) Credit ratings are provided by Moody's Investor Service , Inc. and Standard & Poor's Rating Group (unaudited). See Accompanying Notes to Financial Statements 62 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 63 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 64 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 65 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 66 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 67 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 68 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 69 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 70 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 71 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 72 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 73 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 74 ING High Yield Bond Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 -------------------------------------------------------------------------------- Principal Amount Security Value -------------------------------------------------------------------------------- CORPORATE BONDS: 90.70% AEROSPACE/DEFENSE: 0.99% $ 500,000 BE Aerospace, Inc., 8.875%, due 05/01/11 $ 465,000 ------------ AIRLINES: 1.70% 250,000 Amtran, Inc., 9.625%, due 12/15/05 196,875 250,000 Continental Airlines, Inc., 8.000%, due 12/15/05 236,250 125,000 Delta Air Lines, Inc., 7.700%, due 12/15/05 123,072 250,000 Northwest Airlines, Inc., 8.875%, due 06/01/06 238,269 ------------ 794,466 ------------ AUTO PARTS & EQUIPMENT: 2.67% 375,000 # Collins & Aikman Products, 10.750%, due 12/31/11 380,625 500,000 # CSK Auto, Inc., 12.000%, due 06/15/06 532,500 325,000 # Dana Corp., 10.125%, due 03/15/10 339,625 ------------ 1,252,750 ------------ BEVERAGES: 0.77% 350,000 Constellation Brands, Inc., 8.125%, due 01/15/12 358,750 ------------ CHEMICALS: 4.19% 450,000 EquiStar Chemicals LP/EquiStar Funding Corp., 10.125%, due 09/01/08 465,750 600,000 IMC Global, Inc., 10.875%, due 06/01/08 666,750 300,000 Lyondell Chemical Co., 9.625%, due 05/01/07 308,250 500,000 # OM Group, Inc., 9.250%, due 12/15/11 522,500 ------------ 1,963,250 ------------ COMMERCIAL SERVICES: 3.58% 300,000 # Coinmach Corp., 9.000%, due 02/01/10 310,500 500,000 @@ Quebecor Media, Inc., 11.125%, due 07/15/11 545,000 750,000 United Rentals, Inc., 10.750%, due 04/15/08 821,250 ------------ 1,676,750 ------------ COSMETICS/PERSONAL CARE: 1.71% 750,000 Armkel LLC, 9.500%, due 08/15/09 802,500 ------------ DIVERSIFIED FINANCIAL SERVICES: 0.58% 250,000 Nexstar Finance LLC, 12.000%, due 04/01/08 270,000 ------------ ELECTRIC: 1.71% 1,000,000 @@ Calpine Canada Energy Finance, 8.500%, due 05/01/08 798,555 ------------ ENTERTAINMENT: 2.22% 450,000 Argosy Gaming Co., 9.000%, due 09/01/11 477,000 325,000 International Game Technology, 8.375%, due 05/15/09 339,625 225,000 Penn National Gaming, Inc., 8.875%, due 03/15/10 225,000 ------------ 1,041,625 ------------ ENVIRONMENTAL CONTROL: 2.06% 950,000 # Allied Waste North America, 8.500%, due 12/01/08 964,250 ------------ FOOD: 6.38% 750,000 Domino's, Inc., 10.375%, due 01/15/09 806,250 800,000 Fleming Cos., Inc., 10.125%, due 04/01/08 840,000 750,000 Michael Foods, Inc., 11.750%, due 04/01/11 821,250 250,000 Pilgrims Pride Corp., 9.625%, due 09/15/11 263,750 250,000 Smithfield Foods, Inc., 8.000%, due 10/15/09 255,625 ------------ 2,986,875 ------------ FOREST PRODUCTS & PAPER: 3.22% 500,000 # Appleton Papers, Inc., 12.500%, due 12/15/08 492,500 250,000 @@,# Tembec Industries, Inc., 7.750%, due 03/15/12 245,938 250,000 @@ Tembec Industries, Inc., 8.500%, due 02/01/11 256,875 500,000 @@ Tembec Industries, Inc., 8.625%, due 06/30/09 513,750 ------------ 1,509,063 ------------ HEALTHCARE-SERVICES: 4.27% 500,000 # Coventry Health Care, Inc., 8.125%, due 02/15/12 504,375 600,000 HCA, Inc., 8.750%, due 09/01/10 658,500 800,000 Healthsouth Corp., 8.375%, due 10/01/11 836,000 ------------ 1,998,875 ------------ HOLDING COMPANIES-DIVERSIFIED: 1.17% 500,000 @@ Yell Finance, 10.750%, due 08/01/11 547,500 ------------ HOME BUILDERS: 1.82% 300,000 MDC Holdings, Inc., 8.375%, due 02/01/08 307,500 500,000 WCI Communities, Inc., 10.625%, due 02/15/11 542,500 ------------ 850,000 ------------ HOUSEHOLD PRODUCTS/WARES: 0.57% 250,000 American Greetings, 11.750%, due 07/15/08 265,000 ------------ IRON/STEEL: 2.15% 995,000 AK Steel Corp., 7.875%, due 02/15/09 1,007,437 ------------ LODGING: 6.27% 500,000 Ameristar Casinos, Inc., 10.750%, due 02/15/09 551,250 700,000 Mandalay Resort Group, 9.500%, due 08/01/08 759,500 500,000 MGM Mirage, 8.375%, due 02/01/11 515,000 250,000 MGM Mirage, 8.500%, due 09/15/10 261,223 100,000 Mirage Resorts, Inc., 6.750%, due 08/01/07 94,327 500,000 # Park Place Entertainment Corp., 7.875%, due 03/15/10 496,875 250,000 Station Casinos, Inc., 8.375%, due 02/15/08 258,750 ------------ 2,936,925 ------------ See Accompanying Notes to Financial Statements 75 ING High Yield Bond Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- Principal Amount Security Value -------------------------------------------------------------------------------- MEDIA: 14.47% $ 250,000 Adelphia Communications, 10.250%, due 11/01/06 $ 233,750 375,000 Adelphia Communications, 10.250%, due 06/15/11 341,250 500,000 Adelphia Communications, 10.500%, due 07/15/04 495,000 500,000 # American Media Operation, Inc., 10.250%, due 05/01/09 520,000 750,000 @@ CanWest Media, Inc., 10.625%, due 05/15/11 828,750 500,000 Charter Communications Holdings LLC, 8.250%, due 04/01/07 455,000 750,000 # Charter Communications Holdings LLC, 9.625%, due 11/15/09 716,250 250,000 Charter Communications Holdings LLC, 10.750%, due 10/01/09 250,000 400,000 @@,# Corus Entertainment, Inc., 8.750%, due 03/01/12 415,000 200,000 Cumulus Media, Inc., 10.375%, due 07/01/08 215,750 250,000 Granite Broadcasting Corp., 10.375%, due 05/15/05 231,250 125,000 Insight Communications, 12.250%, due 02/15/11 82,500 250,000 + LIN Holdings Corp., 0/10.000%, due 03/01/08 223,750 250,000 LIN Television Corp., 8.375%, due 03/01/08 250,000 875,000 Mediacom Broadband LLC, 11.000%, due 07/15/13 971,250 200,000 STC Broadcasting, Inc., 11.000%, due 03/15/07 208,250 75,000 Young Broadcasting, Inc., 9.000%, due 01/15/06 76,312 250,000 Young Broadcasting, Inc., 10.000%, due 03/01/11 261,250 ------------ 6,775,312 ------------ MINING: 0.90% 400,000 # Compass Minerals Group, Inc., 10.000%, due 08/15/11 423,500 ------------ OIL & GAS: 3.80% 500,000 Nuevo Energy Co., 11.800%, due 10/01/10 490,000 550,000 Parker Drilling Co., 9.750%, due 11/15/06 569,250 700,000 Westport Resources Corp., 8.250%, due 11/01/11 722,750 ------------ 1,782,000 ------------ OIL & GAS SERVICES: 2.62% 450,000 Grant Prideco, Inc., 9.625%, due 12/01/07 470,250 750,000 # Hanover Equipment, 8.500%, due 09/01/08 757,500 ------------ 1,227,750 ------------ PACKAGING & CONTAINERS: 3.16% 250,000 # Graphic Packaging Corp., 8.625%, due 02/15/12 260,625 200,000 @@ Norampac, Inc., 9.500%, due 02/01/08 213,500 700,000 # Owens-Brockway, 8.875%, due 02/15/09 717,500 300,000 Owens-Illinois, Inc., 7.150%, due 05/15/05 288,000 ------------ 1,479,625 ------------ PHARMACEUTICALS: 1.97% 500,000 AmerisourceBergen Corp., 8.125%, due 09/01/08 525,000 400,000 @@ Biovail Corp., 7.875%, due 04/01/10 399,500 ------------ 924,500 ------------ REITS: 1.19% 275,000 Felcor Lodging LP, 9.500%, due 09/15/08 290,125 250,000 # Felcor Lodging LP, 9.500%, due 09/15/08 266,250 ------------ 556,375 ------------ RETAIL: 5.63% 500,000 # Advance Stores Co., Inc., 10.250%, due 04/15/08 531,250 500,000 Dillard's, Inc., 6.430%, due 08/01/04 489,640 350,000 Dollar General Corp., 8.625%, due 06/15/10 329,385 100,000 JC Penney Co., Inc., 6.125%, due 11/15/03 99,545 300,000 JC Penney Co., Inc., 7.375%, due 06/15/04 297,179 494,000 ShopKo Stores, Inc., 6.500%, due 08/15/03 486,590 400,000 Tricon Global Restaurants, Inc., 7.650%, due 05/15/08 402,000 ------------ 2,635,589 ------------ TELECOMMUNICATIONS: 8.25% 125,000 + AirGate PCS, Inc., 0/13.500%, due 10/01/09 83,750 125,000 American Cellular Corp., 9.500%, due 10/15/09 92,500 750,000 Crown Castle Intl. Corp., 10.750%, due 08/01/11 678,750 125,000 Dobson Communications Corp., 10.875%, due 07/01/10 120,625 250,000 EchoStar Broadband Corp., 10.375%, due 10/01/07 269,375 750,000 # EchoStar DBS Corp., 9.125%, due 01/15/09 776,250 500,000 Insight Midwest LP/Insight Capital, Inc., 10.500%, due 11/01/10 545,000 750,000 Nextel Communications, Inc., 9.375%, due 11/15/09 500,625 375,000 # PanAmSat Corp., 8.500%, due 02/01/12 375,000 125,000 # Rural Cellular Corp., 9.750%, due 01/15/10 103,750 250,000 Triton PCS, Inc., 8.750%, due 11/15/11 233,750 125,000 + US Unwired, Inc., 0/13.375%, due 11/01/09 83,125 ------------ 3,862,500 ------------ See Accompanying Notes to Financial Statements 76 ING High Yield Bond Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- Principal Amount Security Value -------------------------------------------------------------------------------- TEXTILES: 0.68% $ 300,000 # Interface, Inc., 10.375%, due 02/01/10 $ 316,875 ------------ Total Corporate Bonds (Cost $41,741,315) 42,473,597 ------------ Shares -------------------------------------------------------------------------------- PREFERRED STOCK: 2.18% MEDIA: 2.18% 993,700 CSC Holdings, Inc. 1,021,027 ------------ TELECOMMUNICATIONS: 0.00% 373 @,X O Sullivan Industries, Inc. 4 ------------ Total Preferred Stock (Cost $1,305,381) 1,021,031 ------------ Principal Amount -------------------------------------------------------------------------------- WARRANTS: 0.00% TELECOMMUNICATIONS: 0.00% 500 @,@@ GT Group Telecom, Inc. Exp. 02/01/10 1,250 1,000 @,X O Sullivan Industries, Inc. Exp. 10/15/09 10 ------------ 1,260 ------------ Total Warrants (Cost $0) 1,260 ------------ Total Long-Term Investments (Cost $43,046,696) 43,495,888 ------------ Principal Amount Value -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 11.03% REPURCHASE AGREEMENT: 11.03% $5,168,000 State Street Repurchase Agreement dated 03/28/02, 1.820% due 04/01/02, $5,169,045 to be received upon repurchase (Collateralized by $5,210,000 SLMA, 3.010% Market Value $5,274,281 due 04/25/03) $ 5,168,000 ------------ Total Short-Term Investments (Cost $5,168,000) 5,168,000 ------------ TOTAL INVESTMENTS IN SECURITIES (COST $48,214,696)* 103.91% $ 48,663,888 OTHER ASSETS AND LIABILITIES-NET -3.91% (1,833,338) ------ ------------ NET ASSETS 100.00% $ 46,830,550 ====== ============ @ 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. X Fair value determined by ING Valuation Committee appointed by the Funds' Board of Directors/Trustees. * Cost for federal income tax purposes is $48,218,446. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 1,316,207 Gross Unrealized Depreciation (870,765) ------------ Net Unrealized Appreciation $ 445,442 ============ See Accompanying Notes to Financial Statements 77 ING Money Market Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- COMMERCIAL PAPER: 93.62% $2,500,000 AIG Funding, Inc., 1.780%, due 04/15/02 $ 2,498,269 1,100,000 Alfa Corp., 1.800%, due 04/08/02 1,099,615 1,400,000 Alfa Corp., 1.820%, due 04/08/02 1,399,505 1,848,000 American Express Corp., 1.820%, due 05/07/02 1,844,637 2,000,000 American Honda Finance, 1.780%, due 04/10/02 1,999,110 500,000 American Honda Finance, 1.780%, due 04/26/02 499,382 2,500,000 Coca Cola Co., 1.740%, due 04/02/02 2,499,879 2,000,000 Cooperation Association of Tractor Dealers, Inc., 1.830%, due 04/12/02 1,998,882 2,600,000 Corporation One Credit Union, 1.830%, due 04/16/02 2,598,018 1,700,000 Gannett, Inc., 1.800%, due 04/22/02 1,698,215 700,000 General Electric Capital Services Corp., 1.790%, due 04/16/02 699,478 700,000 General Electric Capital Services Corp., 1.840%, due 05/17/02 698,354 2,500,000 General Revenue Corp., 1.770%, due 04/01/02 2,500,000 1,500,000 Goldman Sachs Group, 1.770%, due 04/01/02 1,500,000 2,800,000 Great West Life & Annuity Insurance, 1.830%, due 04/29/02 2,796,014 2,500,000 Knight Ridder, Inc., 1.780%, due 04/24/02 2,497,157 2,500,000 Kraft Foods, Inc., 1.800%, due 05/06/02 2,495,625 3,000,000 McGraw Hill, Inc., 1.750%, due 05/23/02 2,992,417 3,100,000 Metlife Funding, Inc., 1.720%, due 04/02/02 3,099,852 2,500,000 Mid-States Bank, 1.840%, due 04/25/02 2,496,933 2,500,000 New York Times, 1.800%, due 05/13/02 2,494,750 1,000,000 Nike, Inc., 1.810%, due 05/01/02 998,492 3,300,000 Paccar Financial Corp., 1.770%, due 04/29/02 3,295,457 2,000,000 Philip Morris Cos, Inc., 1.800%, due 04/23/02 1,997,800 1,375,000 Prudential Funding Corp., 1.810%, due 05/07/02 1,372,511 2,200,000 Salomon Smith Barney Holdings, Inc., 1.840%, due 04/03/02 2,199,775 2,400,000 Schering Corp., 1.730%, due 04/18/02 2,398,039 2,500,000 Systems United Corp., 1.840%, due 04/23/02 2,497,189 2,500,000 USAA Capital Corp., 1.750%, due 04/26/02 2,496,962 1,200,000 Verizon Network, 1.790%, due 05/07/02 1,197,852 1,235,000 Verizon Network, 1.800%, due 05/10/02 1,232,592 2,800,000 Wisconsin Corp. Central Credit Union, 1.830%, due 04/16/02 2,797,865 ------------ Total Commercial Paper (Cost $64,890,626) 64,890,626 ------------ U.S. TREASURY OBLIGATIONS: 2.71% $1,900,000 U.S. Treasury Bill, 2.030%, due 09/26/02 $ 1,880,929 ------------ Total U.S. Treasury Obligations (Cost $1,880,929) 1,880,929 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS: 3.59% 2,500,000 Federal Home Loan Bank Discount Note, 1.820%, due 06/07/02 2,491,532 ------------ Total U.S. Government Agency Obligations (Cost $2,491,532) 2,491,532 ------------ REPURCHASE AGREEMENT: 0.06% $ 38,000 State Street Repurchase Agreement dated 3/28/02, 1.620% due 4/01/02, $ 38,007 to be received upon repurchase (Collateralized by $40,000 U.S. Treasury Note 6.875% Market Value $44,198 due 05/15/06) $ 38,000 ------------ Total Repurchase Agreement (Cost $38,000) 38,000 ------------ TOTAL INVESTMENTS IN SECURITIES (COST $ 69,301,087)* 99.98% 69,301,087 OTHER ASSETS AND LIABILITIES-NET 0.02% 10,905 ------ ------------ NET ASSETS 100.00% $ 69,311,992 ====== ============ * ALSO REPRESENTS COST FOR INCOME TAX PURPOSES. See Accompanying Notes to Financial Statements 78 ING Money Market Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- Percentage of Industry Net Assets -------------------------------------------------------------------------------- Athletic Footwear 1.44% Beverages -- Non Alcoholic 3.60% Diversified Financial Services 9.14% Diversified Operations 3.60% Finance -- Auto Loans 8.36% Finance -- Invesment Banker/Broker 5.33% Finance-Credit Card 2.66% Food -- Miscellaneous/Diversified 3.60% Government Agency 3.60% Life/Health Insurance 4.04% Medical-Wholesale Drug Distributor 3.46% Multi-Line Insurance 7.21% Multimedia 6.77% Publishing -- Newspapers 7.20% S&L/Thrifts-Central U.S. 11.38% S&L/Thrifts-Western U.S. 3.60% Special Purpose Entity 9.34% Tobacco 2.88% U.S. Government 2.71% Repurchase Agreement 0.06% Other Assets and Liabilities, Net 0.02% ------ NET ASSETS 100.00% ====== See Accompanying Notes to Financial Statements 79 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 80 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 81 ING Lexington Money Market Trust Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 -------------------------------------------------------------------------------- Principal Amount Value -------------------------------------------------------------------------------- COMMERCIAL PAPER: 76.09% $ 2,500,000 Alfa Corp., 1.800%, due 04/08/02 $ 2,499,125 2,100,000 American Honda Finance, 1.780%, due 04/18/02 2,098,235 2,000,000 Cooperative Association Tractor Dealers, 1.880%, due 04/09/02 1,999,164 1,900,000 Corporate One Credit Union, 1.830%, due 04/16/02 1,898,551 2,500,000 General Electric Capital Corp., 1.840%, due 05/17/02 2,494,122 2,200,000 General Reinsurance Corp., 1.790%, due 05/31/02 2,193,437 1,900,000 Goldman Sachs Group LP, 1.780%, due 05/01/02 1,897,182 2,000,000 Knight Ridder, Inc., 1.780%, due 04/24/02 1,997,726 2,300,000 Kraft Foods, Inc., 1.800%, due 05/23/02 2,294,020 2,004,000 McGraw Hill, Inc., 1.750%, due 05/23/02 1,998,934 1,600,000 Met Life Funding, Inc., 1.720%, due 04/02/02 1,599,924 1,400,000 Mid States Corp. Federal Credit Union, 1.840%, due 04/25/02 1,398,283 1,100,000 Mid States Corp. Federal Credit Union, 1.850%, due 04/15/02 1,099,209 2,000,000 Minnesota Mining + Manufacturing Co., 1.760%, due 04/23/02 1,997,848 2,000,000 Paccar Financial Corp., 1.800%, due 05/02/02 1,996,900 2,200,000 Philip Morris Cos., Inc., 1.780%, due 04/17/02 2,198,260 2,300,000 Schering Corp., 1.870%, due 06/10/02 2,291,637 1,900,000 Systems United Corp., 1.840%, due 04/23/02 1,897,864 2,300,000 USAA Capital Corp., 1.750%, due 04/26/02 2,297,205 1,677,000 Verizon Network Funding, 1.800%, due 05/06/02 1,674,065 2,200,000 Wisconsin Corp. Central Credit Union, 1.840%, due 04/16/02 2,198,312 ------------ Total Commercial Paper (Cost $42,020,003) 42,020,003 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS: 13.55% $ 2,500,000 FHLB Discount Note, 1.820%, due 06/07/02 $ 2,491,532 2,500,000 FHLMC Discount Note, 1.715%, due 05/16/02 2,494,525 2,500,000 FNMA Discount Note, 1.750%, due 05/15/02 2,494,653 ------------ Total U.S. Government Agency Obligations (Cost $7,480,710) 7,480,710 ------------ U.S. TREASURY OBLIGATIONS: 10.81% $ 2,000,000 U.S. Treasury Bill, 1.730%, due 07/11/02 $ 1,990,293 4,000,000 U.S. Treasury Bill, 1.760%, due 07/18/02 3,978,880 ------------ Total U.S. Treasury Obligations (Cost $5,969,173) 5,969,173 ------------ REPURCHASE AGREEMENTS: 0.13% $ 74,000 State Street Repurchase Agreement dated 03/28/02, 1.620% due 04/01/02, $74,013 to be received upon repurchase (Collateralized by $80,000 FHLMC, 0.000%, Market Value $79,462 due 08/09/02) $ 74,000 ------------ TOTAL INVESTMENTS IN SECURITIES (COST $55,543,886)* 100.58% $ 55,543,886 OTHER ASSETS AND LIABILITIES-NET -0.58% (321,494) ------- ------------ NET ASSETS 100.00% $ 55,222,392 ======= ============ * Also represents cost for income tax purposes. See Accompanying Notes to Financial Statements 82 ING Lexington Money Market Trust Fund PORTFOLIO OF INVESTMENTS as of March 31, 2002 (Continued) -------------------------------------------------------------------------------- Percentage of Industry Net Assets -------------------------------------------------------------------------------- Diversified Financial Services 7.55% Diversified Manufacturing 3.62% Diversified Operations 4.16% Finance - Auto Loans 7.41% Finance - Investment Banker/Broker 3.43% Food-Misc.-Diversified 4.15% Government Agency 13.55% Medical - Wholesale Drug Distribution 4.15% Multi-Line Insurance 8.50% Multimedia 3.62% Publishing - Newspapers 3.62% S&L/Thrifts - Central U.S. 11.94% S&L/Thrifts - Western U.S. 3.44% Special Purpose Entity 6.52% Tobacco 3.98% U.S. Government 10.81% Repurchase Agreements 0.13% Other Assets and Liabilities-Net -0.58% ------ NET ASSETS 100.00% ====== See Accompanying Notes to Financial Statements 83 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 SHARES AGAINST OR SHARES BROKER TOTAL 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 Lexington Money Market Trust (formerly Lexington Money Market Trust) Paul S. Doherty 30,787,411 1,482,866 -- -- 32,270,277 J. Michael Earley 30,814,265 1,456,012 -- -- 32,270,277 R. Barbara Gitenstein 30,809,528 1,460,749 -- -- 32,270,277 Walter H. May 30,803,368 1,466,909 -- -- 32,270,277 Thomas J. McInerney 30,811,413 1,458,864 -- -- 32,270,277 Jock Patton 30,812,527 1,457,750 -- -- 32,270,277 David W.C. Putnam 30,813,578 1,456,699 -- -- 32,270,277 Blaine E. Rieke 30,804,756 1,465,521 -- -- 32,270,277 Robert C. Salipante 30,812,527 1,457,750 -- -- 32,270,277 John G. Turner 30,812,527 1,457,750 -- -- 32,270,277 Roger B. Vincent 30,814,265 1,456,012 -- -- 32,270,277 Richard A. Wedemeyer 30,809,528 1,460,749 -- -- 32,270,277 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
84 SHAREHOLDER MEETING (Unaudited) (Continued) --------------------------------------------------------------------------------
SHARES VOTED SHARES AGAINST OR SHARES BROKER TOTAL VOTED FOR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ----------- --------- --------- ---------- ------------ 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 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 National Tax-Exempt Bond Fund (formerly Pilgrim National Tax-Exempt Bond Fund) Paul S. Doherty 2,276,786 5,694 -- -- 2,282,480 J. Michael Earley 2,276,786 5,694 -- -- 2,282,480 R. Barbara Gitenstein 2,276,786 5,694 -- -- 2,282,480 Walter H. May 2,276,786 5,694 -- -- 2,282,480 Thomas J. McInerney 2,276,786 5,694 -- -- 2,282,480 Jock Patton 2,276,786 5,694 -- -- 2,282,480 David W.C. Putnam 2,276,786 5,694 -- -- 2,282,480 Blaine E. Rieke 2,276,786 5,694 -- -- 2,282,480 Robert C. Salipante 2,276,786 5,694 -- -- 2,282,480 John G. Turner 2,276,786 5,694 -- -- 2,282,480 Roger B. Vincent 2,276,786 5,694 -- -- 2,282,480 Richard A. Wedemeyer 2,276,786 5,694 -- -- 2,282,480
85 SHAREHOLDER MEETING (Unaudited) (Continued) --------------------------------------------------------------------------------
SHARES VOTED SHARES AGAINST OR SHARES BROKER TOTAL VOTED FOR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ----------- --------- --------- ---------- ------------ ING High Yield Bond Fund (formerly Pilgrim High Yield Bond Fund) Paul S. Doherty 3,916,583 3,111 -- -- 3,919,694 J. Michael Earley 3,916,583 3,111 -- -- 3,919,694 R. Barbara Gitenstein 3,916,583 3,111 -- -- 3,919,694 Walter H. May 3,916,583 3,111 -- -- 3,919,694 Thomas J. McInerney 3,916,583 3,111 -- -- 3,919,694 Jock Patton 3,916,583 3,111 -- -- 3,919,694 David W.C. Putnam 3,916,583 3,111 -- -- 3,919,694 Blaine E. Rieke 3,916,583 3,111 -- -- 3,919,694 Robert C. Salipante 3,916,583 3,111 -- -- 3,919,694 John G. Turner 3,916,583 3,111 -- -- 3,919,694 Roger B. Vincent 3,916,583 3,111 -- -- 3,919,694 Richard A. Wedemeyer 3,916,583 3,111 -- -- 3,919,694 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 Money Market Fund (formerly Pilgrim Money Market Fund) Paul S. Doherty 51,722,548 3,305,462 -- -- 55,028,010 J. Michael Earley 51,722,548 3,305,462 -- -- 55,028,010 R. Barbara Gitenstein 51,710,863 3,317,147 -- -- 55,028,010 Walter H. May 51,722,548 3,305,462 -- -- 55,028,010 Thomas J. McInerney 51,722,548 3,305,462 -- -- 55,028,010 Jock Patton 51,713,631 3,314,379 -- -- 55,028,010 David W.C. Putnam 51,722,548 3,305,462 -- -- 55,028,010 Blaine E. Rieke 51,722,548 3,305,462 -- -- 55,028,010 Robert C. Salipante 51,722,523 3,305,487 -- -- 55,028,010 John G. Turner 51,722,548 3,305,462 -- -- 55,028,010 Roger B. Vincent 51,722,548 3,305,462 -- -- 55,028,010 Richard A. Wedemeyer 51,722,548 3,305,462 -- -- 55,028,010
86 SHAREHOLDER MEETING (Unaudited) (Continued) --------------------------------------------------------------------------------
SHARES VOTED SHARES AGAINST OR SHARES BROKER TOTAL VOTED FOR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ----------- --------- --------- ---------- ------------ 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 Lexington Money Market Trust 28,965,114 1,690,356 1,578,645 36,162 32,270,277 ING Classic Money Market Fund 155,266,418 4,965,212 8,329,569 27,053,329 195,614,528 ING High Yield Bond Fund 3,328,408 8,033 29,691 553,563 3,919,695 ING Intermediate Bond Fund 3,362,941 45,186 8,054 1,097,862 4,514,043 ING National Tax-Exempt Bond Fund 2,156,855 6,129 -- 119,496 2,282,480 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 Lexington Money Market Trust 29,792,266 1,102,576 1,339,273 36,162 32,270,277 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 Money Market Fund 39,286,409 383,557 3,894,511 11,463,533 55,028,010 ING Strategic Income Fund 2,751,083 9,747 33,970 1,552,018 4,346,818 4. To Confirm PricewaterhouseCoopers LLP as current independent auditors of certain Funds. ING Lexington Money Market Trust 30,263,929 868,685 1,137,663 -- 32,270,277 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 Bond Fund 3,881,156 7,935 30,603 -- 3,919,694 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 Money Market Fund 51,064,628 497,873 3,465,509 -- 55,028,010 ING National Tax-Exempt Bond Fund 2,280,036 -- 2,444 -- 2,282,480 ING Strategic Income Fund 4,301,603 12,590 32,625 -- 4,346,818
87 SHAREHOLDER MEETING (Unaudited) (Continued) --------------------------------------------------------------------------------
SHARES VOTED SHARES AGAINST OR SHARES BROKER TOTAL VOTED FOR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ----------- --------- --------- ---------- ------------ 6. To transact such other business as may properly come before the Special Meeting or any adjournment (s) or postponement(s) thereof. ING Lexington Money Market Trust 29,378,617 1,136,473 1,755,187 -- 32,270,277 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 Bond Fund 3,864,069 9,970 45,656 -- 3,919,695 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 Money Market Fund 49,929,346 539,105 4,559,559 -- 55,028,010 ING National Tax-Exempt Bond Fund 2,274,660 5,694 2,126 -- 2,282,480 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 and ING Money Market 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 Fund 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. 88 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 National Tax-Exempt Bond Fund Class A NII $0.4145 Class B NII $0.3368 Class C NII $0.3369 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 High Yield Bond Fund Class A NII $0.7809 Class B NII $0.7243 Class C NII $0.7172 ING Money Market Class A NII $0.0208 Class B NII $0.0137 Class C NII $0.0132 ING Classic Money Market Class A NII $0.0280 Class B NII $0.0220 Class C NII $0.0219 Class I NII $0.0365 ING Lexington Money Market Trust Class A NII $0.0209 ---------- 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. 89 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).
90 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).
91 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).
92 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.
93 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. 94 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)
95 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)
96 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.
97 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)
98 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)
99 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
100 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 FIABCANN033102-052002