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Rule 497(e)
Registration No. 333-59745
STATEMENT OF ADDITIONAL INFORMATION
ING Funds Trust
P.O. Box 1239
Malvern, PA 19355-9836
General and Account Information: 1-877-INFO-ING
ING MUTUAL FUNDS MANAGEMENT CO. LLC, Investment Manager
("IMFC" or the "Manager")
ING FUNDS DISTRIBUTOR, INC., Distributor and Principal Underwriter
("IFD" or the "Distributor")
This Statement of Additional Information ("SAI") describes the
shares of 20 funds (each, a "Fund" or, collectively, the "Funds") managed by
IMFC. Each Fund is a portfolio of ING Funds Trust (the "Trust"). The Funds are:
Equity Funds
ING Large Cap Growth Fund
ING Growth & Income Fund
ING Mid Cap Growth Fund
ING Small Cap Growth Fund
ING Balanced Fund
ING Global Brand Names Fund
ING International Equity Fund
ING Emerging Markets Equity Fund
ING European Equity Fund
ING Tax Efficient Equity Fund
ING Focus Fund
ING Global Information
Technology Fund
ING Global Real Estate Fund
Bond Funds
ING Intermediate Bond Fund
ING High Yield Bond Fund
ING International Bond Fund
ING Mortgage Income Fund
ING National Tax-Exempt Bond Fund
Money Market Funds
ING U.S. Treasury Money
Market Fund
ING Money Market Fund
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The SAI is not a prospectus and is only authorized for
distribution when preceded or accompanied by the prospectus for shares of the
Funds dated October 30, 1998 (the "Prospectus"). This SAI contains additional
and more detailed information than that set forth in the Prospectus and should
be read in conjunction with the Prospectus. The Prospectus may be obtained
without charge by writing or calling the Funds at the address and information
number printed above.
October 30, 1998, as supplemented on May 14, 1999
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TABLE OF CONTENTS
Page
STATEMENT OF ADDITIONAL INFORMATION............................................1
INVESTMENT POLICIES............................................................1
U.S. TREASURY OBLIGATIONS.............................................1
U.S. GOVERNMENT SECURITIES............................................1
WHEN-ISSUED AND DELAYED-DELIVERY SECURITES............................1
COMMERCIAL PAPER......................................................2
CORPORATE DEBT SECURITIES.............................................2
MORTGAGE-RELATED SECURITIES...........................................2
GNMA CERTIFICATES.....................................................3
FNMA CERTIFICATES.....................................................3
FHLMC SECURITIES......................................................3
FHLMC CERTIFICATES....................................................5
NON-AGENCY MORTGAGE-BACKED SECURITIES.................................6
ADJUSTABLE RATE MORTGAGE SECURITIES...................................6
COLLATERALIZED MORTGAGE OBLIGATIONS...................................7
REAL ESTATE SECURITIES................................................7
ASSET-BACKED SECURITIES...............................................8
FOREIGN SECURITIES....................................................9
CONVERTIBLE SECURITIES................................................9
VARIABLE RATE DEMAND OBLIGATIONS AND FLOATING RATE INSTRUMENTS.......10
GUARANTEED INVESTMENT CONTRACTS......................................11
PRIVATE FUNDS........................................................11
OPTIONS ON SECURITIES................................................11
OVER-THE-COUNTER OPTIONS.............................................13
OPTIONS ON INDICES...................................................13
FOREIGN CURRENCY OPTIONS.............................................14
DOLLAR ROLL TRANSACTIONS.............................................15
FOREIGN CURRENCY FUTURES TRANSACTIONS................................15
FOREIGN GOVERNMENT OBLIGATIONS;
SECURITIES OF SUPRANATIONAL ENTITIES........................16
INTEREST RATE FUTURES CONTRACTS......................................16
SHORT SALES..........................................................17
LOANS OF PORTFOLIO SECURITIES........................................17
REPURCHASE AGREEMENTS................................................18
BORROWING............................................................18
REVERSE REPURCHASE AGREEMENTS........................................18
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LOWER-RATED SECURITIES...............................................18
ILLIQUID SECURITIES..................................................19
INVESTMENT RESTRICTIONS..............................................21
MANAGEMENT...........................................................23
Trustees and Officers.......................................23
Trustees Biographies........................................23
Officers Biographies........................................23
Investment Manager..........................................24
Sub-Advisers................................................25
Distribution of Fund Shares.................................26
Transfer Agent, Fund Accountant and Account Services........27
Rule 12b-1 Distribution Plan................................27
Shareholder Servicing Plan..................................28
DETERMINATION OF NET ASSET VALUE.....................................28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................29
BROKER-DEALER COMPENSATION...........................................30
PORTFOLIO TRANSACTIONS...............................................31
Portfolio Turnover..........................................33
TAXATION.............................................................39
OTHER INFORMATION....................................................39
Capitalization..............................................39
Voting Rights...............................................39
Custodian...................................................40
Yield and Performance Information...........................40
Independent Auditors........................................42
Registration Statement......................................42
APPENDIX......................................................................44
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INVESTMENT POLICIES
The Prospectus discusses the investment objectives of the
Funds and the policies to be employed to achieve those objectives. This section
contains supplemental information concerning certain types of securities and
other instruments in which the Funds may invest, the investment policies and
portfolio strategies that the Funds may utilize, and certain risks attendant to
such investments, policies and strategies.
U.S. TREASURY OBLIGATIONS (All Funds). Each Fund may invest in
U.S. Treasury obligations, whose principal and interest are backed by the full
faith and credit of the United States Government. U.S. Treasury obligations
consist of bills, notes and bonds, and separately traded interest and principal
component parts of such obligations known as STRIPS, which generally differ in
their interest rates and maturities. U.S. Treasury bills, which have original
maturities of up to one year, notes, which have maturities ranging from two
years to 10 years and bonds, which have original maturities of 10 to 30 years,
are direct obligations of the United States Government.
U.S. GOVERNMENT SECURITIES (All Funds). U.S. Government
securities are obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. U.S. Government securities include debt
securities issued or guaranteed by U.S. Government-sponsored enterprises and
federal agencies and instrumentalities. Some types of U.S. Government securities
are supported by the full faith and credit of the United States Government or
U.S. Treasury guarantees, such as mortgage-backed certificates guaranteed by the
Government National Mortgage Association ("GNMA"). Other types of U.S.
Government securities, such as obligations of the Student Loan Marketing
Association, provide recourse only to the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed by
the full faith and credit of the United States Government, the investor must
look to the agency issuing or guaranteeing the obligation for ultimate
repayment.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES (All Funds). The
Funds may purchase securities on a when-issued or delayed-delivery basis. For
example, delivery of and payment for these securities can take place a month or
more after the date of the transaction. The securities so purchased are subject
to market fluctuation during this period and no income accrues to the Fund until
settlement takes place. To facilitate such acquisitions, the Funds will maintain
with the custodian a separate account with a segregated portfolio of liquid
assets in an amount at least equal to the value of such commitments. On the
delivery dates for such transactions, each Fund will meet obligations from
maturities or sales of the securities held in the separate account and/or from
cash flow. While the Funds normally enter into these transactions with the
intention of actually receiving or delivering the securities, they may sell
these securities before the settlement date or enter into new commitments to
extend the delivery date into the future, if the Sub-Adviser considers such
action advisable as a matter of investment strategy. Such securities have the
effect of leverage on the Funds and may contribute to volatility of a Fund's net
asset value.
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COMMERCIAL PAPER (All Funds except ING U.S. Treasury Money
Market Fund). Commercial paper includes short-term unsecured promissory notes,
variable rate demand notes and variable rate master demand notes issued by
domestic and foreign bank holding companies, corporations and financial
institutions and similar taxable instruments issued by government agencies and
instrumentalities. All commercial paper purchased by the Money Market Fund is,
at the time of investment, (i) rated in the highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs"),
(ii) issued or guaranteed as to principal and interest by issuers having an
existing debt security rating in the highest rating categories by a least two
NRSROs, or (iii) securities which, if not rated or single rated, are, in the
opinion of the Fund's Sub-Adviser, of an investment quality comparable to rated
commercial paper in which the Fund may invest. See "Variable Rate Demand
Obligations and Floating Rate Instruments."
CORPORATE DEBT SECURITIES (All Funds except ING U.S. Treasury
Money Market Fund). Fund investment in these securities is limited to corporate
debt securities (corporate bonds, debentures, notes and similar corporate debt
instruments) which meet the rating criteria established for each Fund.
The ratings of Standard & Poor's Corporation, Moody's
Investors Service, Inc., and other NRSROs represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices. After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such security by the Fund. However, each Fund's
Sub-Adviser will consider such event in its determination of whether the Fund
should continue to hold the security. To the extent the ratings given by an
NRSRO may change as a result of changes in such organizations or their rating
systems, the Sub-Adviser will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the
Prospectus and in this SAI.
It is possible that unregistered securities purchased by a
Fund in reliance upon Section 4(2) or Rule 144A under the Securities Act of 1933
could have the effect of increasing the level of the Fund's illiquidity to the
extent that qualified institutional buyers become, for a period, uninterested in
purchasing these securities.
MORTGAGE-RELATED SECURITIES. (All Funds except ING U.S.
Treasury Money Market Fund). To the extent permitted by the Funds' policies, the
Funds may invest in mortgage-backed securities, including those which represent
undivided ownership interests in pools of mortgages. The U.S. Government or the
issuing agency or instrumentality guarantees the payment of interest on and
principal of these securities. However, the guarantees do not extend to the
yield or value of the securities nor do the guarantees extend to the yield or
value of a Fund's shares. Consistent with the Funds' respective investment
objective and policies, mortgages backing the securities which may be
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purchased by the Funds include conventional thirty-year fixed-rate mortgages,
graduated payment mortgages, fifteen-year mortgages, adjustable rate mortgages
and balloon payment mortgages. A balloon payment mortgage-backed security is an
amortized mortgage security with installments of principal and interest, the
last installment of which is predominantly principal. All of these mortgages can
be used to create pass-through securities. A pass-through security is formed
when mortgages are pooled together and undivided interests in the pool or pools
are sold. The cash flow from the mortgages is passed through to the holders of
the securities in the form of periodic payments of interest, principal and
prepayments (net of a service fee). Prepayments occur when the holder of an
undivided mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal then their stated maturity would
indicate. The remaining expected average life of a pool of mortgage loans
underlying a mortgage-backed security is a prediction of when the mortgage loans
will be repaid and is based upon a variety of factors, such as the demographic
and geographic characteristics of the borrowers and the mortgaged properties,
the length of time that each of the mortgage loans has been outstanding, the
interest rates payable on the mortgage loans and the current interest rate
environment.
During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When mortgage obligations are prepaid, the Funds reinvest the prepaid amounts in
securities, the yields of which reflect interest rates prevailing at that time.
Therefore, a Fund's ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent that
prepayments of mortgages are reinvested in securities which have lower yields
than the prepaid mortgages. Moreover, prepayments of mortgages which underlie
securities purchased at a premium generally will result in capital losses.
GNMA CERTIFICATES. (All Funds except ING U.S. Treasury Money
Market Fund). Certificates of the Government National Mortgage Association (GNMA
Certificates) are mortgage-backed securities which evidence an undivided
interest in a pool or pools of mortgages. GNMA Certificates that the Funds may
purchase are the "modified pass-through" type, which entitle the holder to
receive timely payment of all interest and principal payments due on the
mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagor actually makes the payment. The GNMA Certificates will
represent a pro rata interest in one or more pools of the following types of
mortgage loans: (i) fixed rate level payment mortgage loans; (ii) fixed rate
graduated payment mortgage loans; (iii) fixed rate growing equity mortgage
loans; (iv) fixed rate mortgage loans secured by manufactured (mobile) homes;
(v) mortgage loans on multifamily residential properties under construction;
(vi) mortgage loans on completed multifamily projects; (vii) fixed rate mortgage
loans as to which escrowed funds are used to reduce the borrower's monthly
payments during the early years of the mortgage loans ("buydown" mortgage
loans); (viii) mortgage loans that provide for adjustments in payments based on
periodic changes in interest rates or in other payment terms of the mortgage
loans; and (ix) mortgage-backed serial notes. All of these
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mortgage loans will be FHA Loans or VA Loans and, except as otherwise specified
above, will be fully-amortizing loans secured by first liens on one-
to-four-family housing units. Legislative changes may be proposed from time to
time in relation to the Department of Housing and Urban Development which, if
adopted, could alter the viability of investing in GNMAs.
FNMA CERTIFICATES. (All Funds except ING U.S. Treasury Money
Market Fund). FNMA is a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act. FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgage loans
directly.
Each FNMA Certificate will entitle the registered holder
thereof to receive amounts, representing such holder's pro rata interest in
scheduled principal payments and interest payments (at such FNMA Certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans), and any principal prepayments on the mortgage loans
in the pool represented by such FNMA Certificate and such holder's proportionate
interest in the full principal amount of any foreclosed or otherwise finally
liquidated mortgage loan. The full and timely payment of principal and interest
on each FNMA Certificate will be guaranteed by FNMA, which guarantee is not
backed by the full faith and credit of the U.S. Government.
Each FNMA Certificate will represent a pro rata interest in
one or more pools of FHA Loans, VA Loans or conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by any governmental agency) of
the following types: (i) fixed rate level payment mortgage loans; (ii) fixed
rate growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects.
FHLMC SECURITIES (All Funds except ING U.S. Treasury Money
Market Fund). The Federal Home Loan Mortgage Corporation (FHLMC) was created in
1970 through enactment of Title III of the Emergency Home Finance Act of 1970
(FHLMC Act). Its purpose is to promote development of a nationwide secondary
market in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through
securities, mortgage participation certificates (PCs) and guaranteed mortgage
certificates (GMCs). PCs resemble GNMA Certificates in that each PC represents a
pro rata share of all interest and principal payments made and owned on the
underlying pool. The FHLMC guarantees timely monthly payment of interest on PCs
and the ultimate payment of principal.
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GMCs also represent a pro rata interest in a pool of
mortgages. However, these instruments pay interest semi-annually and return
principal once a year in guaranteed minimum payments. The expected average life
of these securities is approximately ten years.
FHLMC CERTIFICATES (All Funds except ING U.S. Treasury Money
Market Fund). FHLMC is a corporate instrumentality of the United States created
pursuant to the FHLMC Act. The principal activity of FHLMC consists of the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and the resale of the mortgage
loans so purchased in the form of mortgage securities, primarily FHLMC
Certificates.
FHLMC guarantees to each registered holder of the FHLMC
Certificate the timely payment of interest at the rate provided for by such
FHLMC Certificate, whether or not received. FHLMC also guarantees to each
registered holder of a FHLMC Certificate ultimate collection of all principal on
the related mortgage loans, without any offset or deduction, but does not,
generally, guarantee the timely payment of scheduled principal. FHLMC may remit
the amount due on account of its guarantee of collection of principal at any
time after default on an underlying mortgage loan, but not later than 30 days
following (i) foreclosure sale, (ii) payment of a claim by any mortgage insurer
or (iii) the expiration of any right of redemption, whichever occurs later, but
in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. The obligations of FHLMC under
its guarantee are obligations solely of FHLMC and are not backed by the full
faith and credit of the U.S. Government.
FHLMC Certificates represent a pro rata interest in a group of
mortgage loans (a FHLMC Certificate group) purchased by FHLMC. The mortgage
loans underlying the FHLMC Certificates will consist of fixed rate or adjustable
rate mortgage loans with original terms to maturity of between ten and thirty
years, substantially all of which are secured by first liens on one- to
four-family residential properties or multifamily projects. Each mortgage loan
must meet the applicable standards set forth in the FHLMC Act. An FHLMC
Certificate group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and participation comprising
another FHLMC Certificate group.
The market value of mortgage securities, like other
securities, will generally vary inversely with changes in market interest rates,
declining when interest rates rise and rising when interest rates decline.
However, mortgage securities, while having comparable risk of decline during
periods of rising rates, usually have less potential for capital appreciation
than other investments of comparable maturities due to the likelihood of
increased prepayments of mortgages as interest rates decline. In addition, to
the extent such mortgage securities are purchased at a premium, mortgage
foreclosures and unscheduled principal prepayments generally will result in some
loss of the holders' principal to the extent of the premium paid. On the other
hand, if such mortgage securities are purchased at a discount, an unscheduled
prepayment of principal will increase current and total returns and will
accelerate
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the recognition of income which when distributed to shareholders will be taxable
as ordinary income.
NON-AGENCY MORTGAGE-BACKED SECURITIES (All Funds except ING
U.S. Treasury Money Market Fund). Certain non-agency private entities also issue
mortgage-backed securities. Other than lacking the guarantee by the full faith
and credit of the United States, the mortgage-backed securities issued by
private issuers generally have characteristics and risks comparable to those
issued by GNMA, as discussed above. Some mortgage-backed securities issued by
non-agency private issuers may be supported by a pool of mortgages not
acceptable to the agency issuers and thus may carry greater risks. Consistent
with the Funds' investment objective, policies and quality standards, the Funds
may invest in these mortgage-backed securities issued by non-agency private
issuers.
ADJUSTABLE RATE MORTGAGE SECURITIES (All Funds except ING
International Bond Fund, ING National Tax Exempt Bond Fund and ING U.S. Treasury
Money Fund). Adjustable rate mortgage securities (ARMS) are pass-through
mortgage securities collateralized by mortgages with adjustable rather than
fixed rates. Generally, ARMS have a specified maturity date and amortize
principal over their life. In periods of declining interest rates, there is a
reasonable likelihood that ARMS will experience increased rates of prepayment of
principal. However, the major difference between ARMS and fixed rate mortgage
securities is that the interest rate and the rate of amortization of principal
of ARMS can and do change in accordance with movements in a particular,
pre-specified, published interest rate index.
The amount of interest on an ARM is calculated by adding a
specified amount, the "margin," to the index, subject to limitations on the
maximum and minimum interest that can be charged to the mortgagor during the
life of the mortgage or to maximum and minimum changes to that interest rate
during a given period. Because the interest rate on ARMS generally moves in the
same direction as market interest rates, the market value of ARMS tends to be
more stable than that of long-term fixed rate securities.
There are two main categories of indices which serve as
benchmarks for periodic adjustments to coupon rates on ARMS: those based on U.S.
Treasury securities and those derived from a calculated measure such as a cost
of funds index or a moving average of mortgage rates. Commonly utilized indices
include the one-year and five-year constant maturity Treasury Note rates, the
three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year constant maturity Treasury Note
rate, closely mirror changes in market interest rate levels. Others, such as the
11th District Home Loan Bank Cost of Funds index (often related to ARMS issued
by FNMA), tend to lag changes in market rate levels and tend to be somewhat less
volatile.
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COLLATERALIZED MORTGAGE OBLIGATIONS (All Funds except ING U.S.
Treasury Money Market Fund). Certain issuers of collateralized mortgage
obligations (CMOs), including certain CMOs that have elected to be treated as
Real Estate Mortgage Investment Conduits (REMICs), are not considered investment
companies pursuant to a rule adopted by the Securities and Exchange Commission
("SEC"), and the Funds may invest in the securities of such issuers without the
limitations imposed by the Investment Company Act of 1940, as amended (the "1940
Act"), on investments by the Funds in other investment companies. In addition,
in reliance on an earlier SEC interpretation, a Fund's investments in certain
other qualifying CMOs, which cannot or do not rely on the rule, are also not
subject to the limitation of the 1940 Act on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
these CMOs must be unmanaged, fixed asset issuers, that (a) invest primarily in
mortgage-backed securities, (b) do not issue redeemable securities, (c) operate
under general exemptive orders exempting them from all provisions of the 1940
Act and (d) are not registered or regulated under the 1940 Act as investment
companies. To the extent that a Fund selects CMOs or REMICs that cannot rely on
the rule or do not meet the above requirements, the Fund may not invest more
than 10% of its assets in all such entities and may not acquire more than 3% of
the voting securities of any single such entity.
REAL ESTATE SECURITIES (ING Global Real Estate Fund, ING
Emerging Markets Equity Fund, ING Balanced Fund, ING Intermediate Bond Fund, ING
High Yield Bond Fund, ING International Bond Fund, ING Mortgage Income Fund, and
ING National Tax-Exempt Bond Fund). The Funds may invest in REITs and other real
estate industry operating companies ("REOCs"). For purposes of a Fund's
investments, an REOC is a company that derives at least 50% of its gross
revenues or net profits from either (1) the ownership, development,
construction, financing, management or sale of commercial, industrial or
residential real estate, or (2) products or services related to the real estate
industry, such as building supplies or mortgage servicing. Investing in REITs
involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. Although the Funds will not
invest directly in real estate, the fund may invest in equity securities of
issuers primarily engaged in or related to the real estate industry. Therefore,
an investment in REITs is subject to certain risks associated with the direct
ownership of real estate and with the real estate industry in general. These
risks include, among others: possible declines in the value of real estate;
risks related to general and local economic conditions; possible lack of
availability of mortgage funds; overbuilding; extended vacancies of properties;
increases in competition, property taxes and operating expenses; changes in
zoning laws; costs resulting from the clean-up of, and liability to third
parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates. To the extent that assets underlying the REITs' investments are
concentrated geographically, by property type or in certain other respects, the
REITs may be subject to certain of the foregoing risks to a greater extent.
Equity REITs may be affected by changes in the value of the underlying property
owned by the REITs, while mortgage REITs may be affected by the quality of any
credit extended. REITs are dependent
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upon management skills, are not diversified, are subject to heavy cash flow
dependency, default by borrowers and self-liquidation. REITs are also subject to
the possibilities of failing to qualify for tax free pass-through of income
under the U.S. Internal Revenue Code and failing to maintain their exemptions
from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest
rate risks. When interest rates decline, the value of a REIT's investment in
fixed rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of a REIT's investment in fixed rate obligations can be expected
to decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investment in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated
with investing in small capitalization companies. REITs may have limited
financial resources, may trade less frequently and in a limited volume and may
be subject to more abrupt or erratic price movements than larger company
securities.
Investments in mortgage-related securities involve certain
risks. In periods of declining interest rates, prices of fixed income securities
tend to rise. However, during such periods, the rate of prepayment of mortgages
underlying mortgage-related securities tends to increase, with the result that
such prepayments must be reinvested by the issuer at lower rates. In addition,
the value of such securities may fluctuate in response to the market's
perception of the creditworthiness of the issuers of mortgage-related securities
owned by the Fund. Because investments in mortgage-related securities are
interest sensitive, the ability of the issuer to reinvest or to reinvest
favorably in underlying mortgages may be limited by government regulation or tax
policy. For example, action by the Board of Governors of the Federal Reserve
System to limit the growth of the nation's money supply may cause interest rates
to rise and thereby reduce the volume of new residential mortgages.
Additionally, although mortgages and mortgage-related securities are generally
supported by some form of government or private guarantees and/or insurance,
there is no assurance that private guarantors or insurers will be able to meet
their obligations.
ASSET-BACKED SECURITIES (All Funds except ING National
Tax-Exempt Bond Fund, ING Growth and Income Fund, ING Balanced Fund, and ING
U.S. Treasury Money Market Fund). The Funds are permitted to invest in
asset-backed securities. Through the use of trusts and special purpose
subsidiaries, various types of assets, primarily home equity loans and
automobile and credit card receivables, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Funds' investment objectives, policies and quality
standards, the Funds may invest in these and other types of asset-backed
securities which may be developed in the future.
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Asset-backed securities involve certain risks that are not
posed by mortgage-related securities, resulting mainly from the fact that
asset-backed securities do not usually contain the benefit of a complete
security interest in the related collateral. For example, credit card
receivables generally are unsecured and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds from
repossessed collateral may not always be sufficient to support payments on these
securities. The risks associated with asset-backed securities are often reduced
by the addition of credit enhancements such as a letter of credit from a bank,
excess collateral or a third-party guarantee.
FOREIGN SECURITIES (All Funds except the ING Money Market
Fund, ING U.S. Treasury Money Market Fund). As described in the Prospectus,
changes in foreign exchange rates will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar.
Since the Funds may invest in securities denominated in
currencies other than the U.S. dollar, and since those Funds may temporarily
hold funds in bank deposits or other money market investments denominated in
foreign currencies, a Fund may be affected favorably or unfavorably by exchange
control regulations or changes in the exchange rate between such currencies and
the dollar. Changes in foreign currency exchange rates will influence values
within the Fund from the perspective of U.S. investors. Changes in foreign
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities, and net investment
income and gains, if any, to be distributed to shareholders by the Fund. The
rate of exchange between the U.S. dollar and other currencies is determined by
the forces of supply and demand in the foreign exchange markets. These forces
are affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
The Funds may enter into foreign currency exchange contracts
in order to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are entered into in the
interbank market conducted between currency traders (usually large commercial
banks) and their customers. Forward foreign currency exchange contracts may be
bought or sold to protect a Fund against a possible loss resulting from an
adverse change in the relationship between foreign currencies and the U.S.
dollar, or between foreign currencies. Although such contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they tend to limit any potential gain which might result
should the value of such currency increase.
CONVERTIBLE SECURITIES (All Funds except ING National
Tax-Exempt Bond Fund, ING U.S. Treasury Money Market Fund and ING Money Market
Fund).
<PAGE> 14
Convertible securities may be converted at either a stated price or stated rate
into underlying shares of common stock and, therefore, are deemed to be equity
securities for purposes of the Funds' management policies. Convertible
securities have characteristics similar to both fixed-income and equity
securities. Convertible securities generally are subordinated to other similar
but nonconvertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar nonconvertible securities.
Although to a lesser extent than with fixed-income securities,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the underlying
common stock. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
Convertible securities are investments that provide for a
stable stream of income with generally higher yields than common stocks. There
can be no assurance of current income because the issuers of the convertible
securities may default on their obligations. A convertible security, in addition
to providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital appreciation.
VARIABLE RATE DEMAND OBLIGATIONS AND FLOATING RATE INSTRUMENTS
(All Funds). The Funds may acquire variable rate demand obligations. The ING
Intermediate Bond Fund and ING National Tax-Exempt Bond Fund may acquire
floating rate instruments as described in the Prospectus. Variable and floating
rate instruments are frequently not rated by credit rating agencies; however,
unrated variable and floating rate instruments purchased by a Fund will be
determined by the Sub-Adviser to be of comparable quality at the time of
purchase to rated instruments eligible for purchase by the Funds. In making such
determinations, the Sub-Adviser will consider the earning power, cash flows and
other liquidity ratios of the issuers of such instruments (such issuers include
financial, merchandising, investment banking, bank holding and other companies)
and will continuously monitor their financial condition. There may not be an
active secondary market with respect
<PAGE> 15
to a particular variable or floating rate instrument purchased by a Fund. The
absence of such an active secondary market could make it difficult for a Fund to
dispose of the variable or floating rate instrument involved. In the event the
issuer of the instrument defaulted on its payment obligations, a Fund could, for
this or other reasons, suffer a loss to the extent of the default. Variable and
floating rate instruments may be secured by bank letters of credit, guarantees
or lending commitments.
GUARANTEED INVESTMENT CONTRACTS (All Funds except ING U.S.
Treasury Money Market Fund). The Funds may invest in Guaranteed Investment
Contracts ("GICs") issued by insurance companies. Pursuant to such contracts,
the Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund on a monthly
basis guaranteed interest which is based on an index. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. In addition, because the Funds may not receive the principal amount of a
GIC from the insurance company on seven days' notice or less, the GIC is
considered an illiquid investment, and, together with other instruments invested
in by a Fund which are not readily marketable, will not exceed 15% (10% in the
case of the Money Market Fund) of a Fund's net assets. The term of a GIC will be
one year or less. In determining average weighted portfolio maturity, a GIC will
be deemed to have a maturity equal to the period of time remaining until the
next readjustment of the guaranteed interest rate.
PRIVATE FUNDS (ING Large Cap Growth Fund, ING Growth & Income
Fund, ING Mid Cap Growth Fund, ING Small Cap Growth Fund, ING Balanced Fund, ING
Global Brand Names Fund, ING International Equity Fund, ING Emerging Markets
Equity Fund, ING European Equity Fund, ING Tax Efficient Equity Fund, ING Focus
Fund, ING Global Information Technology Fund and ING Global Real Estate Fund).
The Funds may invest in U.S. or foreign private limited partnerships or other
investment funds ("Private Funds"). Investments in Private Funds may be highly
speculative and volatile. Because Private Funds generally are investment
companies for purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), the Fund's ability to invest in them will be limited. In addition,
Fund shareholders will remain subject to the Fund's expenses while also bearing
their pro rata share of the operating expenses of the Private Funds. The ability
of the Fund to dispose of interests in Private Funds is very limited and involve
risks, including loss of the Fund's entire investment in the Private Fund.
OPTIONS ON SECURITIES (All Funds except ING U.S. Treasury
Money Market Fund, ING Money Market Fund and ING National Tax-Exempt Bond
Funds). Each Fund may write (sell) "covered" call options on securities as long
as it owns the underlying securities subject to the option or an option to
purchase the same underlying securities, having an exercise price equal to or
less than the exercise price of the "covered" option, or will establish and
maintain for the term of the option a segregated account consisting of cash or
other liquid securities ("eligible securities") to the extent required by
applicable regulation in
<PAGE> 16
connection with the optioned securities. A Fund may write "covered" put options
provided that, as long as the Fund is obligated as a writer of a put option, the
Fund will own an option to sell the underlying securities subject to the option,
having an exercise price equal to or greater than the exercise price of the
"covered" option, or it will deposit and maintain in a segregated account
eligible securities having a value equal to or greater than the exercise price
of the option. A call option gives the purchaser the right to buy, and the
writer the obligation to sell, the underlying security at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer has the obligation to buy, the underlying security
at the exercise price during or at the end of the option period. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the price volatility of the underlying security, the
option period, supply and demand and interest rates. The Funds may write or
purchase spread options, which are options for which the exercise price may be a
fixed dollar spread or yield spread between the security underlying the option
and another security that is used as a bench mark. The exercise price of an
option may be below, equal to or above the current market value of the
underlying security at the time the option is written. The buyer of a put who
also owns the related security is protected by ownership of a put option against
any decline in that security's price below the exercise price less the amount
paid for the option. The ability to purchase put options allows a Fund to
protect capital gains in an appreciated security it owns, without being required
to actually sell that security. At times a Fund would like to establish a
position in a security upon which call options are available. By purchasing a
call option, a Fund is able to fix the cost of acquiring the security, this
being the cost of the call plus the exercise price of the option. This procedure
also provides some protection from an unexpected downturn in the market because
a Fund is only at risk for the amount of the premium paid for the call option
which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the
potential for capital appreciation above the exercise price should the
underlying asset rise in value, and the secured put writer retains the risk of
loss should the underlying security decline in value. For the covered call
writer, substantial appreciation in the value of the underlying asset would
result in the security being "called away." For the secured put writer,
substantial depreciation in the value of the underlying security would result in
the security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer
realizes a gain from the amount of the premium. If the secured put writer has to
buy the underlying security because of the exercise of the put option, the
secured put writer incurs an unrealized loss to the extent that the current
market value of the underlying security is less than the exercise price of the
put option. However, this would be offset in whole or in part by gain from the
premium received.
<PAGE> 17
OVER-THE-COUNTER OPTIONS (All Funds except ING U.S. Treasury
Money Market Fund, ING Money Market Fund and ING National Tax-Exempt Bond Fund).
As indicated in the prospectus (see "Description of Securities and Investment
Practices"), each Fund may deal in over-the-counter traded options ("OTC
options"). OTC options differ from exchange traded options in several respects.
They are transacted directly with dealers and not with a clearing corporation,
and there is a risk of nonperformance by the dealer as a result of the
insolvency of such dealer or otherwise, in which event a Fund may experience
material losses. However, in writing options the premium is paid in advance by
the dealer. OTC options are available for a greater variety of securities, and a
wider range of expiration dates and exercise prices, than are exchange traded
options. Since there is no exchange, pricing is normally done by reference to
information from market makers, which information is carefully monitored by the
investment manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it
voluntarily only by entering into a closing transaction. In the case of OTC
options, there can be no assurance that a continuous liquid secondary market
will exist for any particular option at any specific time. Consequently, a Fund
may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when a Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The staff of the SEC has taken the position that purchased
options not traded on registered domestic securities exchanges and the assets
used as cover for written options not traded on such exchanges are generally
illiquid securities. However, the staff has also opined that, to the extent a
mutual fund sells an OTC option to a primary dealer that it considers
creditworthy and contracts with such primary dealer to establish a formula price
at which the fund would have the absolute right to repurchase the option, the
fund would only be required to treat as illiquid the portion of the assets used
to cover such option equal to the formula price minus the amount by which the
option is in-the-money. Pending resolution of the issue, the Funds will treat
such options and, except to the extent permitted through the procedure described
in the preceding sentence, assets as subject to each such Fund's limitation on
investments in securities that are not readily marketable.
OPTIONS ON INDICES (All Funds except ING U.S. Treasury Money
Market Fund, ING Money Market Fund and ING National Tax-Exempt Bond Fund). Each
Fund also
<PAGE> 18
may purchase and write call and put options on securities indices in an attempt
to hedge against market conditions affecting the value of securities that the
Fund owns or intends to purchase, and not for speculation. Through the writing
or purchase of index options, a Fund can achieve many of the same objectives as
through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike security options, all
settlements are in cash and gain or loss depends upon price movements in the
market generally (or in a particular industry or segment of the market), rather
than upon price movements in individual securities. Price movements in
securities that the Fund owns or intends to purchase will probably not correlate
perfectly with movements in the level of an index since the prices of such
securities may be affected by somewhat different factors and, therefore, the
Fund bears the risk that a loss on an index option would not be completely
offset by movements in the price of such securities.
When a Fund writes an option on a securities index, it will
segregate and mark-to-market eligible securities to the extent required by
applicable regulation. In addition, where the Fund writes a call option on a
securities index at a time when the contract value exceeds the exercise price,
the Fund will segregate and mark-to-market, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess.
Each Fund may also purchase and sell options on other
appropriate indices, as available, such as foreign currency indices. Options on
a securities index involve risks similar to those risks relating to transactions
in financial futures contracts described above. Also, an option purchased by a
Fund may expire worthless, in which case the fund would lose the premium paid
therefor.
FOREIGN CURRENCY OPTIONS (All Funds except ING U.S. Treasury
Money Market Fund, ING Money Market Fund and ING National Tax-Exempt Bond Fund).
Each Fund may engage in foreign currency options transactions. A foreign
currency option provides the option buyer with the right to buy or sell a stated
amount of foreign currency at the exercise price at a specified date or during
the option period. A call option gives its owner the right, but not the
obligation, to buy the currency, while a put option gives its owner the right,
but not the obligation, to sell the currency. The option seller (writer) is
obligated to fulfill the terms of the option sold if it is exercised. However,
either seller or buyer may close its position during the option period in the
secondary market for such options any time prior to expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency
<PAGE> 19
option can protect the Fund against an adverse movement in the value of a
foreign currency, it does not limit the gain which might result from a favorable
movement in the value of such currency. For example, if a Fund were holding
securities denominated in an appreciating foreign currency and had purchased a
foreign currency put to hedge against a decline in the value of the currency, it
would not have to exercise its put. Similarly, if the Fund has entered into a
contract to purchase a security denominated in a foreign currency and had
purchased a foreign currency call to hedge against a rise in value of the
currency but instead the currency had depreciated in value between the date of
purchase and the settlement date, the Fund would not have to exercise its call
but could acquire in the spot market the amount of foreign currency needed for
settlement.
DOLLAR ROLL TRANSACTIONS (ING Growth & Income Fund, ING
Balanced Fund, ING Emerging Markets Equity Fund, ING Intermediate Bond Fund, ING
High Yield Bond Fund, ING International Bond Fund and ING Mortgage Income Fund).
In connection with their ability to purchase securities on a when-issued or
forward commitment basis, the Funds may enter into "dollar rolls" in which the
Funds sell securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Funds
give up the right to receive principal and interest paid on the securities sold.
However, the Funds would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase plus any fee income received. Unless such benefits exceed the
income and capital appreciation that would have been realized on the securities
sold as part of the dollar roll, the use of this technique will diminish the
investment performance of the Funds compared with what such performance would
have been without the use of dollar rolls. The Funds will hold and maintain in a
segregated account until the settlement date liquid assets in an amount equal to
the value of the when-issued or forward commitment securities. The benefits
derived from the use of dollar rolls may depend, among other things, upon the
Sub-Advisers' ability to predict interest rates correctly. There is no assurance
that dollar rolls can be successfully employed. In addition, the use of dollar
rolls by the Funds while remaining substantially fully invested increases the
amount of a Fund's assets that are subject to market risk to an amount that is
greater than the Fund's net asset value, which could result in increased
volatility of the price of the Fund's shares.
FOREIGN CURRENCY FUTURES TRANSACTIONS (All Funds except ING
U.S. Treasury Money Market Fund, ING Money Market Fund and ING National
Tax-Exempt Bond Funds). As part of its financial futures transactions, each Fund
may use foreign currency futures contracts and options on such futures
contracts. Through the purchase or sale of such contracts, a Fund may be able to
achieve many of the same objectives as through forward foreign currency exchange
contracts more effectively and possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign
currency futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery period and are traded on boards of trade
and commodities exchanges. It is anticipated
<PAGE> 20
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL
ENTITIES (ING International Bond Fund, ING Intermediate Bond Fund, ING
International Equity Fund, ING Tax Efficient Equity Fund, ING Emerging Markets
Equity Fund, ING Global Brand Names Fund and ING European Equity Fund only). A
Fund may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Sub-Adviser to be of comparable
quality to the other obligations in which the Fund may invest. Such securities
also include debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
INTEREST RATE FUTURES CONTRACTS (All Funds except ING National
Tax-Exempt Bond Fund, ING U.S. Treasury Money Market Fund, and ING Money Market
Fund). The Funds may purchase and sell interest rate futures contracts ("futures
contracts") as a hedge against changes in interest rates. A futures contract is
an agreement between two parties to buy and sell a security for a set price on a
future date. Future contracts are traded on designated "contracts markets"
which, through their clearing corporations, guarantee performance of the
contracts. Currently, there are futures contracts based on securities such as
long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA Certificates and
three-month U.S. Treasury bills.
Generally, if market interest rates increase, the value of
outstanding debt securities declines (and vice versa). Entering into a futures
contract for the sale of securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
easily and quickly. For example, if a Fund holds long-term U.S. Government
securities and the Sub-Adviser anticipates a rise in long-term interest rates,
it could, in lieu of disposing of its portfolio securities, enter into futures
contracts for the sale of similar long-term securities. If rates increased and
the value of a Fund's portfolio securities declined, the value of a Fund's
futures contracts would increase, thereby protecting the Fund by preventing its
net asset value from declining as much as it otherwise would have. Similarly,
entering into futures contracts for the purchase of securities has an effect
similar to actual purchase of the underlying securities, but permits the
continued holding of securities other than the underlying securities. For
example, if the Sub-Adviser expects long-term interest rates to decline, a Fund
might enter into futures contracts for the purchase of long-term securities, so
that it could gain rapid market exposure that may offset anticipated increases
in the cost of securities it intends to purchase, while continuing to hold
higher-yielding short-term securities or waiting for the long-term market to
stabilize. Futures transactions may fail as hedging techniques where price
movements of the underlying
<PAGE> 21
securities do not follow price movements of the portfolio securities subject to
the hedge. The loss with respect to futures transactions is potentially
unlimited. Also, the Funds may be unable to control losses by closing its
position where a liquid secondary market does not exist.
SHORT SALES (ING Emerging Markets Equity Fund, ING
Intermediate Bond Fund, ING High Yield Bond Fund and ING International Equity
Fund). The Funds may sell a security it does not own in anticipation of a
decline in the market value of that security (short sales). To complete such a
transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund then is obligated to replace the security borrowed by purchasing it at
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay to the lender any dividends or
interest which accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short position is
closed out. Until the Fund replaces a borrowed security, the Funds will maintain
daily a segregated account with the Funds' custodian, liquid assets, at such a
level that (i) the amount deposited in the account plus the amount deposited
with the broker as collateral will equal the current value of the security sold
short and (ii) the amount deposited in the segregated account plus the amount
deposited with the broker as collateral will not be less than the market value
of the security at the time it was sold short. The Fund will incur a loss as a
result of the short sale if the price of the security increases between the date
of the short sale and the date on which the Fund replaces the borrowed security.
The Funds will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash purchase
of a long position in a security. The amount of any gain will be decreased, and
the amount of any loss increased, by the amount of any premium, dividends or
interest the Fund may be required to pay in connection with a short sale. No
more than 25% of a Fund's net assets will be, when added together: (i) deposited
as collateral for the obligation to replace securities borrowed to effect short
sales; and (ii) allocated to segregated accounts in connection with short sales.
Short sales against-the-box are not subject to this 25% limit.
In a short sale "against-the-box," a Fund enters into a short
sale of a security which the Fund owns or has the right to obtain at no added
cost. Not more than 25% of a Fund's net assets (determined at the time of the
short sale against-the-box) may be subject to such sales.
LOANS OF PORTFOLIO SECURITIES (All Funds). The Funds may lend
their portfolio securities to brokers, dealers and financial institutions,
provided: (1) the loan is secured continuously by collateral consisting of U.S.
Government securities or cash or letters of credit maintained on a daily
mark-to-market basis in an amount at least equal to the current market value of
the securities loaned; (2) the Funds may at any time call the loan and obtain
the return of the securities loaned within five business days; (3) the Funds
will receive any interest or dividends paid on the loaned securities; and (4)
the aggregate market value of securities loaned will not at any time exceed
one-third of the total assets of a particular Fund.
<PAGE> 22
The Funds will earn income for lending their securities
because cash collateral pursuant to these loans will be invested in short-term
money market instruments. In connection with lending securities, the Funds may
pay reasonable finders, administrative and custodial fees. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral.
REPURCHASE AGREEMENTS (All Funds). The Funds may invest in
securities subject to repurchase agreements with U.S. banks or broker-dealers.
Such agreements may be considered to be loans by the Funds for purposes of the
1940 Act. A repurchase agreement is a transaction in which the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed upon time and price. The repurchase price exceeds
the sale price, reflecting an agreed-upon interest rate effective for the period
the buyer owns the security subject to repurchase. The agreed-upon rate is
unrelated to the interest rate on that security. Each Fund's Sub-Adviser will
monitor the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
ensure that the value of the security always equals or exceeds the repurchase
price. In the event of default by the seller under the repurchase agreement, the
Funds may have problems in exercising their rights to the underlying securities
and may incur costs and experience time delays in connection with the
disposition of such securities.
BORROWING (All Funds). The Fund may borrow from banks up to
33 1/3% of the current value of its net assets to purchase securities and for
temporary or emergency purposes and those borrowings may be secured by the
pledge of not more than 33 1/3% of the current value of that Fund's net assets.
REVERSE REPURCHASE AGREEMENTS (All Funds except ING U.S.
Treasury Money Market Fund and ING Money Market Fund). A Fund may borrow funds
by selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). Reverse repurchase agreements involve
the risk that the market value of the securities sold by a Fund may decline
below the repurchase price. A Fund will pay interest on amounts obtained
pursuant to a reverse repurchase agreement. While reverse repurchase agreements
are outstanding, a Fund will maintain in a segregated account, other liquid
assets (as determined by the Board) of an amount at least equal to the market
value of the securities, plus accrued interest, subject to the agreement.
LOWER-RATED SECURITIES. (ING Emerging Markets Equity Fund and
ING High Yield Bond Fund). Lower-rated securities are lower-rated bonds commonly
referred to as junk bonds or high-yield/high-risk securities. These securities
are rated Baa or lower by Moody's Investors Service, Inc. (Moody's) or BBB or
lower by Standard & Poor's Corporation (S&P). As described in the Prospectus,
certain of the Funds may invest in lower rated and unrated securities of
comparable quality subject to the restrictions stated in the Prospectus.
<PAGE> 23
Growth of High-Yield High-Risk Bond Market. The widespread
expansion of government, consumer and corporate debt within the U.S. economy has
made the corporate sector more vulnerable to economic downturns or increased
interest rates. Further, an economic downtown could severely disrupt the market
for lower-rated bonds and adversely affect the value of outstanding bonds and
the ability of the issuers to repay principal and interest. The market for
lower-rated securities may be less active, causing market price volatility and
limited liquidity in the secondary market. This may limit the Funds' ability to
sell such securities at their market value. In addition, the market for these
securities may be adversely affected by legislative and regulatory developments.
Credit quality in the junk bond market can change suddenly and unexpectedly, and
even recently issued credit ratings may not fully reflect the actual risks
imposed by a particular security.
Sensitivity to Interest Rate and Economic Changes. Lower rated
bonds are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay interest
or principal or entered into bankruptcy proceedings, the Fund may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and change can be expected to result in increased
volatility of market prices of high-yield, high-risk bonds and the Fund's net
asset value.
Payment Expectations. High-yield, high-risk bonds may contain
redemption or call provisions. If an issuer exercised these provisions in a
declining interest rate market, the Fund would have to replace the security with
a lower yielding security, resulting in a decreased return for investors.
Conversely, a high-yield, high-risk bond's value will decrease in a rising
interest rate market, as will the value of the Fund's assets. If the Fund
experiences significant unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the Fund's rate of return.
Liquidity and Valuation. There may be a little trading in the
secondary market for particular bonds, which may affect adversely the Fund's
ability to value accurately or dispose of such bonds. Adverse publicity and
investor perception, whether or not based on fundamental analysis, may decrease
the values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
ILLIQUID SECURITIES (All Funds). Each Fund has adopted a
non-fundamental policy with respect to investments in illiquid securities.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended ("Securities Act"),
securities that are otherwise not readily marketable and repurchase agreements
having a
<PAGE> 24
maturity of longer than seven days. Securities that have not been registered
under the Securities Act are referred to as private placements or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act, including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on either an efficient institutional market in which the unregistered
security can be readily resold or on the issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
Each Fund may also invest in restricted securities issued
under Section 4(2) of the Securities Act ("Section 4(2)"), which exempts from
registration "transactions by an issuer not involving any public offering."
Section 4(2) instruments are restricted in the sense that they can only be
resold through the issuing dealer and only to institutional investors; they
cannot be resold to the general public without registration. Restricted
securities issued under Section 4(2) (other than certain commercial paper issued
pursuant to Section 4(2) discussed below) will be treated as illiquid and
subject to the Fund's investment restriction on illiquid securities.
Pursuant to procedures adopted by the Board of Trustees, the
Funds may treat certain commercial paper issued pursuant to Section 4(2) as a
liquid security and not subject to the Funds' investment restriction on illiquid
investments. Section 4(2) commercial paper may be considered liquid only if all
of the following conditions are met: (i) the Section 4(2) commercial paper must
not be traded flat (i.e. without accrued interest) or be in default as to
principal or interest; and (ii) the Section 4(2) commercial paper must be rated
in one of the two highest rating categories by at least two NRSROs, or if only
NRSRO rates the security, by that NRSRO, or if the security is unrated, the
security has been determined to be of equivalent quality.
The SEC has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act applicable to resales of certain
securities to qualified institutional buyers. It is the intent of the Funds to
invest, pursuant to procedures established by the Board of Trustees and subject
to applicable investment restrictions, in securities eligible for resale under
Rule 144A which are determined to be liquid based upon the trading markets for
the securities.
<PAGE> 25
Pursuant to guidelines set forth by and under the supervision
of the Board of Trustees, as applicable, the Sub-Adviser will monitor the
liquidity of restricted securities in a Fund's portfolio. In reaching liquidity
decisions, the Sub-Adviser will consider, among other things, the following
factors: (1) the frequency of trades and quotes for the security over the course
of six months or as determined in the discretion of the Sub-Adviser; (2) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers over the course of six months or as determined in the
discretion of the Sub-Adviser; (3) dealer undertakings to make a market in the
security; (4) the nature of the security and the marketplace in which it trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer); and (5) other factors, if any, which
the Sub-Adviser deems relevant.
Rule 144A securities and Section 4(2) commercial paper which
are determined to be liquid based upon their trading markets will not, however,
be required to be included among the securities considered to be illiquid for
purposes of Investment Restriction No. 9. Investments in Rule 144A securities
and Section 4(2) commercial paper could have the effect of increasing Fund
illiquidity.
INVESTMENT RESTRICTIONS
The Funds have adopted investment restrictions numbered 1
through 8 as fundamental policies, which cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. Investment restriction number 7 is not a fundamental policy and
may be changed by vote of a majority of a Fund's board members at any time.
Each Fund, except as indicated, may not:
(1) Borrow money, except to the extent permitted under the
1940 Act (which currently limits borrowing to no more than 33-1/3% of the value
of a Fund's total assets). For purposes of this Investment Restriction, the
entry into reverse repurchase agreements, options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices shall not constitute borrowing.
(2) Issue senior securities, except insofar as a Fund may be
deemed to have issued a senior security in connection with any repurchase
agreement or any permitted borrowing;
(3) Make loans, except loans of portfolio securities and
except that a Fund may enter into repurchase agreements with respect to its
portfolio securities and may purchase the types of debt instruments described in
its Prospectus or the SAI;
<PAGE> 26
(4) Invest in companies for the purpose of exercising control
or management;
(5) Purchase, hold or deal in real estate, or oil, gas or
other mineral leases or exploration or development programs, but a Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate or real estate investment trusts.
(6) Engage in the business of underwriting securities of other
issuers, except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the Securities Act of 1933;
(7) Purchase securities on margin, except that a Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities;
(8) Purchase a security if, as a result, more than 25% of the
value of its total assets would be invested in securities of one or more issuers
conducting their principal business activities in the same industry, provided
that (a) this limitation shall not apply to obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their parents;
(c) utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry; (d) the ING Money Market Fund will not be limited in its
investments in obligations issued by domestic banks; and (e) the ING Global
Information Technology Fund and the ING Global Real Estate Fund will concentrate
their investments as described in the Prospectus.
(9) Invest more than 15%, 10% in the case of the Money Market
Funds, of the value of its net assets in investments which are illiquid
(including repurchase agreements having maturities of more than seven calendar
days, variable and floating rate demand and master demand notes not requiring
receipt of principal note amount within seven days' notice and securities of
foreign issuers which are not listed on a recognized domestic or foreign
securities exchange).
In addition, all Funds except for the ING Global Brand Names
Funds, ING Focus Fund, ING Global Real Estate Fund and ING International Bond
Fund are diversified funds. As such, each will not, with respect to 75% (100%
with respect to the Money Market Funds) of their total assets, invest more than
5% of its total assets in the securities of any one issuer (except for U.S.
Government securities) or purchase more than 10% of the outstanding voting
securities of any one issuer. The Money Market Funds may invest up to 25% of
their total assets in the first tier securities of a single issuer for a period
of up to three business days after the acquisition thereof provided that the
Fund may not invest in the securities of more than one issuer in accordance with
this provision at any time.
<PAGE> 27
If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Fund's investments will not constitute a violation of
such limitation, except that any borrowing by a Fund that exceeds the
fundamental investment limitations stated above must be reduced to meet such
limitations within the period required by the 1940 Act (currently three days).
Otherwise, a Fund may continue to hold a security even though it causes the Fund
to exceed a percentage limitation because of fluctuation in the value of the
Fund's assets.
MANAGEMENT
Trustees and Officers
The principal occupations of the Trustees and executive
officers of the Funds for the past five years are listed below. The address of
each, unless otherwise indicated, is 18 Campus Blvd., Suite 200, Newtown Square,
Pennsylvania 19073. Trustees deemed to be "interested persons" of the Funds for
purposes of the 1940 Act are indicated by an asterisk.
Trustees Biographies
John J. Pileggi,* Trustee, Chairman of the Board and President
- - Age 39. President and Chief Executive Officer of ING Mutual Funds Management
Co. LLC (1998-Present); Director of Furman Selz LLC (1994- present); Senior
Managing Director of Furman Selz LLC (1992-1994); Managing Director of Furman
Selz LLC (1984-1992).
Joseph N. Hankin, Trustee - Age 57. President, Westchester
Community College since 1971; Adjunct Professor of Columbia University Teachers
College since 1976.
Jack D. Rehm, Trustee - Age 65. Chairman of the Board
(Retired) of Meredith Corp. (1992-1997); President and Chief Executive Officer
of Meredith Corp. (1986-1996).
Blaine E. Rieke, Trustee - Age 65. General Partner of
Huntington Partners (1997-present); Chairman and Chief Executive Officer of
Firstar Trust Company (1973-1996).
Richard A. Wedemeyer, Trustee - Age 62. Vice President, The
Channel Corporation (1996-present); Vice President of Performance Advantage,
Inc. (1992-1996); Vice President, Operations and Administration of Jim Henson
Productions (1979-1997).
Officers Biographies
John J. Pileggi, President and Chief Executive Officer - Age
39. See above.
<PAGE> 28
Louis S. Citron, Vice President - Age 33. Senior Vice
President and General Counsel, ING Mutual Funds Management Co. LLC
(1998-present); Attorney at Kramer, Levin, Naftalis & Frankel (1994-1998);
Attorney at Reid & Priest (1991-1994).
Donald Brostrom, Treasurer - Age 39. Executive Vice President
and Chief Financial Officer, ING Mutual Funds Management Co. LLC (1998-present);
Managing Director, Furman Selz LLC (1984-1998).
Rachelle I. Rehner, Secretary - Age 36. Fund Legal Manager,
ING Mutual Funds Management Co. LLC (1998-present); Senior Legal Assistant,
Kramer, Levin, Naftalis & Frankel (1995-1998); Compliance Administrator, BISYS
Funds Services (1994-1995); Senior Legal Assistant, Battle Fowler (1989-1994).
Charles Eng, Assistant Treasurer - Age 34, Fund Accounting
Manager, ING Mutual Funds Management Co. LLC (1998-present); Assistant Manager,
Chase Manhattan Bank (1997-1998); BISYS Fund Services (1996-1997); Associate
Director, Furman Selz LLC (1992-1997).
Amy Lau, Assistant Treasurer - Age 32. Fund Administration
Manager, ING Mutual Funds Management Co. LLC (1998-present); Assistant Vice
President, Smith Barney Asset Management (1996-1998); Associate Director, Furman
Selz LLC (1992-1995).
Trustees of the Funds not affiliated with ING or IFD receive from the
Funds an annual retainer of $5,000.00 and a fee of $835.00 for each Board of
Trustees meeting and Board committee meeting of the Funds attended and are
reimbursed for all out-of-pocket expenses relating to attendance at such
meetings. Trustees who are affiliated with ING or IFD do not receive
compensation from the Funds.
Investment Manager
ING Mutual Funds Management Co. LLC, 18 Campus Blvd., Suite
200, Newtown Square, Pennsylvania 19073, serves as the Manager of the Funds.
IMFC is a wholly owned subsidiary of ING Groep N.V. ("ING Group"). Under the
Management Agreement, IMFC has overall responsibility, subject to the
supervision of the Board of Trustees, for engaging sub-advisers and for
monitoring and evaluating the management of the assets of each Fund by the
Sub-Adviser. The Manager is also responsible for monitoring and evaluating the
Sub-Advisers on a periodic basis, and will consider their performance records
with respect to the investment objectives and policies of each Fund. The
Sub-Advisers are affiliated with the Manager. IMFC also provides certain
administrative services necessary for the Funds' operations including; (i)
coordination of the services performed by the Funds' transfer agent, custodian,
independent accountants and legal counsel; (ii) regulatory compliance, including
the compilation of information for documents such as reports to, and filings
with, the SEC and state securities commissions; (iii) preparation of proxy
statements and shareholder reports for the Funds; (iv) general supervision
relative to the compilation of data required for the
<PAGE> 29
preparation of periodic reports distributed to the Funds' officers and Board of
Trustees; and (v) furnishing office space and certain facilities required for
conducting the business of the Funds.
Pursuant to the Management Agreement, the Manager is
authorized to exercise full investment discretion and make all determinations
with respect to the investment of a Fund's assets and the purchase and sale of
portfolio securities for one or more Funds in the event that at any time no
Sub-Adviser is engaged to manage the assets of a Fund. The Management Agreement
may be terminated without penalty by the vote of the Board of Trustees or the
shareholders of the Fund or by the Manager, upon 60 days' written notice by any
party to the agreement, and will terminate automatically if assigned as that
term is described in the 1940 Act.
The Management Agreement provides that the investment manager
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with its performance of services pursuant to
the Management Agreement, except loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the investment adviser in the
performance of its obligations under the Advisory Agreement.
An affiliate of the Manager will make a significant investment
in the Funds. The affiliate may redeem its investment in the Funds at any time.
Such redemption may have an adverse effect on the Funds. In addition, certain
provisions of the 1940 Act may prohibit the Funds from investing in securities
issued by affiliates of the ING Group. Such restrictions may adversely effect
the Funds.
Sub-Advisers
ING Investment Management, LLC ("IIM") serves as Sub-Adviser
to the two Money Market Funds and the ING Intermediate Bond Fund, ING High Yield
Bond Fund, ING Mortgage Income Fund, and the ING Growth & Income Fund. Located
in Atlanta, Georgia, IIM is a Delaware limited liability company which is
engaged in the business of providing investment advice to affiliated insurance
companies.
Baring International Investment Limited ("BIIL") serves as
co-Sub-Adviser to the ING International Bond Fund, ING International Equity Fund
and ING Emerging Markets Equity Fund. Located in London, BIIL is a wholly-owned
subsidiary of Baring Asset Management Holdings Limited ("BAMHL"), the parent of
the worldwide group of investment management companies that operate under the
collective name, Baring Asset Management (the "BAM Group").
Furman Selz Capital Management LLC ("FSCM") serves as
Sub-Adviser to the ING National Tax-Exempt Bond Fund, ING Mid Cap Growth Fund,
ING Balanced Fund, and the ING Focus Fund. Located at 230 Park Avenue, New York,
New York 10169, FSCM is a Delaware limited liability company which is engaged in
the business of providing investment
<PAGE> 30
advice to institutional and individual clients which, as of December 31, 1997,
were valued at $10 billion.
Baring Asset Management, Inc. ("BAM") serves as Sub-Adviser to
the ING Large Cap Growth Fund and ING Small Cap Growth Fund and acts as
Co-Sub-Adviser to the ING International Bond Fund, ING International Equity Fund
and ING Emerging Markets Equity Fund. Located at 125 High Street, Boston,
Massachusetts 02110, BAM is a wholly-owned subsidiary of BAMHL.
Baring International Investment (Far East) Limited ("BIFL")
acts as Co-Sub-Adviser to the ING International Bond Fund, ING International
Equity Fund and ING Emerging Markets Equity Fund. BIFL is located at 19/F
Edinburgh Tower, The Landmark, 15 Queens Road, Central, Hong Kong. BIFL is a
wholly-owned subsidiary of BAMHL.
ING Investment Management Advisors, B.V. ("IIMA"), serves as
Sub-Adviser to the ING Global Brand Names Fund, ING European Equity Fund, ING
Global Information Technology Fund, and ING Global Real Estate Fund. Located at
Schenkkade 65, 2595 AS, The Hague, The Netherlands, IIMA operates under the
collective management of ING Investment Management.
Delta Asset Management ("Delta") serves as Sub-Adviser to the
ING Tax Efficient Equity Fund. Located at 333 South Grand Avenue, Los Angeles,
California, Delta is a division of Furman Selz Capital Management. As of June,
1998 Delta managed approximately $10 billion of assets.
Distribution of Fund Shares
ING Funds Distributor, Inc., 18 Campus Blvd., Suite 200,
Newtown Square, Pennsylvania 19073, serves as Distributor and Principal
Underwriter of the Funds. As distributor, IFD sells shares of each Fund on
behalf of the Trust.
<PAGE> 31
Transfer Agent, Fund Accountant and Account Services
ING Fund Services Co., LLC has entered into a Fund Services
Agreement with the Funds pursuant to which ING Fund Services will perform or
engage third parties to perform transfer agency, fund accounting, account
services and other services. ING Fund Services has retained DST Systems, Inc.
("DST") to act as the Funds' transfer agent and First Data Investors Services
Group ("First Data") to act as the Funds' fund accounting agent. DST is located
at 333 W. 11th Street, Kansas City, Missouri 64105. For their services as
transfer agent and fund accounting agent, DST and First Data, respectively,
receive a fee from ING Fund Services (and not the Funds), payable monthly, based
upon the average daily net assets of the Funds.
Rule 12b-1 Distribution Plan
Pursuant to a Plan of Distribution adopted by each Fund under
Rule 12b-1 under the 1940 Act, each Fund pays the Distributor an annual fee of
0.50% of average net assets attributable to that Fund's Class A shares, 0.75% of
average net assets attributable to that Fund's Class B, Class C and X shares.
The higher distribution fee attributable to Class B, C, and X
shares is designed to permit an investor to purchase such shares through
registered representatives of the Distributor and other broker-dealers without
the assessment of an initial sales charge and at the same time to permit the
Distributor to compensate its registered representatives and other
broker-dealers in connection with the sale of such shares. The distribution fee
for all classes may be used by the Distributor for the purpose of financing any
activity which is primarily intended to result in the sale of shares of the
applicable Fund. For example, such distribution fee may be used by the
Distributor: (a) to compensate broker-dealers, including the Distributor and its
registered representatives, for their sale of Fund shares, including the
implementation of various incentive programs with respect to broker-dealers,
banks, and other financial institutions, (b) to pay for interest and other
borrowing costs incurred by the distributor; and (c) to pay other advertising
and promotional expenses in connection with the distribution of Fund shares.
These advertising and promotional expenses include, by way of example but not by
way of limitation, costs of prospectuses for other than current shareholders;
preparation and distribution of sales literature; advertising of any type;
expenses of branch offices provided jointly by the Distributor and affiliated
companies; and compensation paid to and expenses incurred by officers, employees
or representatives of the Distributor or of other broker-dealers, banks, or
other financial institutions, including travel, entertainment, and telephone
expenses. If the distribution plan is terminated by the Funds, the Board of
Trustees may allow the Funds to pay the 12b-1 Fees to the Distributor for
distributing shares before the plan was terminated.
<PAGE> 32
SHAREHOLDER SERVICING PLAN
The Funds have adopted a Shareholder Servicing Plan pursuant
to which it may pay a service fee up to an annual rate of 0.25% of Fund average
daily net assets to various banks, trust companies, broker-dealers (other than
the Distributor) or other financial organizations including the Manager and its
affiliates (collectively, "Service Organizations") that provide certain
administrative and support services to their customers who own shares of the
Funds.
Some Service Organizations may impose additional or different
conditions on their clients, such as requiring their clients to invest more than
the minimum initial or subsequent investments specified by the Funds or charging
a direct fee for servicing. If imposed, these fees would be in addition to any
amounts which might be paid to the Service Organization by the Funds. Each
Service Organization has agreed to transmit to its clients a schedule of any
such fees. Shareholders using Service Organizations are urged to consult them
regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws, among other
things, prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law. If a bank were prohibited from so acting, its shareholder
clients would be permitted to remain shareholders of the Funds and alternative
means for continuing the servicing of such shareholders would be sought. In that
event, changes in the operation of the Funds might occur and a shareholder
serviced by such a bank might no longer be able to avail itself to any services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
DETERMINATION OF NET ASSET VALUE
As indicated under "Fund Share Valuation" in the applicable
Prospectus, the Money Market Funds use the amortized cost method to determine
the value of its portfolio securities pursuant to Rule 2a-7 under the 1940 Act.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity regardless of the impact
of fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
which the Fund would receive if the security were sold. During these periods,
the yield to a shareholder
<PAGE> 33
may differ somewhat from that which could be obtained from a similar fund which
utilizes a method of valuation based upon market prices. Thus, during periods of
declining interest rates, if the use of the amortized cost method resulted in
lower value of a Fund's portfolio on a particular day, a prospective investor in
the Fund would be able to obtain a somewhat higher yield than would result from
an investment in a fund utilizing solely market values and existing Fund
shareholders would receive correspondingly less income. The converse would apply
during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using
the amortized cost method, the Money Market Funds must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase
securities having remaining maturities of 397 days or less and invest only in
U.S. dollar denominated eligible securities determined by the Trust's Board of
Trustees to be of minimal credit risks and which (1) have received the highest
short-term rating by at least two NRSROs, such as "A-1" by Standard & Poor's and
"P-1" by Moody's; (2) are single rated and have received the highest short-term
rating by a NRSRO; or (3) are unrated, but are determined to be of comparable
quality by the Sub-Adviser.
In addition, the Money Market Funds will not invest more than
5% of their total assets in the securities (including the securities
collateralizing a repurchase agreement) of a single issuer, except that, the
Funds may invest in U.S. Government securities or repurchase agreements that are
collateralized by U.S. Government securities without any such limitation. The
Money Market Funds may invest up to 25% of its total assets in the first tier
securities of a single issuer for a period of up to three business days after
the acquisition thereof provided that the Fund may not invest in the securities
of more than one issuer in accordance with this provision at any one time.
Pursuant to Rule 2a-7, the Board of Trustees is also required
to establish procedures designed to stabilize, to the extent reasonably
possible, the price per share of the Funds, as computed for the purpose of sales
and redemptions at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Trustees, at such intervals as it may deem appropriate,
to determine whether the net asset value of the Funds calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board of Trustees. If
such deviation exceeds 1/2 of 1%, the Board of Trustees will promptly consider
what action, if any, will be initiated. In the event the Board of Trustees
determines that a deviation exists which may result in material dilution or
other unfair results to investors or existing shareholders, the Board of
Trustees will take such corrective action as it regards as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations.
The Non-Money Market Funds value their portfolio securities in
accordance with the procedures described in the Prospectus.
<PAGE> 34
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Prospectus contains a general description of how investors
may buy shares of the Funds and states whether the Funds offer more than one
class of shares. This SAI contains additional information which may be of
interest to investors. Class A Shares are generally sold with a sales charge
payable at the time of purchase (with the exception of the Money Market Funds
which charges no sales charge). The prospectuses contain a table of applicable
sales charges. Certain purchases of Class A shares may be exempt from a sales
charge. Class B and X shares may be subject to a contingent deferred sales
charge ("CDSC") payable upon redemption within a specified period after
purchase. The prospectuses contain a table of applicable CDSCs. Class B and X
shares will automatically convert into Class A shares which are not subject to
sales charges or a CDSC and which are available only to certain investors. Class
C shares are offered without an initial sales charge.
The Funds may sell shares without a sales charge or CDSC
pursuant to several different Special Purchase Plans.
The obligation of each Fund to redeem its shares when called
upon to do so by the shareholder is mandatory with certain exceptions. The Funds
will pay in cash all redemption requests by any shareholder of record, limited
in amount during any 90-day period to the lesser of 250,000 or 1% of the net
asset value of a Fund at the beginning of such period. When redemption requests
exceed such amount, however, the Funds reserve the right to make part or all of
the payment in the form of readily marketable securities or other assets of the
Fund. An example of when this might be done is in case of emergency, such as in
those situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges.
Redemption of shares, or payment, may be suspended at times
(a) when the New York Stock Exchange is closed for other than customary weekend
or holiday closings, (b) when trading on New York Stock Exchange is restricted,
(c) when an emergency exists, as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable, or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or
during any other period when the SEC, by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b) or (c) exist. The New York Stock Exchange is not
open for business on the following holidays (nor on the nearest Monday or Friday
if the holiday falls on a weekend), on which the Funds will not redeem shares:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
<PAGE> 35
BROKER-DEALER COMPENSATION
As discussed in the prospectus, a broker-dealer may receive
different levels of compensation depending on which class of shares is sold. The
Distributor may also provide, from its own resources and not from the resources
of the Funds, additional compensation to broker-dealers in connection with
selling shares of the Funds or for the broker-dealer's own company-sponsored
sales programs. This additional compensation may take the form of additional
cash payments by the Distributor or a reallowance by the Distributor of up to
the full applicable initial sales charge. A broker-dealer who receives a
reallowance of the full applicable initial sales charge may be deemed an
"underwriter" under the Securities Act of 1933 Act, as amended, during such
periods.
The following are current dealer reallowance programs:
Centaurus Financial from May 15, 1999 through August 31, 1999; Commonwealth
Equities from May 15, 1999 through July 31, 1999; Crowell Weedon from April 15,
1999 through July 31, 1999; Everen Securities from April 15, 1999 through July
31, 1999; Fahnestock & Co. from May 1, 1999 through July 31, 1999; Financial
West Group from April 15, 1999 through July 31, 1999; First Allied Securities
from April 26, 1999 through July 31, 1999; First Financial Planners from April
15, 1999 through July 31, 1999; J.B. Oxford from April 15, 1999 through July 31,
1999; Josephthal & Co. from April 1, 1999 through May 31, 1999; Mesirow
Financial from April 15, 1999 through July 31, 1999; Robert W. Baird from April
1, 1999 through August 31, 1999; Transamerica Financial Resources from April 15,
1999 through July 31, 1999; Trust Advisory Group from May 1, 1999 through July
31, 1999; and Wedbush Morgan from April 1, 1999 through July 31, 1999.
The Distributor has undertaken to pay individual brokers of
affiliated companies up to an additional 1.00% of the net asset value
of Class A, Class B, Class C and Class X shares of the Funds (other
than the ING Money Market Fund) sold by such persons. The affiliated
companies, as such term is defined under the 1940 Act, are IFG Network
Securities, Inc., Locust Street Securities, Inc., Multi-Financial
Securities Corporation, Vestax Securities Corp., Southland Life
Insurance Company, Security Life of Denver Insurance Company,
Equitable Life Insurance Company of Iowa, and Compulife Investor
Services, Inc. Representatives of Hantz Financial Group, a division of
Vestax Securities Corp, will receive a further 1.00% on Class A shares
of the Funds (other than the ING Money Market Fund) sold at net asset
value. Representatives of the affiliated companies also may receive up
to .20% of the net asset value of Class A, Class B, Class C and Class
X shares of the Funds sold by them.
Finally, the Distributor has undertaken to pay (i) Raymond
James Financial an additional 1.00% of the net asset value of Class A, Class B,
Class C and Class X shares of the Funds sold (other than the ING Money Market
Fund), including sales and transfers at net asset value, (ii) Securities Service
Network an additional 1.00% of the net asset value of Class A, Class B, Class C
and Class X shares of the Funds sold (other than the ING Money Market Fund),
including sales and transfers at net asset value, and (iii) Dain Rauscher an
additional .25% of the net asset value of Class A, Class B, Class C and Class X
shares of the Funds sold. The Raymond James program will continue until Raymond
James has made $100 million in sales of the Funds.
The additional 1.00% program as applied to representatives of
affiliated companies will run through June 15, 1999. Except as may be otherwise
noted, all other programs described herein will continue until terminated by the
Distributor.
<PAGE> 36
PORTFOLIO TRANSACTIONS
Investment decisions for the Funds and for the other
investment advisory clients of the Sub-Adviser are made with a view to achieving
their respective investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in the
Sub-Adviser's opinion is equitable to each and in accordance with the amount
being purchased or sold by each. There may be circumstances when purchases or
sales of portfolio securities for one or more clients will have an adverse
effect on other clients.
The Funds have no obligation to deal with any dealer or group
of dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Funds' Boards of Trustees, the Sub-Adviser is
primarily responsible for portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Funds to obtain the
best results taking into account the broker-dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities. While the Sub-Adviser
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available. The
reasonableness of such spreads or brokerage commissions will be evaluated by
comparing spreads or commissions among brokers or dealers in consideration of
the factors listed immediately above and research services described below.
Purchases and sales of securities will often be principal
transactions in the case of debt securities and equity securities traded
otherwise than on an exchange. The purchase or sale of equity securities will
frequently involve the payment of a commission to a broker-dealer who effects
the transaction on behalf of a Fund. Debt securities normally will be purchased
or sold from or to issuers directly or to dealers serving as market makers for
the securities at a net price. Generally, money market securities are traded on
a net basis and do not involve brokerage commissions. Under the 1940 Act,
persons affiliated with the Funds or the Distributor are prohibited from dealing
with the Funds as a principal in the purchase and sale of securities except in
limited situations permitted by SEC regulations, unless a permissive order
allowing such transactions is obtained from the SEC.
The cost of executing portfolio securities transactions for
the Money Market Funds primarily consists of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Funds or the
Distributor are prohibited from dealing with the Funds as a principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the SEC.
<PAGE> 37
The Sub-Adviser may, in circumstances in which two or more
broker-dealers are in a position to offer comparable results, give preference to
a dealer which has provided statistical or other research services to the
Sub-Adviser. By allocating transactions in this manner, the Sub-Adviser is able
to supplement its research and analysis with the views and information of
securities firms. These items, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Sub-Adviser in advising various of its clients (including the Funds),
although not all of these services are necessarily useful and of value in
managing the Funds. The management fee paid by the Funds is not reduced because
the Sub-Adviser and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act
of 1934 (the "Act"), the Sub-Adviser may cause the Funds to pay a broker-dealer
which provides "brokerage and research services" (as defined in the Act) to the
Sub-Adviser an amount of disclosed commission for effecting a securities
transaction for the Funds in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, the Sub-Adviser may consider sales of shares of the Funds as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Funds.
Portfolio Turnover
Changes may be made in the portfolio consistent with the
investment objectives and policies of the Funds whenever such changes are
believed to be in the best interests of the Funds and their shareholders. It is
anticipated that the annual portfolio turnover rate normally will not exceed the
amounts stated in the Funds' Prospectuses and financial statements. Portfolio
turnover rate is, in general, the percentage computed by taking the lesser of
purchases or sales of portfolio securities (excluding securities with a maturity
date of one year or less at the time of acquisition) for the period and dividing
it by the monthly average of the market value of such securities during the
period.
For purposes of this calculation, portfolio securities exclude
all securities having a maturity when purchased of one year or less.
<PAGE> 38
TAXATION
The Funds intend to qualify and elect annually to be treated
as regulated investment companies under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify as a regulated investment
company, a Fund must (a) distribute to shareholders at least 90% of its
investment company taxable income (which includes, among other items, dividends,
taxable interest and the excess of net short-term capital gains over net
long-term capital losses); (b) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stock, securities or foreign
currencies or other income derived with respect to its business of investing in
such stock, securities or currencies; and (c) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash and cash items (including
receivables), U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Fund's total assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies). In addition, a Fund earning tax-exempt interest must, in each year,
distribute at least 90% of its net tax-exempt income. By meeting these
requirements, the Funds generally will not be subject to Federal income tax on
its investment company taxable income and net capital gains which are
distributed to shareholders. If the Funds do not meet all of these Code
requirements, they will be taxed as ordinary corporations and their
distributions will be taxed to shareholders as ordinary income.
Amounts, other than tax-exempt interest, not distributed on a
timely basis in accordance with a calendar year distribution requirement are
subject to a nondeductible 4% excise tax. To prevent imposition of the excise
tax, each Fund must distribute for each calendar year an amount equal to the sum
of (1) at least 98% of its ordinary income (excluding any capital gains or
losses) for the calendar year, (2) at least 98% of the excess of its capital
gains over capital losses (adjusted for certain ordinary losses) for the
one-year period ending October 31 of such year, and (3) all ordinary income and
capital gain net income (adjusted for certain ordinary losses) for previous
years that were not distributed during such years. A distribution, including an
"exempt-interest dividend," will be treated as paid on December 31, of a
calendar year if it is declared by a Fund during October, November or December
of that year to shareholders of record on a date in such a month and paid by the
Fund during January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
Some Funds may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC under the Code if at least
one-half of its assets constitutes investment-type assets or 75% or more of its
gross income is investment-type income. Under
<PAGE> 39
the PFIC rules, an "excess distribution" received with respect to PFIC stock is
treated as having been realized ratably over the period during which the Fund
held the PFIC stock. A Fund itself will be subject to tax on the portion, if
any, of the excess distribution that is allocated to the Fund's holding period
in prior taxable years (and an interest factor will be added to the tax, as if
the tax had actually been payable in such prior taxable years) even though the
Fund distributes the corresponding income to shareholders. Excess distributions
include any gain from the sale of PFIC stock as well as certain distributions
from a PFIC. All excess distributions are taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently may be available, a Fund
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether any distributions
are received from the PFIC. If this election is made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. In addition, other elections may become available that would affect the
tax treatment of PFIC stock held by a Fund. Each Fund's intention to qualify
annually as a regulated investment company may limit its elections with respect
to PFIC stock.
Because the application of the PFIC rules may affect, among
other things, the character of gains, the amount of gain or loss and the timing
of the recognition of income with respect to PFIC stock, as well as subject a
Fund itself to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders and that will be taxed to shareholders as ordinary
income or long-term capital gain may be increased or decreased substantially as
compared to a Fund that did not invest in PFIC stock. Investors should consult
their own tax advisors in this regard.
Distributions of investment company taxable income generally
are taxable to shareholders as ordinary income. Distributions from certain of
the Funds may be eligible for the dividends-received deduction available to
corporations. To the extent dividends received by a Fund are attributable to
foreign corporations, a corporation that owns shares will not be entitled to the
dividends-received deduction with respect to its pro rata portion of such
dividends, since the dividends-received deduction is generally available only
with respect to dividends paid by domestic corporations. Proposed legislation,
if enacted, would reduce the dividends-received deduction from 70 to 50 percent.
Distributions of net long-term capital gains, if any,
designated by the Funds as long-term capital gain dividends are taxable to
shareholders as long-term capital gain, regardless of the length of time the
Funds' shares have been held by a shareholder. All distributions are taxable to
the shareholder in the same manner whether reinvested in additional shares or
received in cash. Shareholders will be notified annually as to the Federal tax
status of distributions.
Distributions by a Fund reduce the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution,
<PAGE> 40
nevertheless, would be taxable to the shareholder as ordinary income or capital
gain as described above, even though, from an investment standpoint, it may
constitute a partial return of capital. In particular, investors should be
careful to consider the tax implications of buying shares just prior to a
distribution by the Funds. The price of shares purchased at that time includes
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which nevertheless generally will be
taxable to them.
Upon the taxable disposition (including a sale or redemption)
of shares of a Fund, a shareholder may realize a gain or loss depending upon his
basis in his shares. Such gain or loss generally will be treated as capital gain
or loss if the shares are capital assets in the shareholders' hands. Such gain
or loss will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares. However, a loss realized by a
shareholder on the disposition of Fund shares with respect to which capital gain
dividends have been paid will, to the extent of such capital gain dividends, be
treated as long-term capital loss if such shares have been held by the
shareholder for six months or less. A loss realized on the redemption, sale or
exchange of Fund shares will be disallowed to the extent an exempt interest
dividend was received with respect to those shares if the shares have been held
by the shareholder for six months or less. Further, a loss realized on a
disposition will be disallowed to the extent the shares disposed of are replaced
(whether by reinvestment of distributions or otherwise) within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss. Shareholders receiving distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share received equal to the net asset value of a share of the Funds on the
reinvestment date.
The taxation of equity options is governed by Code section
1234. Pursuant to Code section 1234, the premium received by a Fund for selling
a put or call option is not included in income at the time of receipt. If the
option expires, the premium is short-term capital gain to the Fund. If the Fund
enters into a closing transaction, the difference between the amount paid to
close out its position and the premium received is short-term capital gain or
loss. If a call option written by a Fund is exercised, thereby requiring the
Fund to sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or loss will be a
capital gain or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by a Fund, if the option is sold any resulting gain or loss will be a
capital gain or loss, and will be long-term or short-term, depending upon the
holding period of the option. If the option expires, the resulting loss is a
capital loss and is long-term or short-term, depending upon the holding period
of the option. If the option is exercised, the cost of the option, in the case
of a call option, is added to the basis of the purchased security and in the
case of a put option, reduces the amount realized on the underlying security in
determining gain or loss.
Certain of the options, futures contracts, and forward foreign
currency exchange contracts that several of the Funds may invest in are
so-called "section 1256 contracts." With certain exceptions, gains or losses on
section 1256 contracts generally are
<PAGE> 41
considered 60% long-term and 40% short-term capital gains or losses ("60/40").
Also, section 1256 contracts held by a Fund at the end of a taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as 60/40
gain or loss. Investors should consult their own tax advisors in this regard.
Generally, the hedging transactions undertaken by a Fund may
result in "straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on a position that is part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. Hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to stockholders.
A Fund may make one or more of the elections available under
the Code which are applicable to straddles. If a Fund makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under the rules
according to the election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to shareholders and which will be taxed to shareholders as ordinary
income or long-term capital gain may be increased or decreased substantially as
compared to a Fund that did not engage in such hedging transactions. Investors
should consult their own tax advisors in this regard.
Certain requirements that must be met under the Code in order
for a Fund to qualify as a regulated investment company, may limit the extent to
which a Fund will be able to engage in transactions in options, futures, and
forward contracts.
Under the Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time a Fund accrues interest,
dividends or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency, and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options and forward and futures
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition also are treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "section 988" gains or
<PAGE> 42
losses, may increase, decrease, or eliminate the amount of a Fund's investment
company taxable income to be distributed to its shareholders as ordinary income.
Investors should consult their own tax advisors in this regard.
Income received by a Fund from sources within foreign
countries may be subject to withholding and other similar income taxes imposed
by the foreign country. If more than 50% of the value of a Fund's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible and intends to elect to "pass-through" to its
shareholders the amount of such foreign taxes paid by the Fund. Pursuant to this
election, a shareholder would be required to include in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign taxes paid by a Fund and would be entitled either to deduct his pro rata
share of foreign taxes in computing his taxable income or to use it as a foreign
tax credit against his U.S. Federal income tax liability, subject to
limitations. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions, but such a shareholder may be eligible to claim the
foreign tax credit (see below). Each shareholder will be notified within 60 days
after the close of a Fund's taxable year whether the foreign taxes paid by a
Fund will "pass-through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country, and (b) the portion of the dividend which represents income derived
from foreign sources.
Generally, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
total foreign source taxable income. For this purpose, if a Fund makes the
election described in the preceding paragraph, the source of the Fund's income
flows through to its shareholders. With respect to a Fund, gains from the sale
of securities will be treated as derived from U.S. sources and certain currency
fluctuations gains, including fluctuation gains from foreign
currency-denominated debt securities, receivables and payables, will be treated
as ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit) including foreign source passive income of a
Fund. The foreign tax credit may offset only 90% of the alternative minimum tax
imposed on corporations and individuals, and foreign taxes generally may not be
deducted in computing alternative minimum taxable income.
The Funds are required to report to the Internal Revenue
Service ("IRS") all distributions except in the case of certain exempt
shareholders. All such distributions generally are subject to withholding of
Federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Funds with
and to certify the shareholder's correct taxpayer identification number or
social security number, (2) the IRS notifies the Funds or a shareholder that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions, whether reinvested in additional shares or taken in cash, will be
reduced by the amounts
<PAGE> 43
required to be withheld. Backup withholding is not an additional tax. Any amount
withheld may be credited against the shareholder's U.S. Federal income tax
liability. Investors may wish to consult their tax advisers about the
applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax
law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local income taxes in certain states. Shareholders should consult
their tax advisers with respect to particular questions of Federal, state and
local taxation. Shareholders who are not U.S. persons should consult their tax
advisers regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
ING National Tax-Exempt Bond Fund. This Fund intends to manage
its portfolio so that it will be eligible to pay "exempt-interest dividends" to
shareholders. The Fund will so qualify if, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of state,
municipal, and certain other securities, the interest on which is exempt from
the regular Federal income tax. To the extent that the Fund's dividends
distributed to shareholders are derived from such interest income and are
designated as exempt-interest dividends by the Fund, they will be excludable
from a shareholder's gross income for Federal income tax purposes.
Exempt-interest dividends, however, must be taken into account by shareholders
in determining whether their total incomes are large enough to result in
taxation of up to 85% of their Social Security benefits and certain railroad
retirement benefits. The Fund will inform shareholders annually as to the
portion of the distributions from the Fund which constitute except-interest
dividends. In addition, for corporate shareholders of the Fund, exempt interest
dividends may comprise part or all of an adjustment to alternative minimum
taxable income. Exempt-interest dividends that are attributable to certain
private activity bonds, while not subject to the regular Federal income tax, may
constitute an item of tax preference for purposes of the alternative minimum
tax.
To the extent that the Fund's dividends are derived from its
investment company taxable income (which includes interest on its temporary
taxable investments and the excess of net short-term capital gain over net
long-term capital loss), they are considered ordinary (taxable) income for
Federal income tax purposes. Such dividends will not qualify for the
dividends-received deduction for corporations. Distributions, if any, of net
long-term capital gains (the excess of net long-term capital gain over net
short-term capital loss) designated by a Fund as long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
the length of time the shareholder has owned shares of the Fund.
<PAGE> 44
OTHER INFORMATION
Capitalization
The Trust is a Delaware business trust established under a
Trust Instrument dated July 30, 1998 and currently consists of twenty separately
managed portfolios, all of which are discussed in this SAI. Each portfolio is
comprised of four different classes of shares -- Class A shares, Class B shares,
Class C shares and Class X shares.
The capitalization of the Funds consists solely of an
unlimited number of shares of beneficial interest with a par value of $0.001
each. The Board of Trustees may establish additional Funds (with different
investment objectives and fundamental policies) at any time in the future.
Establishment and offering of additional Funds will not alter the rights of the
shareholders. When issued, shares are fully paid, non-assessable, redeemable and
freely transferable. Shares do not have preemptive rights or subscription
rights. In any liquidation of a Fund, each shareholder is entitled to receive
his pro rata share of the net assets of that Fund.
In the event of a liquidation or dissolution of the Funds or
an individual Fund, shareholders of a particular Fund would be entitled to
receive the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative net asset values of the
respective Funds, of any general assets not belonging to any particular Fund
which are available for distribution. Shareholders of a Fund are entitled to
participate in the net distributable assets of the particular Fund involved in
liquidation, based on the number of shares of the Fund that are held by each
shareholder.
Voting Rights
Under the Trust Instrument, the Funds are not required to hold
annual meetings of each Fund's shareholders to elect Trustees or for other
purposes. It is not anticipated that the Funds will hold shareholders' meetings
unless required by law or the Trust Instrument. In this regard, the Trust will
be required to hold a meeting to elect Trustees to fill any existing vacancies
on the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Funds. In addition, the Trust Instrument
provides that the holders of not less than two-thirds of the outstanding shares
of the Funds may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Funds. To the extent required by applicable law,
the Trustees shall assist shareholders who seek to remove any person serving as
Trustee.
The Funds' shares do not have cumulative voting rights, so
that the holder of more than 50% of the outstanding shares may elect the entire
Board of Trustees, in which case the holders of the remaining shares would not
be able to elect any Trustees.
<PAGE> 45
Shareholders of all of the Funds, as well as those of any
other investment portfolio now or hereafter offered by the Fund, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule 18f-2
under the 1940 Act provides that any matter required to be submitted to the
holders of the outstanding voting securities of an investment company such as
the Funds shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A Fund is affected by a matter unless it is clear that
the interests of each Fund in the matter are substantially identical or that the
matter does not affect any interest of the Fund. Under the Rule, the approval of
an investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a Fund only if approved
by a majority of the outstanding shares of such Fund. However, the Rule also
provides that the ratification of the appointment of independent auditors, the
approval of principal underwriting contracts and the election of trustees may be
effectively acted upon by shareholders of the Funds voting together in the
aggregate without regard to a particular Fund.
Custodian
Investors Fiduciary Trust Company acts as custodian of the
Trust's assets. The Trustees of the Funds have reviewed and approved custodial
arrangements for securities held outside of the United States in accordance with
Rule 17f-5 of the 1940 Act.
Yield and Performance Information
The Funds may, from time to time, include their yields,
effective yields, tax equivalent yields and average annual total returns in
advertisements or reports to shareholders or prospective investors.
Current yields for the Money Market Funds will be based on the
change in the value of a hypothetical investment (exclusive of capital changes
such as gains or losses from the sale of securities and unrealized appreciation
and depreciation) over a particular seven-day period, less a pro rata share of
each Fund's expenses accrued over that period (the "base period"), and stated as
a percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective yield" for each Money Market Fund assumes that all dividends
received during the base period have been reinvested. Calculation of "effective
yield" begins with the same "base period return" used in the calculation of
yield, which is then annualized to reflect weekly compounding pursuant to the
following formula:
Effective Yield = [(Base Period Return +1) [(RAISED TO THE (365/7) POWER]] - 1.
Quotations of yield for the Non-Money Market Funds will be
based on the investment income per share earned during a particular 30-day
period, less expenses accrued
<PAGE> 46
during a period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
a - b 6
YIELD = 2[( ----- +1 ) - 1]
cd
where a = dividends and interest earned during the period, b =
expenses accrued for the period (net of any reimbursements), c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends, and d = the maximum offering price per share on the last day
of the period.
Quotations of the tax-equivalent yield for the ING National
Tax-Exempt Bond Fund will be calculated according to the following formula:
TAX EQUIVALENT YIELD = ( E )
-----
1 - p
E = Tax-Exempt yield
p = stated income tax rate
Quotations of average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in a Fund over periods of 1, 5 and 10 years (up to the life of the
Fund), calculated pursuant to the following formula:
n
P(l+T) = ERV
(where P = a hypothetical initial payment of $1,000, T = the
average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures will reflect a proportional share of Fund
expenses (net of certain reimbursed expenses) on an annual basis, and will
assume that all dividends and distributions are reinvested when paid.
Quotations of yield and total return will reflect only the
performance of a hypothetical investment in the Funds during the particular time
period shown. Yield and total return for the Funds will vary based on changes in
the market conditions and the level of a Fund's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
In connection with communicating its yields or total return to
current or prospective shareholders, the Funds also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to other unmanaged indices
<PAGE> 47
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for the Funds may be compared, in
reports and promotional literature, to: (i) the Standard & Poor's 500 Stock
Index, Dow Jones Industrial Average, or other unmanaged indices so that
investors may compare the Funds' results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Investors who purchase and redeem shares of the Funds through
a customer account maintained at a Service Organization may be charged one or
more of the following types of fees as agreed upon by the Service Organization
and the investor, with respect to the customer services provided by the Service
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and average
annual total return of the Funds for those investors. Investors who maintain
accounts with the Trust as transfer agent will not pay these fees.
Independent Auditors
Ernst & Young LLP serves as the independent auditors for the
Funds. Ernst & Young LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of SEC filings. Ernst &
Young LLP's address is 787 Seventh Avenue, New York, NY 10019
Registration Statement
This SAI and the Prospectus do not contain all the information
included in the Funds' Registration Statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered hereby, certain
portions of which have been omitted pursuant to the rules and regulations of the
SEC. The Registration Statement, including the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the
contents of any contract or other documents referred to are not necessarily
complete, and, in each instance,
<PAGE> 48
reference is made to the copy of such contract or other documents filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
<PAGE> 49
APPENDIX
DESCRIPTION OF MOODY'S BOND RATINGS:
Excerpts from Moody's description of its four highest bond ratings are
listed as follows: Aaa -- judged to be the best quality and they carry the
smallest degree of investment risk; Aa -- judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally know as
high grade bonds; A -- possess many favorable investment attributes and are to
be considered as "upper medium grade obligations"; Baa -- considered to be
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. This group is the
lowest which qualifies for investment grade. Other Moody's bond descriptions
include: Ba -- judged to have speculative elements, their future cannot be
considered as well assured; B -- generally lack characteristics of the desirable
investment; Caa -- are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest; Ca --
speculative in a high degree, often in default; C -- lowest rated class of
bonds, regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.
DESCRIPTION OF S&P'S BOND RATINGS:
Excerpts from S&P's description of its four highest bond ratings are
listed as follows: AAA --highest grade obligations, in which capacity to pay
interest and repay principal is extremely strong; AA -- also qualify as high
grade obligations, having a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree; A -- regarded as
upper medium grade, having a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories; BBB -- regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. This group is the lowest which
qualifies for investment grade. BB, B, CCC, CC -- predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with terms
of the obligations; BB indicates the highest grade and CC the lowest within the
speculative rating categories.
S&P applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
<PAGE> 50
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.
MIG 1/VMIG 1: This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
DESCRIPTION OF MOODY'S TAX-EXEMPT COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations which have an original maturity not
exceeding nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. The following designations, all judged to be
investment grade, indicate the relative repayment ability of rated issuers of
securities in which the Trust may invest.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term promissory obligations.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term promissory obligations.
DESCRIPTION OF S&P'S RATINGS FOR MUNICIPAL BONDS:
INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a small
degree.
A: Debt rated "A" has strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
<PAGE> 51
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI: The "CI" rating is reserved for income bonds on which no interest
is being paid.
D: Debt rated "D" is in default, and payment of interest and/or
repayment of principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
DESCRIPTION OF S&P'S RATINGS FOR INVESTMENT GRADE MUNICIPAL NOTES AND SHORT-TERM
DEMAND OBLIGATIONS:
SP-1: Issues carrying this designation have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to
pay principal and interest.
DESCRIPTION OF S&P'S RATINGS FOR DEMAND OBLIGATIONS AND TAX-EXEMPT COMMERCIAL
PAPER:
An S&P commercial paper rating is a current assessment of the
likelihood of timely repayment of debt having an original maturity of no more
than 365 days. The two rating categories for securities in which the Trust may
invest are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics will be denoted with a plus (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Trustees
ING Funds Trust
We have audited the accompanying statements of assets, liabilities and capital
of ING Money Market Fund, ING Intermediate Bond Fund, ING High Yield Bond Fund,
ING International Bond Fund, ING Large Cap Growth Fund, ING Growth and Income
Fund, ING Mid Cap Growth Fund, ING Small Cap Growth Fund, ING Global Brand Names
Fund, ING International Equity Fund, ING European Equity Fund, ING Tax Efficient
Equity Fund, ING Focus Fund and ING Global Information Technology Fund (the
"Portfolios") (fourteen of the portfolios comprising ING Mutual Funds Trust) as
of October 27, 1998. These statements of assets, liabilities and capital are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these statements of assets, liabilities and capital based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of assets, liabilities and
capital are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements of
assets, liabilities and capital. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statements of assets, liabilities and capital
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of assets, liabilities and capital referred to
above present fairly, in all material respects, the financial position of the
Portfolios of ING Funds Trust at October 27, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
-------------------------------
ERNST & YOUNG LLP
New York, New York
October 27, 1998
<PAGE> 53
ING FUNDS TRUST
Statements of Assets, Liabilities and Capital
October 27, 1998
<TABLE>
<CAPTION>
ING ING ING
ING Money Intermediate High Yield International
Market Fund Bond Fund Bond Fund Bond Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash $ 7,142.86 $ 7,142.86 $ 7,142.86 $ 7,142.86
---------------------------------------------------------------------------------
LIABILITIES: $ - $ - $ - $ -
---------------------------------------------------------------------------------
CAPITAL:
Shares of benificial interest
outstanding (par value of
$0.001per share); unlimited
amount of shares authorized $ 7,142.86 $ 7,142.86 $ 7,142.86 $ 7,142.86
=================================================================================
SHARES OUTSTANDING:
Class A 2,380.960 238.096 238.096 238.096
Class B 2,380.950 238.095 238.095 238.095
Class C 2,380.950 238.095 238.095 238.095
NET ASSET VALUE:
Class A (and redemption price) $ 1.00 $ 10.00 $ 10.00 $ 10.00
Class B $ 1.00 $ 10.00 $ 10.00 $ 10.00
Class C $ 1.00 $ 10.00 $ 10.00 $ 10.00
OFFERING PRICE(a):
Class A $ 1.00 $ 10.50 $ 10.50 $ 10.50
Class B $ 1.00 $ 10.00 $ 10.00 $ 10.00
Class C $ 1.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>
<TABLE>
<CAPTION>
ING Large ING Growth ING ING ING Global
Cap Growth and Income Mid Cap Small Cap Brand Names
Fund Fund Growth Fund Growth Fund Fund
- ------------------------------------------ ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash $ 7,142.86 $ 7,142.86 $ 7,142.86 $ 7,142.86 $ 7,142.85
----------------------------------------------------------------------------------
LIABILITIES: $ - $ - $ - $ - $ -
----------------------------------------------------------------------------------
CAPITAL:
Shares of benificial interest
outstanding (par value of
$0.001per share); unlimited
amount of shares authorized $ 7,142.86 $ 7,142.86 $ 7,142.86 $ 7,142.86 $ 7,142.85
==================================================================================
SHARES OUTSTANDING:
Class A 238.096 238.096 238.096 238.096 238.095
Class B 238.095 238.095 238.095 238.095 238.095
Class C 238.095 238.095 238.095 238.095 238.095
NET ASSET VALUE:
Class A (and redemption price) $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Class B $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Class C $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
OFFERING PRICE(a):
Class A $ 10.61 $ 10.61 $ 10.61 $ 10.61 $ 10.61
Class B $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Class C $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>
<TABLE>
<CAPTION>
ING
ING ING ING ING Global Information
International European Tax Efficient Focus Technology
Equity Fund Equity Fund Equity Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash $ 7,142.85 $ 7,142.85 $ 7,142.86 $ 7,142.86 $ 7,142.85
------------------------------------------------------------------------------------
LIABILITIES: $ - $ - $ - $ - $ -
------------------------------------------------------------------------------------
CAPITAL:
Shares of benificial interest
outstanding (par value of
$0.001per share); unlimited
amount of shares authorized $ 7,142.85 $ 7,142.85 $ 7,142.86 $ 7,142.86 $ 7,142.85
====================================================================================
SHARES OUTSTANDING:
Class A 238.095 238.095 238.096 238.096 238.095
Class B 238.095 238.095 238.095 238.095 238.095
Class C 238.095 238.095 238.095 238.095 238.095
NET ASSET VALUE:
Class A (and redemption price) $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Class B $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Class C $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
OFFERING PRICE(a):
Class A $ 10.61 $ 10.61 $ 10.61 $ 10.61 $ 10.61
Class B $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Class C $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>
(a) Maximum sales load is 4.75% for ING Intermediate Bond Fund, ING High Yield
Bond Fund and ING International Bond Fund, respectively, and is 5.75% for
the ING Large Cap Growth Fund, ING Growth and Income Fund, ING Mid Cap
Growth Fund, ING Small Cap Growth Fund, ING Global Brand Names Fund, ING
International Equity Fund, ING European Equity Fund, ING Tax Efficient
Equity Fund, ING Focus Fund and ING Global Information Technology Fund,
respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 54
ING FUNDS TRUST
Notes to Financial Statements
October 27, 1998
1. DESCRIPTION
ING Funds Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company,
and was organized as a Delaware business trust on July 30, 1998. The
capitalization of the Trust consists solely of an unlimited number of shares of
beneficial interest with a par value of $0.001 each. The Trust has twenty
separate investment portfolios and has initially seeded fourteen investment
portfolios: ING Money Market Fund, ING Intermediate Bond Fund, ING High Yield
Bond Fund, ING International Bond Fund, ING Large Cap Growth Fund, ING Growth
and Income Fund, ING Mid Cap Growth Fund, ING Small Cap Growth Fund, ING Global
Brand Names Fund, ING Intermediate Equity Fund, ING European Equity Fund, ING
Tax Efficient Equity Fund, ING Focus Fund, and ING Global Information Technology
Fund (each, a "Fund," collectively, the "Funds"). Other investment portfolios
not yet seeded are ING U.S. Treasury Money Market Fund, ING Mortgage Income
Fund, ING National Tax-Exempt Bond Fund, ING Balanced Fund, ING Emerging Markets
Equity Fund and ING Global Real Estate Fund. The Trust has had no operations
since July 30, 1998 other than matters relating to its organization and
registration.
2. MANAGEMENT AND DISTRIBUTION AGREEMENTS
ING Mutual Funds Management Co. LLC ("IMFC"), a wholly owned subsidiary
of ING Groep NV ("ING Group"), acts as the investment manager to the Funds. As
the investment manager of the Funds, IMFC has overall responsibility, subject to
the supervision of the Board of Trustees, for engaging sub-advisers and for
monitoring and evaluating the management of the assets of each Fund by the
sub-adviser. IMFC also provides certain administrative services necessary for
the Funds' operations. Pursuant to a Management Agreement, the Trust will pay
IMFC a fee applied to the average daily net assets of the Funds, computed daily
and paid monthly, at an annual rate as follows:
FUND ANNUAL RATE
- ---------------------------------------------------- ---------------------------
ING Money Market Fund 0.25%
ING Intermediate Bond Fund 0.50%
ING High Yield Bond Fund 0.65%
ING International Bond Fund 1.00%
ING Large Cap Growth Fund 0.75%
ING Growth and Income Fund 0.75%
ING Mid Cap Growth Fund 1.00%
ING Small Cap Growth Fund 1.00%
ING Global Brand Names Fund 1.00%
ING International Equity Fund 1.25%
ING European Equity Fund 1.15%
ING Tax Efficient Equity Fund 0.80%
ING Focus Fund 1.00%
ING Global Information Technology Fund 1.25%
The Trust also has entered into a Distribution Agreement under which
the Trust's shares will be continuously offered by ING Fund Distributor Inc., an
affiliate of IMFC.
3. FEDERAL INCOME TAXES
Each of the Funds intend to qualify as a "regulated investment company"
and as such (and by complying with the applicable provisions of the Internal
Revenue Code of 1986, as amended) will not be subject to Federal income tax on
taxable income (including realized capital gains) that is distributed to
shareholders.
