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ING VARIABLE INSURANCE TRUST PROSPECTUS
April 28, 2000
ING Global Brand Names Fund
This Prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records. Although these securities
have been registered with the Securities and Exchange Commission, the Commission
has not judged them for investment merit and does not guarantee the accuracy or
adequacy of the information in this Prospectus. Anyone who informs you otherwise
is committing a criminal offense.
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TABLE OF CONTENTS
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FUND AT A GLANCE...............................................................1
ING GLOBAL BRAND NAMES FUND....................................................2
FEES AND EXPENSES..............................................................3
MANAGEMENT OF THE FUND.........................................................4
PURCHASE OF SHARES.............................................................5
REDEMPTION OF SHARES...........................................................5
PRICING OF SHARES..............................................................5
DIVIDENDS, DISTRIBUTIONS AND TAXES.............................................6
MORE INFORMATION ABOUT RISKS...................................................6
OBTAINING ADDITIONAL INFORMATION...............................................9
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FUND AT A GLANCE
ING GLOBAL BRAND NAMES FUND
Investment Objective: Long-term capital appreciation.
Main Investments: A non-diversified portfolio of equity securities of
companies located throughout the world, including the
United States, which in the Sub-Adviser's opinion
have a well recognized franchise, a global presence
and derive most of their revenues from sales of
consumer goods.
Main Risks: You could lose money. Other risks include
price volatility and risks, as discussed herein,
related to investments in equity securities and
maintaining a non-diversified portfolio. The Fund
also will experience risks related to investments in
foreign securities (for example, currency exchange
rate fluctuations).
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ING GLOBAL BRAND NAMES FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. Under normal market conditions, the
Fund will operate as a non-diversified fund and invest at least 65% of its total
assets in a portfolio of equity securities of companies which, in the
Sub-Adviser's opinion, have a well recognized franchise, a global presence and
derive most of their revenues from sales of consumer goods. The companies in
which the Fund invests either have leading market positions, or in the
Sub-Adviser's opinion, have the potential to achieve leading market positions in
the foreseeable future. This portion of the portfolio will have investments
located in at least three different countries, including the United States. As a
general matter, the Fund expects these investments to be in common stocks of
large companies whose market capitalizations are generally in excess of $10
billion.
In choosing investments for the Fund, the Sub-Adviser believes that
well-established companies with strong brand names offer the following
investment advantages:
- First, demand for brand name products should rise as global
consumer tastes become more uniform;
- Second, large companies that can leverage doing business on a
larger scale have enhanced profit potential;
- Third, perceived product quality and reliability facilitates
sales;
- Fourth, greater recognition leads to brand loyalty; and
- Finally, brand extensions, or the ability to leverage a
company's established brand, provide opportunities for growth.
The Sub-Adviser employs a two-tiered approach to structuring the Fund's
portfolio with securities that offer growth at a reasonable price. The first
tier, which will comprise about 75% of the portfolio, is composed of core stocks
with stable earnings development, low cyclicality, large market capitalizations
and longer-term investment horizons. The second tier, which will comprise about
25% of the portfolio, is composed of companies possessing higher cyclicality,
smaller market capitalizations and shorter-term investment horizons. This second
tier is expected to provide the Fund with shorter-term performance benefits.
A more detailed discussion of the Principal Investment Strategies is
available in the Statement of Additional Information under "Investment Policies
and Risks" section.
PRINCIPAL RISKS. You could lose money on an investment in the Fund. An
investment in the Fund is not a bank deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency. The
Fund may be affected by the following risks, among others:
- Price Volatility. The value of the Fund will decrease if the
value of the Fund's underlying investments decrease. Equity
securities face market, issuer and other risks, and their
values may go down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value
due to factors affecting securities markets generally or
particular industries. Issuer risk is the risk that the value
of a security may decline for reasons relating to the issuer,
such as changes in the financial condition of the issuer.
Equities generally have higher volatility than debt
securities.
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- Market Trends. From time to time, the stock market may not
favor the securities in which the Fund invests. Rather, the
market could favor value stocks or small company stocks, or
may not favor equities at all.
- Risks of Foreign Investing. Foreign investments may be riskier
than U.S. investments for many reasons, including changes in
currency exchange rates, unstable political and economic
conditions, possible security illiquidity, a lack of adequate
company information, differences in the way securities markets
operate, less secure foreign banks or securities depositories
than those in the U.S., and foreign controls on investment.
- Lack of Diversification. The Fund is classified as a
non-diversified investment company, which means that, compared
with other funds, the Fund may invest a greater percentage of
its assets in a particular issuer. The investment of a large
percentage of the Fund's assets in the securities of a small
number of issuers may cause the Fund's share price to
fluctuate more than that of a diversified investment company.
PERFORMANCE SUMMARY. Performance information is only shown for those
funds which have had a full calendar year of operations. Since the ING Global
Brand Names Fund has not yet commenced operations, there is no performance
information included in this Prospectus.
FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if
you hold shares of the Fund. The Fund does not charge you any fees for buying,
selling or exchanging shares.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)(1)
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Fees Waived
Fund by Investment
Management Distribution Other Operating Manager and Net
Fees Fees(2) Expenses Expenses Distributor(3) Expenses
<S> <C> <C> <C> <C> <C> <C>
ING Global Brand Names Fund 1.00% 0.25% 0.78% 2.03% (0.80)% 1.23%
</TABLE>
(1) This table shows the estimated operating expenses for the Fund as a
ratio of expenses to average daily net assets. The Fund's costs and expenses are
based upon estimates of the Fund's operating expenses for the Fund's first
fiscal year.
(2) Pursuant to a Plan of Distribution adopted by the Fund under Rule
12b-1 under the 1940 Act, the Fund pays ING Funds Distributor, Inc. (the
"Distributor") an annual fee of up to 0.25% of the Fund's average daily net
assets attributable to that Fund's shares. The distribution fee 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 Fund. For additional
information, please see the Statement of Additional Information.
(3) The Investment Manager has entered into expense limitation
contracts with the Fund, under which it will limit expenses of the Fund,
excluding interest, taxes, brokerage and extraordinary expenses through December
31, 2000. The expense limit for the Fund is shown as "Net Expenses." Fee waiver
and/or reimbursements by the Investment Manager may vary in order to achieve
such contractually obligated "Net Expenses."
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EXAMPLES
These Examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. Each Example assumes:
- you invest $10,000 in the Fund for the time period indicated;
- your investment has a 5% return each year;
- the Fund's operating expenses remain the same; and
- you redeem all your shares at the end of the time period
indicated.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
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Fund 1 year 3 years
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ING Global Brand Names Fund $126 $564
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MANAGEMENT OF THE FUND
General. ING Mutual Funds Management Co. LLC (the "Investment Manager")
serves as the Fund's investment manager. The Investment Manager is a wholly
owned indirect subsidiary of ING Groep, N.V. ("ING Group") and is registered
with the Securities and Exchange Commission. The Investment Manager is located
at 1475 Dunwoody Drive, West Chester, PA 19380. As of March 31, 2000, the
Investment Manager managed over $ 1.5 billion in assets.
The Investment Manager supervises all aspects of the Fund's operations
and provides investment advisory services to the Fund. This includes engaging
sub-advisers, as well as monitoring and evaluating the management of the assets
of the Fund by its sub-adviser. The Investment Manager has acted as an
investment adviser to mutual funds since 1998. Today, the Investment Manager,
advises or manages 22 investment portfolios, including the Fund, encompassing a
broad range of investment objectives.
Sub-Adviser. The Investment Manager has engaged ING Investment
Management Advisors B.V. ("IIMA") to act as sub-adviser to the Fund. IIMA,
located in The Hague, The Netherlands, manages investments and provide
investment advice on a world-wide basis to entities affiliated and unaffiliated
with ING Group. IIMA operates under the collective management of ING Investment
Management which has investments under management of $150 billion as of March
31, 2000.
As the sub-adviser, the Sub-Adviser has full investment discretion to
make all determinations with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities and other investments. The
Sub-Adviser is wholly owned indirect subsidiary of ING Group and is registered
with the Securities and Exchange Commission.
Investment Manager Compensation. The Fund pays an advisory fee at the
annual rate of 1.00% of the Fund's average daily net assets.
Portfolio Managers. Mr. Herman Kleeven has primary responsibility for
the day-to-day management of the Fund's portfolio. Mr. Kleeven has been employed
by IIMA and its affiliates since 1997 and has seven years of investment
experience. Before joining IIMA and its affiliates, Mr. Kleeven was a portfolio
manager for Robeco Group, Rotterdam, The Netherlands.
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PURCHASE OF SHARES
Shares of the Fund are offered for purchase by Separate Accounts to
serve as an investment medium for Variable Contracts issued by life insurance
companies, and to qualified pension and retirement plans outside of the separate
account context. The Fund is "open for business" on each day the New York Stock
Exchange (the "Exchange") is open for trading. A purchase order, together with
payment in proper form, received before the close of regular trading on the
Exchange (normally 4:00 p.m., Eastern time) on a day the Fund is open for
business will be effected at that day's net asset value.
Life insurance companies participating in the Fund serve as the Fund's
designee for receiving purchase orders of separate accounts that invest in the
Fund. Variable Contract Owners do not deal directly with the Fund. The
allocation rights of Variable Contract Owners are described in the accompanying
Separate Account prospectus.
The Fund and the Distributor each reserves the right, in its sole
discretion, to suspend the offering of shares of the Fund or to reject any
purchase order, in whole or in part, when, in the judgment of management, such
suspension or rejection is in the best interests of the Fund and its investors.
REDEMPTION OF SHARES
Shares may be redeemed without charge on any day that the net asset
value is calculated. All redemption orders are effected at the net asset value
per share next determined after a redemption request is received. Life insurance
companies participating in the Fund serve as the Fund's designee for receiving
redemption orders of separate accounts that invest in the Fund. Variable
Contract Owners do not deal directly with the Fund. Payment for shares redeemed
normally will be made within seven days.
The Fund may suspend the right of redemption or postpone the payment
date at times when the Exchange is closed, or during certain other periods as
permitted under the Federal securities laws. In consideration of the best
interests of the remaining shareholders, the Fund reserves the right to pay
redemption proceeds in whole or in part by a distribution in kind of securities
held by the Fund in lieu of cash. If shares are redeemed in kind, the redeeming
shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution.
PRICING OF SHARES
The Fund prices its shares based on its net asset value. The Fund
values portfolio securities for which market quotations are readily available at
market value. The Fund values short-term investments maturing within 60 days at
amortized cost, which approximates market value. The Fund values all other
securities and assets at their fair value. Securities and other assets quoted in
foreign currencies are valued in U.S. dollars based on the prevailing exchange
rates on that day. In addition, if, between the time trading ends on a
particular security and the close of the Exchange, events occur that materially
affect the value of the security, the Fund may value the security at its fair
value as determined in good faith by or under the supervision of the Board of
Trustees. The effect of using fair value pricing is that the Fund's net asset
value will be subject to the judgment of the Board of Trustees or its designee
instead of being determined by the market. Because the Fund may invest in
securities that are primarily listed on foreign exchanges, the value of the
Fund's shares may change on days when the separate account will not be able to
purchase or redeem shares. The Fund determines the net asset value of its shares
as of the close of the Exchange on each day the Exchange is open for business.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The Fund generally declares and pays
dividends, if any, annually. The Fund generally distributes long-term and
short-term capital gains (including any net gains from foreign currency
transactions), if any, annually. At the election of participating life insurance
companies, dividends and distributions are automatically reinvested at net asset
value in shares of the Fund that has made the payment or distribution.
Taxes. The amount, timing and character of distributions to the
separate account may be affected by special tax rules applicable to certain
investments purchased by the Fund. Holders of variable contracts should refer to
the prospectus for their contracts for information regarding the tax
consequences of owning such contracts and should consult their tax advisers
before investing.
MORE INFORMATION ABOUT RISKS
The Fund's risk profile is largely a factor of the principal securities
in which it invests and investment techniques that it uses. The following pages
discuss the risks associated with certain of the types of securities in which
the Fund may invest and certain of the investment practices that the Fund may
use. For more information about these and other types of securities and
investment techniques used by the Fund, see the Statement of Additional
Information.
Many of the investment techniques and strategies discussed in this
Prospectus and in the Statement of Additional Information are discretionary,
which means that the Investment Manager or Sub-Adviser can decide whether to use
them or not. The Investment Manager or Sub-Adviser may also use investment
techniques or make investments in securities that are not a part of the Fund's
principal investment strategy.
Temporary Defensive Strategies. When the Investment Manager or
Sub-Adviser to the Fund anticipates unusual market or other conditions, the Fund
may temporarily depart from its principal investment strategies. Under such
circumstances, up to 100% of the Fund's assets may be invested in investment
grade fixed income securities (for example, rated at least BBB by Standard &
Poor's Rating Group or Baa by Moody's Investor Services), money market
securities, certificates of deposit, bankers' acceptances, commercial paper or
in any other securities which in either the Investment Manager's or
Sub-Adviser's opinion are more conservative than the types of securities in
which the Fund typically invests. To the extent the Fund is engaged in temporary
defensive investments, it will not be pursuing its investment objective.
Investments in Foreign Securities. There are certain risks in owning
foreign securities, including those resulting from: fluctuations in currency
exchange rates; devaluation of currencies; political or economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions; reduced availability of public information
concerning issuers; accounting, auditing and financial reporting standards or
other regulatory practices and requirements that are not uniform when compared
to those applicable to domestic companies; settlement and clearance procedures
in some countries that may not be reliable and can result in delays in
settlement; higher transaction and custody expenses than for domestic
securities; and limitations on foreign ownership of equity securities. Also,
securities of many foreign companies may be less liquid and the prices more
volatile than those of domestic companies. With certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends.
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The Fund that invests in foreign securities may enter into foreign currency
transactions either on a spot or cash basis at prevailing rates or through
forward foreign currency exchange contracts in order to have the necessary
currencies to settle transactions or to help protect the Fund against adverse
changes in foreign currency exchange rates. Such efforts could limit potential
gains that might result from a relative increase in the value of such
currencies, and might, in certain cases, result in losses to the Fund.
Corporate and Municipal Debt Securities. Corporate debt securities are
subject to the risk of the issuer's inability to meet principal and interest
payments on the obligation and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
credit-worthiness of the issuer and general market liquidity. When interest
rates decline, the value of the debt securities can be expected to rise, and
when interest rates rise, the value of those securities can be expected to
decline. Debt securities with longer maturities tend to be more sensitive to
interest rate movements than those with shorter maturities.
Initial Public Offerings. A significant portion of the Fund's return
may be attributable to its investment in initial public offerings. When the
Fund's asset base is small, the impact of such investments on the Fund's return
will be magnified. As the Fund's assets grow, it is probable that the effect of
the Fund's investment in initial public offerings on the Fund's total return
will decline.
U.S. Government Securities. Some U.S. Government agency securities may
be subject to varying degrees of credit risk, and all U.S. Government securities
may be subject to price declines in the securities due to changing interest
rates.
Convertible Securities. The price of a convertible security will
normally fluctuate in some proportion to changes in the price of the underlying
equity security, and as such is subject to risks relating to the activities of
the issuer and general market and economic conditions. The income component of
convertible securities causes fluctuations based upon changes in interest rates
and the credit quality of the issuer. Convertible securities are often lower
rated securities. The Fund may be required to redeem or convert a convertible
security before the holder would otherwise choose.
Other Investment Companies. The Fund may invest up to 10% of its
assets in other unaffiliated investment companies. There is no limit with regard
to investments in affiliated investment companies. When the Fund invests in
other investment companies, you indirectly pay a proportionate share of the
expenses of that other investment company (including management fees,
administration fees, and custodial fees) in addition to the expenses of the
Fund.
Restricted and Illiquid Securities. The Fund may invest up to 15% of
its net assets in restricted and illiquid securities. If a security is illiquid,
the Fund might be unable to sell the security at a time when the sub-adviser
might wish to sell, and the security could have the effect of decreasing the
overall level of the Fund's liquidity. Further, the lack of an established
secondary market may make it more difficult to value illiquid securities, which
could vary from the amount the Fund could realize upon disposition. Restricted
securities, i.e., securities subject to legal or contractual restrictions on
resale, may be illiquid. However, some restricted securities may be treated as
liquid, although they may be less liquid than registered securities traded on
established secondary markets.
Mortgage-Related Securities. Although mortgage loans underlying a
mortgage-backed security may have maturities of up to 30 years, the actual
average life of a mortgage-backed security typically will be substantially less
because the mortgages will be subject to normal principal amortization, and may
be prepaid prior to maturity. Like other fixed income securities, when interest
rates rise, the value of a mortgage-backed security generally will decline;
however, when interest rates are declining, the value of mortgage-backed
securities with prepayment features may not increase as much as other fixed
income securities. The rate of prepayments on underlying mortgages will affect
the price and volatility of a mortgage-related security, and may have the effect
of shortening or extending the effective maturity of the security beyond what
was anticipated at the time of the purchase. Unanticipated rates of prepayment
on underlying mortgages can be expected to increase the volatility of such
securities. In addition, the value of these securities may fluctuate in response
to the market's perception of the creditworthiness of the issuers of
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mortgage-related securities owned by the Fund. Additionally, although mortgages
and mortgage-related securities are generally supported by some form of
government or private guarantee and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
Asset-Backed Securities. Asset-backed securities involve certain risks
that are not posed by mortgage-related securities, resulting mainly from the
fact that asset-backed securities often do not contain the benefit of a complete
security interest in the related collateral. The risks associated with
asset-backed securities may be reduced by the addition of credit enhancements
such as a bank letter of credit or a third-party guarantee.
Derivatives. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. Some derivatives are sophisticated instruments
that typically involve a small investment of cash relative to the magnitude of
risks assumed. These may include swap agreements, options, forwards and futures.
Derivative securities are subject to market risk, which could be significant for
those that have a leveraging effect. The Fund may not necessarily invest in all
these types of derivatives, so please check the description of the Fund's
policies found in the Statement of Additional Information. Derivatives are also
subject to credit risks related to the counterparty's ability to perform, and
any deterioration in the counterparty's creditworthiness could adversely affect
the instrument. A risk of using derivatives is that the adviser might
imperfectly judge the market's direction. For instance, if a derivative is used
as a hedge to offset investment risk in another security, the hedge might not
correlate to the market's movements and may have unexpected or undesired
results, such as a loss or a reduction in gains.
Dollar Roll Transactions. The Fund may enter into dollar roll
transactions wherein the Fund sells fixed income securities, typically
mortgage-backed securities, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. Like a forward
commitment, during the roll period no payment is made for the securities
purchased and no interest or principal payments on the security accrue to the
purchaser, but the Fund assumes the risk of ownership. The Fund is compensated
for entering into dollar roll transactions by the difference between the current
sales price and the forward price for the future purchase, as well as by the
interest earned on the cash proceeds of the initial sale. Like other when-issued
securities or firm commitment agreements, dollar roll transactions involve the
risk that the market value of the securities sold by the Fund may decline below
the price at which the Fund is committed to purchase similar securities. In the
event the buyer of securities under a dollar roll transaction becomes insolvent,
the Fund's use of the proceeds of the transaction may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to repurchase the securities.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which involve the purchase by the Fund of a security that the seller has agreed
to buy back. If the seller defaults and the collateral value declines, the Fund
might incur a loss. If the seller declares bankruptcy, the Fund may not be able
to sell the collateral at the desired time.
Lending Portfolio Securities. In order to generate additional income,
the Fund may lend portfolio securities in an amount up to 33 1/3% of its total
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower default or fail financially.
Borrowing. The Fund may borrow for certain types of temporary or
emergency purposes subject to certain limits. Borrowing may exaggerate the
effect of any increase or decrease in the value of portfolio securities or the
net asset value of the Fund, and money borrowed will be subject to interest
costs. Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds.
Under adverse market conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
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Reverse Repurchase Agreements. A reverse repurchase agreement involves
the sale of a security, with an agreement to repurchase the same securities at
an agreed upon price and date. Whether such a transaction produces a gain for
the Fund depends upon the costs of the agreements and the income and gains of
the securities purchased with the proceeds received from the sale of the
security. If the income and gains on the securities purchased fail to exceed the
costs, net asset value will decline faster than otherwise would be the case.
Reverse repurchase agreements, as leveraging techniques, may increase the Fund's
yield; however, such transactions may result in a shareholder's loss of
principal.
Investments in Small- and Mid-Capitalization Companies. The Fund may
invest in small and mid capitalization companies. Investments in mid- and
small-capitalization companies involve greater risk than is customarily
associated with larger, more established companies due to the greater business
risks of small size, limited markets and financial resources, narrow product
lines and the frequent lack of depth of management. The securities of smaller
companies are often traded over-the-counter and may not be traded in volumes
typical on a national securities exchange. Consequently, the securities of
smaller companies may have limited market stability and may be subject to more
abrupt or erratic market movements than securities of larger, more established
growth companies or the market averages in general.
Non-diversified Investment Companies. The Fund is classified as a
non-diversified investment company under the 1940 Act, which means that the Fund
is not limited by the 1940 Act in the proportion of its assets that it may
invest in the obligations of a single issuer. The investment of a large
percentage of the Fund's assets in the securities of a small number of issuers
may cause that Fund's share price to fluctuate more than that of a diversified
investment company.
Fundamental and Non-Fundamental Policies. Unless otherwise stated, all
investment objectives and policies are non-fundamental and may be amended
without shareholder approval.
Percentage Investment Limitations. Unless otherwise stated, percentage
limitations in this prospectus apply at the time of investment.
Portfolio Turnover. The Fund may engage in frequent and active trading
of portfolio securities to achieve its investment objective. A high portfolio
turnover rate involves greater expenses to the Fund, including brokerage
commissions and other transaction costs, and is likely to generate more taxable
short-term gains for shareholders, which may have an adverse effect on the
performance of the Fund.
OBTAINING ADDITIONAL INFORMATION
More information may be obtained free of charge upon request. The
Statement of Additional Information (SAI), a current version of which is on file
with the Securities and Exchange Commission (SEC), contains more details about
the Fund and is incorporated by reference into the prospectus, meaning that it
is legally a part of this Prospectus. Annual and semiannual reports to
shareholders will contain additional information about the Fund's investments.
The Fund's annual report also will discuss the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
If you wish to obtain free copies of the Fund's current SAI, please
send a written request to the Fund at P.O. Box 1239, Malvern, PA 19355-9836 or
calling the Fund at 1-877-463-6464. You also can obtain copies of the Fund's SAI
and other information at the SEC's Public Reference Room in Washington, DC, on
the SEC's website (http://www.sec.gov) or by sending a letter, including a
duplicating fee, to the SEC's Public Reference Section, Washington, DC
20549-6009. Please call the SEC at 1-800-SEC-0330 for information about the
Public Reference Room.
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<TABLE>
<CAPTION>
<S> <C>
MANAGER TRANSFER AGENT
ING Mutual Funds Management Co. LLC DST Systems, Inc.
1475 Dunwoody Drive 333 W. 11th Street
West Chester, PA 19380 Kansas City, MO 64105
SUB-ADVISER INDEPENDENT AUDITORS
ING Investment Management Advisors B.V. Ernst & Young LLP
Schenkkade 65, 2595 AS 787 Seventh Avenue
The Hague, The Netherlands New York, NY 10019
DISTRIBUTOR LEGAL COUNSEL
ING Funds Distributor, Inc. Paul, Weiss, Rifkind, Wharton & Garrison
1475 Dunwoody Drive 1285 Avenue of the Americas
West Chester, PA 19380 New York, NY 10019-6064
CUSTODIAN
State Street Bank and Trust Company
801 Pennsylvania Street
Kansas City, MO 64105
</TABLE>
Additional information about the Fund is included in the Statement of Additional
Information ("SAI") dated April 28, 2000, as amended or supplemented from time
to time, which is incorporated by reference in its entirety. Additional
information about the Fund's investments will be available in the Fund's annual
and semiannual reports to shareholders. In the Fund's annual report you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during their last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call ING
Variable Annuities' Customer Service Desk at 1-800-366-0066.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information about
the Fund are available on the Commission's Internet site at http://www.sec.gov.
Copies of information on the Commission's Internet site can be obtained for a
fee by writing to: Securities and Exchange Commission, Public Reference Section,
Washington D.C. 20549-6009.
Investment Company Act File No. 811-09477
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STATEMENT OF ADDITIONAL INFORMATION
ING Variable Insurance Trust
1475 Dunwoody Drive
West Chester, PA 19380
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 eight funds (each, a "Fund" or, collectively, the "Funds") managed by
IMFC. Each Fund is a portfolio of ING Variable Insurance Trust (the "Trust"), an
open-end management investment company. The Funds are:
<TABLE>
<CAPTION>
Stock Funds Lifestyle Fund of Funds
<S> <C>
ING Large Cap Growth Fund ING Income Allocation Fund
ING Growth & Income Fund ING Balanced Allocation Fund
ING International Equity Fund ING Growth Allocation Fund
ING Global Brand Names Fund ING Aggressive Growth Allocation Fund
</TABLE>
This SAI is not a prospectus and is only authorized for distribution
when preceded or accompanied by the current Prospectus for the Funds, dated
April 28, 2000, as amended or supplemented from time to time. 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
telephone number printed above.
April 28, 2000
<PAGE> 14
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT POLICIES AND RISKS............................................... 1
COMMON STOCKS......................................................... 1
PREFERRED STOCKS...................................................... 1
U.S. TREASURY OBLIGATIONS............................................. 1
U.S. GOVERNMENT SECURITIES............................................ 1
STRIPS AND ZERO COUPON SECURITIES..................................... 2
WHEN-ISSUED, DELAYED DELIVERY SECURITIES AND COMMITMENTS.............. 2
WARRANT............................................................... 2
COMMERCIAL PAPER...................................................... 3
DOMESTIC AND FOREIGN BANK OBLIGATIONS................................. 3
CORPORATE DEBT SECURITIES............................................. 4
MORTGAGE-RELATED SECURITIES........................................... 4
GNMA CERTIFICATES..................................................... 5
FNMA CERTIFICATES..................................................... 4
FHLMC SECURITIES...................................................... 6
FHLMC CERTIFICATES.................................................... 6
NON-AGENCY MORTGAGE-BACKED SECURITIES................................. 7
ADJUSTABLE RATE MORTGAGE SECURITIES................................... 7
COLLATERALIZED MORTGAGE OBLIGATIONS................................... 8
REAL ESTATE SECURITIES................................................ 8
OPEN-END AND CLOSED END INVESTMENT COMPANIES.......................... 10
ASSET-BACKED SECURITIES............................................... 10
FOREIGN SECURITIES.................................................... 11
EMERGING COUNTRY AND EMERGING SECURITIES MARKET ...................... 11
DEPOSITORY RECEIPTS................................................... 12
CONVERTIBLE SECURITIES................................................ 13
VARIABLE RATE DEMAND OBLIGATIONS AND FLOATING RATE INSTRUMENTS........ 13
GUARANTEED INVESTMENT CONTRACTS....................................... 14
PRIVATE FUNDS......................................................... 14
OPTIONS ON SECURITIES................................................. 14
OVER-THE-COUNTER OPTIONS.............................................. 15
OPTIONS ON INDICES.................................................... 16
FOREIGN CURRENCY OPTIONS.............................................. 17
DOLLAR ROLL TRANSACTIONS.............................................. 17
SWAP AGREEMENTS....................................................... 18
FOREIGN CURRENCY FUTURES TRANSACTIONS................................. 19
FOREIGN GOVERNMENT OBLIGATIONS;
SECURITIES OF SUPRANATIONAL ENTITIES............................ 19
INTEREST RATE FUTURES CONTRACTS....................................... 19
SHORT SALES........................................................... 20
</TABLE>
ii
<PAGE> 15
<TABLE>
<S> <C>
LOANS OF PORTFOLIO SECURITIES......................................... 20
REPURCHASE AGREEMENTS................................................. 21
BORROWING............................................................. 21
REVERSE REPURCHASE AGREEMENTS......................................... 21
LOWER-RATED SECURITIES................................................ 21
ILLIQUID SECURITIES................................................... 22
ADDITIONAL RISK CONSIDERATIONS.............................................. 24
GENERAL............................................................... 24
EQUITY SECURITIES..................................................... 24
REAL ESTATE SECURITIES................................................ 25
FOREIGN SECURITIES AGREEMENTS......................................... 25
FIXED INCOME SECURITIES............................................... 26
OPTIONS AND FUTURES CONTRACTS......................................... 26
TECHNIQUES INVOLVING LEVERAGE......................................... 27
NON-DIVERSIFIED INVESTMENT COMPANIES.................................. 28
CONCENTRATION......................................................... 28
PORTFOLIO TURNOVER.................................................... 28
INVESTMENT RESTRICTIONS..................................................... 29
MANAGEMENT.................................................................. 30
Trustees and Officers................................................ 30
Trustees Biographies................................................. 30
Officers Biographies................................................. 31
Investment Manager................................................... 32
Sub-Advisers......................................................... 34
Distribution of Fund Shares.......................................... 34
Transfer Agent, Fund Accountant and Account Services................. 34
Rule 12b-1 Distribution Plan......................................... 35
DETERMINATION OF NET ASSET VALUE............................................ 36
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 37
PORTFOLIO TRANSACTIONS...................................................... 39
Portfolio Turnover................................................... 40
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................................... 40
Dividends and Distributions.......................................... 40
Tax Matters.......................................................... 41
OTHER INFORMATION........................................................... 43
Capitalization....................................................... 43
Code of Ethics....................................................... 44
Voting Rights........................................................ 44
Custodian............................................................ 45
Yield and Performance Information.................................... 45
Performance of the Underlying Funds.................................. 46
Other Performance Comparisons........................................ 47
Legal Counsel........................................................ 48
Independent Auditors................................................. 48
Registration Statement............................................... 48
APPENDIX.................................................................... 49
</TABLE>
iii
<PAGE> 16
INVESTMENT POLICIES AND RISKS
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 or underlying funds of the Fund of Funds may
invest, the investment policies and portfolio strategies that the Funds or the
underlying funds of the Fund of Funds may utilize, and certain risks attendant
to such investments, policies and strategies. The following descriptions apply
to all Funds and underlying funds of the Fund of Funds as indicated. THEY DO NOT
DIRECTLY APPLY TO THE FUND OF FUNDS UNLESS OTHERWISE INDICATED.
COMMON STOCK (All Funds, except the ING Money Market Fund). Common
stock represents the residual ownership interest in the issuer after all of its
obligations and preferred stocks are satisfied. Common stock fluctuates in price
in response to many factors, including historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market volatility.
PREFERRED STOCK (All Funds, except the ING Money Market Fund).
Preferred stock has a preference over common stock in liquidation and generally
in dividends as well, but is subordinated to the liabilities of the issuer in
all respects. Preferred stock may or may not be convertible into common stock or
debt. As a general rule, the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates and
perceived credit risk. Because preferred stock is junior to debt securities and
other obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in a
more senior debt security with similar stated yield characteristics.
U.S. TREASURY OBLIGATIONS. (All Funds including the Fund of
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 including the Fund of
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
<PAGE> 17
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.
STRIPS AND ZERO COUPON SECURITIES. (All Funds). Each Fund may invest
in separately traded principal and interest components of securities backed by
the full faith and credit of the United States Treasury. The principal and
interests components of United States Treasury bonds with remaining maturities
of longer than ten years are eligible to be traded independently under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest components are
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the component parts separately. The
interest component of STRIPS may be more volatile than that of United States
Treasury bills with comparable maturities. The Funds will not actively trade in
STRIPS.
The Funds may invest in zero coupon securities. A zero coupon
security pays no interest to its holder during its life and is sold at a
discount to its face value at maturity. The market prices of zero coupon
securities generally are more volatile than the market prices of securities that
pay interest periodically and are more sensitive to changes in interest rates
than non-zero coupon securities having similar maturities and credit qualities.
WHEN-ISSUED, DELAYED-DELIVERY SECURITIES AND FORWARD COMMITMENTS
(All Funds). The Funds may purchase securities on a when-issued or
delayed-delivery basis and may purchase or sell securities on a forward
commitment basis. When-issued or delayed-delivery transactions arise when
securities are purchased by a Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time of entering into the transaction. A forward
commitment transaction is an agreement by a Fund to purchase or sell securities
at a specified future date. When a Fund engages in these transactions, the Fund
relies on the buyer or seller, as the case may be, to consummate the sale.
Failure to do so may result in the Fund missing the opportunity to obtain a
price or yield considered to be advantageous. When-issued and delayed-delivery
transactions and forward commitment transactions may be expected to occur a
month or more before delivery is due. However, no payment or delivery is made by
a Fund until it receives payment or delivery from the other party to the
transaction. A separate account containing only liquid assets equal to the value
of purchase commitments will be maintained until payment is made. The securities
so purchased are subject to market fluctuation during this period and no income
accrues to the Fund until settlement takes place. 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.
WARRANTS (All Funds). The Funds may purchase warrants. A warrant
gives the purchaser the right to purchase securities from the issuer at a
specific price (the strike price) for a limited period of time. The strike price
of a warrant typically is much lower than the current market price of the
underlying securities and therefore are subject to greater price
2
<PAGE> 18
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities and may offer greater potential for capital appreciation
as well as capital loss.
COMMERCIAL PAPER (All Funds). 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 ING 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."
DOMESTIC AND FOREIGN BANK OBLIGATIONS (All Funds). These obligations
include but are not restricted to certificates of deposit, commercial paper,
Yankee dollar certificates of deposit, bankers' acceptances, Eurodollar
certificates of deposit and time deposits, promissory notes and medium-term
deposit notes. The Funds will not invest in any obligations of their affiliates,
as defined under the Investment Company Act of 1940 (the "1940 Act").
Each Fund limits its investment in United States bank obligations to
obligations of United States banks (including foreign branches). Each Fund
limits its investment in foreign bank obligations to United States
dollar-denominated obligations of foreign banks (including United States
branches of foreign banks) which in the opinion of the Sub-Adviser, are of an
investment quality comparable to obligations of United States banks which may be
purchased by the Funds.
Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Investments in fixed time deposits subject to withdrawal penalties
maturing in more than seven days may not exceed 15% of the value of the net
assets of the Funds (10% of the value of the net assets in the case of money
market funds).
Obligations of foreign banks involve somewhat different investment
risks than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that the obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks, or that the accounting,
auditing and financial reporting standards, practices and requirements
3
<PAGE> 19
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not subject to examination by any United States
Government agency or instrumentality.
Investments in Eurodollar and Yankee dollar obligations involve
additional risks. Most notably, there generally is less publicly available
information about foreign companies; there may be less governmental regulation
and supervision; they may use different accounting and financial standards; and
the adoption of foreign governmental restrictions may adversely affect the
payment of principal and interest on foreign investments. In addition, not all
foreign branches of United States banks are supervised or examined by regulatory
authorities as are United States banks, and such branches may not be subject to
reserve requirements.
CORPORATE DEBT SECURITIES (All Funds). 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 ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), 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). 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 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.
4
<PAGE> 20
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). 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 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). 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
5
<PAGE> 21
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). 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.
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). 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
6
<PAGE> 22
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 the
recognition of income which when distributed to shareholders will be taxable as
ordinary income.
NON-AGENCY MORTGAGE-BACKED SECURITIES (All Funds). 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). 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
7
<PAGE> 23
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.
COLLATERALIZED MORTGAGE OBLIGATIONS (All Funds). 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 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 (All Funds except the ING Money Market Fund).
The Funds may invest in real estate investment trusts ("REITs") and other real
estate industry operating companies ("REOCs"). For purposes of a Fund's
investments, a 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,
8
<PAGE> 24
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 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
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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.
OPEN-END AND CLOSED-END INVESTMENT COMPANIES. (All Funds including
the Fund of Funds). Each Fund may invest in shares of other open-end and
closed-end management investment companies, subject to the limitations of the
1940 Act and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment. The purchase of
securities of other investment companies results in duplication of expenses such
that investors indirectly bear a proportionate share of the expenses of such
mutual funds including operating costs, and investment advisory and
administrative fees.
INVESTMENT IN ING FUNDS (Fund of Funds, only). The investments of
each Fund of Fund are concentrated in underlying funds so each Fund of Fund's
performance is directly related to the investment performance of the underlying
funds held by it. The ability of each Fund of Fund to meet its investment
objective is directly related to the ability of the underlying funds to meet
their objectives as well as the allocation among those underlying funds by the
Investment Manager. There can be no assurance that the investment objective of
any Fund of Fund or any underlying fund will be achieved. The portfolios will
only invest in Class I shares of the underlying ING Funds and, accordingly, will
not pay any sales loads or 12b-1 or service or distribution fees in connection
with their investments in shares of the underlying funds. The Fund of Funds,
however, will indirectly bear their pro rata share of the fees and expenses
incurred by the underlying ING Funds that are applicable to Class I
shareholders. The investment returns of each Fund of Fund, therefore, will be
net of the expenses of the underlying funds in which it is invested.
ASSET-BACKED SECURITIES (All Funds). 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.
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.
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FOREIGN SECURITIES (All Funds except the ING 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.
The Funds also are authorized to use a proxy currency to hedge a
foreign exchange risk. This is done by using a forward foreign exchange contract
in a currency other than the currency of the asset subject to hedging. By
engaging in cross-hedging transactions, a Fund assumes the risk of imperfect
correlation between the subject currencies. This practice may present risks
different from, or in addition to, the risks associated with investments in
foreign currencies made to lock in the U.S. dollar price of a security.
EMERGING COUNTRY AND EMERGING SECURITIES MARKETS (ING Emerging
Markets Equity Fund, ING International Equity Funds, ING High Yield Bond Fund,
ING Intermediate Bond Fund and ING International Bond Fund). Trading volume on
emerging country stock exchanges is substantially less than that on the New York
Stock Exchange. Further, securities of some emerging country or emerging market
companies are less liquid and more volatile than securities of comparable U.S.
companies. Similarly, volume and liquidity in most emerging country bond markets
is substantially less than in the U.S. and, consequently, volatility of price
can be greater than in the U.S. Fixed commissions on emerging country stock or
emerging market exchanges are generally higher than negotiated commissions on
U.S. exchanges, although the Fund endeavors to achieve the most favorable net
results on its
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portfolio transactions and may be able to purchase the securities in which the
Fund may invest on other stock exchanges where commissions are negotiable.
Foreign stock exchanges, brokers and listed companies are generally subject to
less government supervision and regulation than in the United States. The
customary settlement time for foreign securities may be longer than the five-day
customary settlement time for United States securities.
Companies in emerging countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. Consequently,
there may be less publicly available information about an emerging country
company than about a U.S. company. Further, there is generally less governmental
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the U.S.
DEPOSITORY RECEIPTS (All Funds except ING Money Market Fund).
American Depositary Receipts ("ADRs") are U.S. dollar-denominated receipts
generally issued by domestic banks, which evidence the deposit with the bank of
the common stock of a foreign issuer and which are publicly traded on exchanges
or over-the-counter in the United States.
The Funds may invest in both sponsored and unsponsored ADR programs.
There are certain risks associated with investments in unsponsored ADR programs.
Because the non-U.S. company does not actively participate in the creation of
the ADR program, the underlying agreement for service and payment will be
between the depository and the shareholder. The company issuing the stock
underlying the ADR pays nothing to establish the unsponsored facility, as fees
for ADR issuance and cancellation are paid by brokers. Investors directly bear
the expenses associated with certificate transfer, custody and dividend payment.
In an unsponsored ADR program, there also may be several
depositories with no defined legal obligations to the non-U.S. company. The
duplicate depositories may lead to marketplace confusion because there would be
no central source of information to buyers, sellers and intermediaries. The
efficiency of centralization gained in a sponsored program can greatly reduce
the delays in delivery of dividends and annual reports. In addition, with
respect to all ADRs there is always the risk of loss due to currency
fluctuations.
Investments in ADRs involve certain risks not typically involved in
purely domestic investments, including future foreign political and economic
developments, and the possible imposition of foreign governmental laws or
restrictions applicable to such investments. Securities of foreign issuers
through ADRs are subject to different economic, financial, political and social
factors. Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. With respect to certain countries, there is the possibility
of expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect the value of
the particular ADR. There may be less publicly available information about a
foreign company than about a U.S. company, and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers and listed
companies. In addition, such companies may use different accounting and
financial standards
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(and certain currencies may become unavailable for transfer from a foreign
currency), resulting in a Fund's possible inability to convert proceeds realized
upon the sale of portfolio securities of the affected foreign companies
immediately into U.S. currency. The Funds may also invest in European Depository
Receipts ("EDRs") and Global Depositary Receipts ("GDRs"). EDRs are receipts
issued in bearer form by a European financial institution and traded in European
securities' markets. GDRs are receipts issued globally. EDRs are designed for
trading in European Markets and GDRs are designed for trading in non-U.S.
securities markets. Investments in EDRs and GDRs involve similar risks as ADRs.
CONVERTIBLE SECURITIES (All Funds except the ING Money Market Fund).
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. 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
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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 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). 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 ING 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 (All Funds except ING Money Market Fund, ING
Intermediate Bond Fund and ING International Bond 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
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
involves risks, including loss of the Fund's entire investment in the Private
Fund.
OPTIONS ON SECURITIES (All Funds except the ING Money Market Fund).
Each Fund may purchase put and call options. In addition, 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 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
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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 benchmark. 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.
OVER-THE-COUNTER OPTIONS (All Funds except the ING Money Market
Fund). As indicated in the prospectus, 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
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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 the ING Money Market Fund).
Each Fund also 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
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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 therefore.
FOREIGN CURRENCY OPTIONS (All Funds except the ING Money Market
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 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 (All Funds except the ING Money Market
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
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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.
SWAP AGREEMENTS (All Funds except the ING Money Market Fund). To
manage its exposure to different types of investments, the Funds may enter into
interest rate, total return, currency and mortgage (or other asset) swap
agreements and may purchase and sell interest rate "caps," "floors" and
"collars." In a typical interest rate swap agreement, one party agrees to make
regular payments equal to a floating interest rate on a specified amount (the
"notional principal amount") in return for payments to a fixed interest rate on
the same amount for a specified period. Total return swap agreements are similar
to interest rate swap agreements, except the numerical amount is tied to a
market-linked return. If a swap agreement provides for payment in different
currencies, the parties may also agree to exchange the notional principal
amount. Mortgage swap agreements are similar to interest rate swap agreements,
except that the notional principal amount is tied to a reference pool of
mortgages. In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
Swap agreements may involve leverage and may be highly volatile;
depending on how they are used, they may have a considerable impact on the
Fund's performance. Swap agreements involve risks depending upon the
counterparties creditworthiness and ability to perform as well as the Fund's
ability to terminate its swap agreements or reduce its exposure through
offsetting transactions. The Sub-Advisers monitor the creditworthiness of
counterparties to these transactions and intend to enter into these transactions
only when they believe the counterparties present minimal credit risks and the
income expected to be earned from the transaction justifies the attendant risks.
FOREIGN CURRENCY FUTURES TRANSACTIONS (All Funds except the ING
Money Market Fund). As part of its financial futures transactions, each Fund may
use
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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 that such contracts may provide
greater liquidity and lower cost than forward foreign currency exchange
contracts.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES
(All Funds except the ING Money Market Fund). 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 the 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
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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 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 International Equity Funds, ING Emerging Markets
Equity Fund, ING Intermediate Bond Fund and ING High Yield Bond 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, consisting of 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.
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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 including the Fund of 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 including the Fund of Funds). A 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). 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, ING High
Yield Bond Fund, ING Intermediate Bond Fund and ING International 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 below Baa by
Moody's or below BBB by 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.
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
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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 including Fund of 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 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
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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.
Pursuant to guidelines adopted by and under the supervision of the
Board of Trustees, 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
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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.
Investments in Rule 144A securities and Section 4(2) commercial paper could have
the effect of increasing Fund illiquidity.
ADDITIONAL RISK CONSIDERATIONS
The following pages discuss the Additional Risk Considerations
associated with certain of the types of securities in which the Funds or the
underlying funds of the Fund of Funds may invest and certain of the investment
practices that the Funds or the underlying funds of the Fund of Funds may use.
The following descriptions apply to all Funds and underlying funds of the Fund
of Funds as indicated. THEY DO NOT DIRECTLY APPLY TO THE FUND OF FUNDS UNLESS
OTHERWISE INDICATED.
GENERAL (including the Fund of Funds). The price per share of each
of the Funds will fluctuate with changes in value of the investments held by the
Fund. For example, the value of a Fund's shares will generally fluctuate
inversely with the movements in interest rates. Shareholders of a Fund should
expect the value of their shares to fluctuate with changes in the value of the
securities owned by the Fund. There is, of course, no assurance that a Fund will
achieve its investment objective or be successful in preventing or minimizing
the risk of loss that is inherent in investing in particular types of investment
products. In order to attempt to minimize that risk, the Sub-Adviser monitors
developments in the economy, the securities markets, and with each particular
issuer. Also, as noted earlier, each diversified Fund (i.e., all funds except
the ING Global Brand Names Funds, ING Focus Fund, ING Internet Fund, ING
International Bond Fund and the Fund of Funds) is managed within certain
limitations that restrict the amount of the Fund's investment in any single
issuer. The ING Money Market Fund will attempt to maintain a stable $1.00 net
asset value per share.
EQUITY SECURITIES. Investments in equity securities in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of convertible equity securities is also affected by prevailing interest
rates, the credit quality of the issuer and any call provisions. Fluctuations in
the value of equity securities in which a Fund invests will cause the net asset
value of the Fund to fluctuate.
Investments in mid- and small-capitalization companies involve
greater risk than is customarily associated with larger, more established
companies due to the greater business risks of small size, limited markets and
financial resources, narrow product lines and the frequent lack of depth of
management. The securities of smaller companies are often traded
over-the-counter and may not be traded in volumes typical on a national
securities exchange. Consequently, the securities of smaller companies may have
limited market stability and may be subject to more abrupt or erratic market
movements than securities of larger, more
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established growth companies or the market averages in general.
REAL ESTATE SECURITIES. While the Funds will not invest in real
estate directly, the Funds may be subject to risks similar to those associated
with the direct ownership of real estate (in addition to securities markets
risks) because of its policy of concentration in the securities of companies in
the real estate industry. These risks include declines in the value of real
estate, risks related to general and local economic conditions, dependency on
management skill, heavy cash flow dependency, possible lack of availability of
mortgage funds, overbuilding, extended vacancies of properties, increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, losses due to costs resulting from the clean-up of environmental
problems, liability to third parties for damages resulting from environmental
problems, casualty or condemnation losses, limitations on rents, changes in
neighborhood values and in the appeal of properties to tenants and changes in
interest rates.
In addition to these risks, Equity REITs may be affected by changes
in the value of the underlying property owned by the trusts, while Mortgage
REITs may be affected by the quality of any credit they extend. Further, Equity
REITs and Mortgage REITs are dependent upon management skills and generally may
not be diversified. Equity REITs and Mortgage REITs are also subject to heavy
cash flow dependency, defaults by borrowers and self-liquidation. In addition,
Equity REITs and Mortgage REITs could possibly fail to qualify for tax-free
pass-through of income under the Code or to maintain their exemptions from
registration under the 1940 Act. The above factors may also adversely affect a
borrower's or a lessee's ability to meet its obligations to the REIT. In the
event of a default by a borrower or lessee, the REIT may experience delays in
enforcing its rights as a mortgagee or lessor and may incur substantial costs
associated with protecting its investments. In addition to the foregoing risks,
certain "special purpose" REITs may invest their assets in specific real estate
sectors, such as hotel REITs, nursing home REITs or warehouse REITs, and are
therefore subject to the risks associated with adverse developments in any such
sectors.
FOREIGN SECURITIES. Investing in the securities of issuers in any
foreign country including ADRs and EDRs involves special risks and
considerations not typically associated with investing in U.S. companies. These
include differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); and political
instability which could affect U.S. investments in foreign countries.
Additionally, foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including taxes withheld from
payments on those securities. Foreign securities often trade with less frequency
and volume than domestic securities and, therefore, may exhibit greater price
volatility. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custodial arrangements
and transaction costs of foreign currency conversions. Changes in foreign
exchange rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. The Funds' investments may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic
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and political developments.
FIXED INCOME SECURITIES. The market value of a Fund's fixed income
investments will change in response to interest rate changes and other factors.
During periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Securities with longer
maturities are subject to greater fluctuations in value than securities with
shorter maturities. Changes by an NRSRO in the rating of any fixed income
security and in the ability of an issuer to make payments of interest and
principal also affect the value of these investments. Changes in the value of a
Fund's securities will not affect cash income derived from these securities but
will affect the Fund's net asset value.
Securities held by a Fund that are guaranteed by the U.S.
Government, its agencies or instrumentalities guarantee only the payment of
principal and interest on the guaranteed securities, and do not guarantee the
securities' yield or value or the yield or value of a Fund's shares.
OPTIONS AND FUTURES CONTRACTS. One risk involved in the purchase and
sale of futures and options is that a Fund may not be able to effect closing
transactions at a time when it wishes to do so. Positions in futures contracts
and options on futures contracts may be closed out only on an exchange or board
of trade that provides an active market for them, and there can be no assurance
that a liquid market will exist for the contract or the option at any particular
time. To mitigate this risk, each Fund will ordinarily purchase and write
options only if a secondary market for the options exists on a national
securities exchange or in the over-the-counter market. Another risk is that
during the option period, if a Fund has written a covered call option, it will
have given up the opportunity to profit from a price increase in the underlying
securities above the exercise price in return for the premium on the option
(although the premium can be used to offset any losses or add to a Fund's
income) but, as long as its obligation as a writer continues, such Fund will
have retained the risk of loss should the price of the underlying security
decline. Investors should note that because of the volatility of the market
value of the underlying security, the loss from investing in futures
transactions is potentially unlimited. In addition, a Fund has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once a Fund has received an exercise notice, it cannot effect a closing
transaction in order to terminate its obligation under the option and must
deliver the underlying securities at the exercise price.
The Funds' successful use of stock index futures contracts, options
on such contracts and options on indices depends upon the ability of the
Sub-Adviser to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of the futures
contract and the price of the securities being hedged is imperfect and the risk
from imperfect correlation increases in the case of stock index futures as the
composition of the Funds' portfolios diverge from the composition of the
relevant index. Such imperfect correlation may prevent the Funds from achieving
the intended hedge or may expose the Funds to risk of loss. In addition, if the
Funds purchase futures to hedge against market advances before they can invest
in common stock in an advantageous manner and the market declines, the Funds
might create a loss on the futures contract. Particularly in the case of options
on stock index futures and on stock indices, the Funds' ability to establish and
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maintain positions will depend on market liquidity. The successful utilization
of options and futures transactions requires skills different from those needed
in the selection of the Funds' portfolio securities. The Funds believe that the
Sub-Adviser possesses the skills necessary for the successful utilization of
such transactions.
The Funds are permitted to engage in bona fide hedging transactions
(as defined in the rules and regulations of the Commodity Futures Trading
Commission) without any quantitative limitations. Futures and related option
transactions which are not for bona fide hedging purposes may be used provided
the total amount of the initial margin and any option premiums attributable to
such positions does not exceed 5% of each Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any in-
the-money option premiums paid. The Funds will not market, and are not
marketing, themselves as commodity pools or otherwise as vehicles for trading in
futures and related options. The Funds will segregate liquid assets such as
cash, U.S. Government securities or other liquid high grade debt obligations to
cover the futures and options.
TECHNIQUES INVOLVING LEVERAGE. Utilization of leveraging involves
special risks and may involve speculative investment techniques. Certain Funds
may borrow for other than temporary or emergency purposes, lend their
securities, enter reverse repurchase agreements, and purchase securities on a
when issued or forward commitment basis. In addition, certain Funds may engage
in dollar roll transactions. Each of these transactions involve the use of
"leverage" when cash made available to the Fund through the investment technique
is used to make additional portfolio investments. The Funds use these investment
techniques only when the Sub-Adviser believes that the leveraging and the
returns available to the Fund from investing the cash will provide shareholders
a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a
capital base that exceeds the investment the Fund has invested. Leverage creates
the risk of magnified capital losses which occur when losses affect an asset
base, enlarged by borrowings or the creation of liabilities, that exceeds the
equity base of the Fund. Leverage may involve the creation of a liability that
requires the Fund to pay interest (for instance, reverse repurchase agreements)
or the creation of a liability that does not entail any interest costs (for
instance, forward commitment transactions).
The risks of leverage include a higher volatility of the net asset
value of a Fund's shares and the relatively greater effect on the net asset
value of the shares caused by favorable or adverse market movements or changes
in the cost of cash obtained by leveraging and the yield obtained from investing
the cash. So long as a Fund is able to realize a net return on its investment
portfolio that is higher than interest expense incurred, if any, leverage will
result in higher current net investment income being realized by such Fund than
if the Fund were not leveraged. On the other hand, interest rates change from
time to time as does their relationship to each other depending upon such
factors as supply and demand, monetary and tax policies and investor
expectations. Changes in such factors could cause the relationship between the
cost of leveraging and the yield to change so that rates involved in the
leveraging arrangement may substantially increase relative to the yield on the
obligations in which the proceeds of the leveraging have been invested. To the
extent that the interest expense involved
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in leveraging approaches the net return on a Fund's investment portfolio, the
benefit of leveraging will be reduced, and, if the interest expense on
borrowings were to exceed the net return to shareholders, such Fund's use of
leverage would result in a lower rate of return than if the Fund were not
leveraged. Similarly, the effect of leverage in a declining market could be a
greater decrease in net asset value per share than if a Fund were not leveraged.
In an extreme case, if a Fund's current investment income were not sufficient to
meet the interest expense of leveraging, it could be necessary for such Fund to
liquidate certain of its investments at an inappropriate time. The use of
leverage may be considered speculative.
NON-DIVERSIFIED INVESTMENT COMPANIES (Fund of Funds, ING Global
Brand Names Funds, ING Focus Fund, ING Internet Fund and ING International Bond
Fund). The Funds are classified as non-diversified investment companies under
the 1940 Act, which means that each Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. In addition, under Section 12d(l)(G) of the 1940 Act, each Fund of Fund
may invest substantially all of its assets in the underlying funds. The
investment of a large percentage of a Fund's assets in the securities of a small
number of issuers may cause that Fund's share price to fluctuate more than that
of a diversified investment company.
CONCENTRATION (Fund of Funds, ING Global Information Technology
Fund, ING Global Communications Fund and ING Internet Fund). The Funds
"concentrate" (for purposes of the 1940 Act) their assets in securities related
to a particular sector or industry, which means that at least 25% of its assets
will be invested in these assets at all times. Because of the investment
objectives and policies of the Fund of Funds, each will each concentrate more
than 25% of their assets in the mutual fund industry. As a result, each Fund may
be subject go greater market fluctuation than a fund which has securities
representing a broader range of investment alternatives.
PORTFOLIO TURNOVER (including the Fund of Funds). Each Fund will
adjust its portfolio as it deems advisable in view of prevailing or anticipated
market conditions or fluctuations in interest rates to accomplish its respective
investment objective. For example, each Fund may sell portfolio securities in
anticipation of an adverse market movement. Other than for tax purposes,
frequency of portfolio turnover will not be a limiting factor if a Fund
considers it advantageous to purchase or sell securities. The Funds do not
anticipate that the respective annual portfolio turnover rates will exceed the
following: ING Large Cap Growth Fund 100%; ING Growth & Income Fund 100%; ING
Mid Cap Growth Fund 100%; ING Small Cap Growth Fund 100%; ING Global Brand Names
Funds 100%; ING International Equity Funds 200%; ING European Equity Fund 100%;
ING Emerging Markets Equity Fund 200%; ING Focus Fund, 100%; ING Global
Information Technology Fund 100%; ING Global Communications Funds 100%; ING
Internet Fund, 250%; ING Intermediate Bond Fund 300%; ING High Yield Bond Fund
350%; ING International Bond Fund 150%;, and each of the Fund of Funds, 50%. A
high rate of portfolio turnover involves correspondingly greater transaction
expenses than a lower rate, which expenses must be borne by each Fund and its
shareholders.
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<PAGE> 44
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 a Fund's outstanding voting
shares. Investment restriction number 9 is not a fundamental policy and may be
changed by vote of a majority of the members of the Board of Trustees 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 this SAI;
(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.
(9) Invest more than 15%, 10% in the case of the ING Money Market
Fund, 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
29
<PAGE> 45
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 Fund of Funds and ING Global
Brand Names Funds are diversified funds. As such, each will not, with respect to
75% 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.
Each Fund, except ING International Equity, will only purchase fixed
income securities that are rated investment grade, i.e., rated at least BBB by
S&P or Baa by Moody's, or have an equivalent rating from another NRSRO, or if
unrated, are determined to be of comparable quality by the Sub-Adviser. The ING
International Equity Fund will only purchase fixed income securities that are
rated at least AA+ by S&P or Aa-2 by Moody's, or have an equivalent rating from
another NRSRO, or if unrated, are determined to be of comparable quality by the
Sub-Adviser. Money market securities, certificates of deposit, banker's
acceptance and commercial paper purchased by the Stock Funds must be rated in
one of the two top rating categories by an NRSRO or, if not rated, determined to
be of comparable quality by the Stock Fund's Sub-Adviser.
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 business and affairs of the Funds are managed under the
direction of the Board of Trustees. 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 1475 Dunwoody Drive, West
Chester, PA 19380. 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 41. President and Chief Executive Officer of ING Mutual Funds Management
Co. LLC (1998-present); Director, President and Chief Executive Officer, ING
Funds Distributor, Inc. (1999-present); Chief Executive Officer of ING Fund
Services Co. LLC (1998-present); Director of
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<PAGE> 46
Furman Selz LLC (1994-present). Mr. Pileggi is also a Trustee of the First
Choice Funds, Intrust Funds and the Performance Funds.
Joseph N. Hankin, Trustee - Age 60, Four Merion Drive, Purchase,
NY 10577-1302. President, Westchester Community College (since 1971);
Adjunct Professor of Columbia University Teachers College (since 1976). Dr.
Hankin is also a Trustee of the First Choice Funds.
Jack D. Rehm, Trustee - Age 67, 3131 Fleur Drive, Des Moines, IA
50321. Chairman of the Board (Retired) of Meredith Corp. (1992-1997);
President and Chief Executive Officer of Meredith Corp. (1989-1996). Mr. Rehm
is also a Director of Meredith Corp., International Multifoods Corp. and Star
Tek, Inc.
Blaine E. Rieke, Trustee - Age 66, 6111 North Berkeley Blvd.,
Milwaukee, WI 53217. General Partner of Huntington Partners (1997-present);
Chairman and Chief Executive Officer of Firstar Trust Company (1973-1996).
Richard A. Wedemeyer, Trustee - Age 63, 78 Summit Road, Riverside,
CT 06878. 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). Mr.
Wedemeyer is also a Trustee of the First Choice Funds.
Officers Biographies
John J. Pileggi, President and Chief Executive Officer - Age 41.
See above.
Donald Brostrom, Treasurer - Age 41. Executive Vice President
and Chief Operating Officer, ING Mutual Funds Management Co. LLC
(1998-present); Chief Financial Officer of ING Fund Services Co. LLC.
(1998-present); Director, Treasurer and Chief Financial Officer, ING Funds
Distributor, Inc. (1999-present); Managing Director, Furman Selz LLC
(1984-1998).
Louis S. Citron, Vice President - Age 35. Senior Vice President
and General Counsel, ING Mutual Funds Management Co. LLC (1998-present); Vice
President of ING Fund Services Co. LLC. (1998-present); Attorney at Kramer,
Levin, Naftalis & Frankel (1994-1998).
Ralph G. Norton, III, Vice President - Age 40. Vice President and
Chief Investment Officer, ING Mutual Funds Management Co. LLC (1999-present);
Managing Editor, Standard & Poor's (1996-1999); Vice President, IBC Financial
Data (1992-1996).
Rachelle I. Rehner, Secretary - Age 38. Fund Legal Manager, ING
Mutual Funds Management Co. LLC (1998-present); Secretary, ING Funds
Distributor, Inc. (1999-present); ); Secretary, ING Fund Services Co. LLC
(1998-present); Senior Legal Assistant, Kramer, Levin, Naftalis & Frankel
(1995-1998); Compliance Administrator, BISYS Funds Services (1994-1995).
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<PAGE> 47
Charles Eng, Assistant Treasurer - Age 36. Fund Accounting Manager,
ING Mutual Funds Management Co. LLC (1998-present); Assistant Treasurer, Chase
Manhattan Bank (1997-1998); Assistant Manager, BISYS Fund Services (1996-1997);
Associate Director, Furman Selz LLC (1992-1996).
Amy Lau, Assistant Treasurer - Age 34. 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 IMFC or IFD receive from the
Funds an annual retainer of $2,500.00 and a fee of $625.00 for Board of Trustees
meetings 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 IMFC or IFD do not receive compensation from the Funds.
Investment Manager
ING Mutual Funds Management Co. LLC, 1475 Dunwoody Drive, West Chester, PA
19380, serves as the Manager of the Funds. IMFC is a wholly owned subsidiary of
ING America Insurance Holdings, Inc. which in turn 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, as well as performing the necessary
allocations in relation to the Fund of Funds. The Manager will make
recommendations to the Board of Trustees concerning changes to (a) the
underlying funds in which the Fund of Funds may invest, (b) the percentage range
of assets that may be invested by each Fund of Fund in any one underlying fund
and (c) the percentage range of assets of any Fund of Fund that may be invested
in equity funds and fixed income funds (including money market funds). 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 and the Distributor by reason of common ownership. 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
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
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<PAGE> 48
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 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.
The Manager also serves as investment adviser to each of the
underlying funds in which the Fund of Funds may invest and is responsible for
the selection and management of each of the underlying fund's investments.
Decisions to buy and sell shares of the underlying funds for the Funds of Funds
are made by Investment Manager, subject to the overall supervision and review of
the portfolios' Board of Directors.
Each Fund of Fund, as a shareholder in the underlying funds, will
indirectly bear its proportionate share of any investment management fees and
other expenses paid by the underlying funds. The effective management fee of
each of the underlying funds in which the portfolios may invest is set forth
below as a percentage rate of the fund's average net assets:
<TABLE>
<CAPTION>
--------------------------------------------------------------
UNDERLYING FUND MANAGEMENT FEES
--------------------------------------------------------------
<S> <C>
ING Large Cap Growth Fund 0.75%
--------------------------------------------------------------
ING Growth & 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 Focus Fund 1.00%
--------------------------------------------------------------
NG Global Information Technology Fund 1.25%
--------------------------------------------------------------
ING Internet Fund 1.25%
--------------------------------------------------------------
ING Emerging Markets Equity Fund 1.25%
--------------------------------------------------------------
ING Global Communications Fund 1.00%
--------------------------------------------------------------
ING Intermediate Bond Fund 0.50%
--------------------------------------------------------------
ING High Yield Fund 0.65%
--------------------------------------------------------------
ING International Bond Fund 1.00%
--------------------------------------------------------------
ING Money Market Fund 0.25%
--------------------------------------------------------------
</TABLE>
An affiliate of the Manager has made a significant investment in the
underlying funds. The affiliate may redeem its investment in the applicable
Funds at any time. Such redemption may have an adverse effect on such 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
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<PAGE> 49
ING Investment Management LLC ("IIM") serves as Sub-Adviser to 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 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").
Baring Asset Management, Inc. ("BAM") serves as Sub-Adviser to
the ING Large Cap Growth Fund and acts as Co-Sub-Adviser to the ING
International Equity Fund. Located at 125 High Street, Boston, Massachusetts
02110, BAM is a wholly-owned subsidiary of BAMHL.
Baring Asset Management (Asia) Limited ("BAML") acts as
Co-Sub-Adviser to the ING International Equity Fund. BAML is located at 19/F
Edinburgh Tower, The Landmark, 15 Queens Road, Central, Hong Kong. BAML 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. Located at Schenkkade 65, 2595
AS, The Hague, The Netherlands, IIMA operates under the collective management of
ING Investment Management.
Distribution of Fund Shares
ING Funds Distributor, Inc., 1475 Dunwoody Drive, West Chester, PA
19380, serves as distributor and principal underwriter of the Funds. As
distributor, IFD is obligated to sell shares of each Fund on a best efforts
basis only against purchase orders for the shares. Shares of each Fund are
offered on a continuous basis. IFD is affiliated with the Manager and the
Sub-Advisers by reason of common ownership.
Transfer Agent, Fund Accountant and Account Services
ING Fund Services Co. LLC ("ING Fund Services") 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 and
other services. ING Fund Services is an affiliate of the Manager and the
Distributor by reason of common ownership. Under the Fund Services Agreement,
each Fund may pay ING Fund Services annually up to $40,000 for fund accounting
services plus out-of-pocket expenses, $17 per account for transfer agency
services plus out-of-pocket expenses and up to 0.25% of each Fund's average
daily net assets annually for account servicing activities. ING Fund Services
may engage third parties to perform some or all of these services. ING Fund
Services has retained DST Systems, Inc. ("DST") to act as the Funds' transfer
agent and PFPC Inc. ("PFPC") to act as the Funds' fund accounting agent. DST is
located at 333 W. 11th Street, Kansas City, Missouri 64105, and PFPC
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<PAGE> 50
is located at 400 Bellvue Parkway, Wilmington, DE 19809. For their services as
transfer agent and fund accounting agent, DST and PFPC, respectively, receive a
fee from ING Fund Services (and not the Funds) on a monthly basis.
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 0.25%
of average net assets attributable to that Fund's shares.
The distribution fee 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 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, and 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.
Agreements implementing the Plan of Distribution (the
"Implementation Agreements"), including agreements with dealers wherein such
dealers agree for a fee to act as agents for the sale of the Funds' shares, are
in writing and have been approved by the Board of Trustees. All payments made
pursuant to the Plan of Distribution are made in accordance with written
agreements.
The continuance of the Plan of Distribution and the Implementation
Agreements must be specifically approved at least annually by a vote of the
Trust's Board of Trustees and by a vote of the Trustees who are not interested
persons of the Trust and have no direct or indirect financial interest in the
Plan or any Implementation Agreement (the "Independent Trustees") at a meeting
called for the purpose of voting on such continuance. The Plan of Distribution
may be terminated at any time by a vote of the majority of the Independent
Trustees or by a vote of the holders of a majority of the outstanding shares of
a Fund or the applicable class of a Fund. In the event the Plan of Distribution
is terminated in accordance with its terms, the affected Fund (or class) will
not be required to make any payments for distribution expenses incurred after
the termination date, although the Board of Trustees may allow the Funds to pay
distribution expenses to the Distributor which were incurred before the Plan was
terminated. Each Implementation Agreement terminates automatically in the event
of its assignment and may be terminated at any time by a vote of the majority of
the Independent Trustees or by a vote of the holders of a majority of the
outstanding shares of a Fund (or the applicable class) on not more than 60 days'
written notice to any other party to the
35
<PAGE> 51
Implementation Agreement. The Plan of Distribution may not be amended to
increase materially the amount to be spent for distribution without shareholder
approval. All material amendments to the Plan of Distribution must be approved
by a vote of the Trust's Board of Trustees and by a vote of the Independent
Trustees.
In approving the Plan of Distribution, the Trustees determined, in
the exercise of their business judgment and in light of their fiduciary duties
as Trustees, that there is a reasonable likelihood that the Plan will benefit
the Funds and their shareholders. The Board of Trustees believes that
expenditure of the Funds' assets for distribution expenses under the Plan of
Distribution should assist in the growth of the Funds which will benefit the
Funds and their shareholders through increased economies of scale, greater
investment flexibility, greater portfolio diversification and less chance of
disruption of planned investment strategies. The Plan of Distribution will be
renewed only if the Trustees make a similar determination for each subsequent
year of the Plan. There can be no assurance that the benefits anticipated from
the expenditure of the Funds' assets for distribution will be realized. While
the Plan of Distribution is in effect, all amounts spent by the Funds pursuant
to the Plan and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each class of shares bears to the sales of all of the
shares of such Fund. In addition, the selection and nomination of those Trustees
who are not interested persons of the Trust are committed to the discretion of
the Independent Trustees during such period.
John J. Pileggi, as an interested person of the Trust, may be deemed
to have a financial interest in the operation of the Plan of Distribution and
the Implementation Agreements.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund's shares will be determined on any
day that the New York Stock Exchange (the "NYSE") is open. The NYSE is closed on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of each Fund is normally determined
daily as of the close of trading on the NYSE (generally 4:00 p.m. Eastern time)
on each business day of the Funds. For purposes of determining net asset value
per share, futures and options contracts closing prices which are available 15
minutes after the close of trading of the NYSE will generally be used. Net asset
value per share is determined by dividing the value of the Fund's securities,
cash and other assets (including interest accrued but not collected), less all
its liabilities (including accrued expenses and dividends payable), by the total
number of shares outstanding. Determination of the Fund's net asset value per
share is made in accordance with generally accepted accounting principles.
The value of each underlying fund will be its net asset value at the
time of
36
<PAGE> 52
computation. Short-term investments that have a maturity of more than 60 days
are valued at prices based on market quotations for securities of similar type,
yield and maturity. Short-term investments that have a maturity of 60 days or
less are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees of the Trust. Amortized cost involves valuing an
instrument at its original cost to the portfolio and thereafter assuming a
constant amortization to maturity of any discount or premium regardless of the
effect of fluctuating interest rates on the market value of the instrument.
Each equity security held by the Fund is valued at its last sales
price on the exchange where the security is principally traded or, lacking any
sales on a particular day, the security is valued at the closing bid price on
that day. Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a last
sales price, at the closing bid price on that day. Debt securities are valued on
the basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors such as institution-size trading in
similar groups of securities, developments related to special securities, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees of the Trust. Short-term obligations having
60 days or less to maturity are valued on the basis of amortized cost. For
purposes of determining net asset value per share, futures and options contracts
generally will be valued 15 minutes after the close of trading of the NYSE.
Generally, trading in foreign securities is substantially completed
each day at various times prior to the close of the NYSE. The values of such
foreign securities used in computing the net asset value of each Fund's shares
are determined at such times as trading is completed. Foreign currency exchange
rates are also generally determined prior the close of the NYSE. Occasionally,
events affecting the values of such foreign securities and such foreign
securities exchange rates may occur after the time at which such values are
determined and prior to the close of the NYSE that will not be reflected in the
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
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.
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
37
<PAGE> 53
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 NYSE is closed for other than customary weekend or holiday closings, (b)
when trading on NYSE 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 NYSE 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.
The Trust offers the shares of the Funds, on a continuous basis, to
both registered and unregistered separate accounts of affiliated and
unaffiliated Participating Insurance Companies to fund variable annuity
contracts (the "Contracts") and variable life insurance policies ("Policies").
Each separate account contains divisions, each of which corresponds to a Fund in
the Trust. Net purchase payments under the Contracts are placed in one or more
of the divisions of the relevant separate account and the assets of each
division are invested in the shares of the Fund which corresponds to that
division. Each separate account purchases and redeems shares of these Funds for
its divisions at net asset value without sales or redemption charges.
The Trust may offer the shares of its Funds to certain pension and
retirement plans ("Plans") qualified under the Internal Revenue Code. The
relationships of Plans and Plan participants to the Fund would be subject, in
part, to the provisions of the individual plans and applicable law. Accordingly,
such relationships could be different from those described in this Prospectus
for separate accounts and owners of Contracts and Policies, in such areas, for
example, as tax matters and voting privileges.
The Board of Trustees monitors for possible conflicts among separate
accounts (and will do so for plans) buying shares of the Funds. Conflicts could
develop for a variety of reasons. For example, differences in treatment under
tax and other laws or the failure by a separate account to comply with such laws
could cause a conflict. To eliminate a conflict, the Board of Trustees may
require a separate account or Plan to withdraw its participation in a Fund. A
Fund's net asset value could decrease if it had to sell investment securities to
pay redemptions proceeds to a separate account (or plan) withdrawing because of
a conflict.
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<PAGE> 54
Each Fund ordinarily effects orders to purchase or redeem its
shares that are based on transactions under Policies or Contracts (e.g.,
purchase or premium payments, surrender or withdrawal requests, etc.) at the
Fund's net asset value per share next computed on the day on which the separate
account processes such transactions. Each Fund effects orders to purchase or
redeem its shares that are not based on such transactions at the Fund's net
asset value per share next computed on the day on which the Fund receives the
orders.
Please refer to the appropriate separate account prospectus
related to your Contract for more information regarding the Contract.
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
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<PAGE> 55
sale of securities except in limited situations permitted by SEC regulations,
unless an exemptive order allowing such transactions is obtained from the SEC.
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.
The Sub-Adviser may allocate purchase and sales order for
portfolio securities to broker-dealers that are affiliated with the Manager or
the Distributor in agency transactions if the Sub-Adviser believes the quality
of the transaction and commissions are comparable to what they would be with
other qualified brokerage firms.
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.
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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS. The Funds declare and distribute dividends
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<PAGE> 56
representing substantially all net investment income as follows:
<TABLE>
<CAPTION>
DIVIDEND DIVIDENDS
DECLARED PAID
-------- ----
<S> <C> <C>
ING Large Cap Growth Fund annually annually
ING Growth & Income Fund quarterly quarterly
ING International Equity Fund annually annually
ING Global Brand Names Fund annually annually
ING Income Allocation Fund monthly monthly
ING Balanced Allocation Fund quarterly quarterly
ING Growth Allocation Fund quarterly quarterly
ING Aggressive Growth Allocation Fund annually annually
</TABLE>
All such distributions will be automatically reinvested, at
the election of Participating Insurance Companies, in shares of the Fund issuing
the distribution at the net asset value determined on the reinvestment date.
TAX MATTERS. Each Fund of the Trust is treated as a separate
association taxable as a corporation. Each Fund intends to qualify under the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company ("RIC") for each taxable year. As a RIC, a Fund will not be
subject to federal income tax to the extent it distributes to its shareholders
its net investment income and net capital gains.
In order to qualify as a regulated investment company, each
Fund must satisfy certain requirements concerning the nature of its income,
diversification of its assets and distribution of its income to shareholders. In
order to ensure that individuals holding the Contracts whose assets are invested
in a Fund will not be subject to federal income tax on distributions made by the
Fund prior to the receipt of payments under the Contracts, each Fund intends to
comply with additional requirements of Section 817(h) of the Code relating to
both diversification of its assets and eligibility of an investor to be its
shareholder. Certain of these requirements in the aggregate may limit the
ability of a Fund to engage in transactions involving options, futures
contracts, forward contracts and foreign currency and related deposits.
Any Fund's transactions in non-equity options, forward
contracts, futures contracts and foreign currency will be subject to special tax
rules, the effect of which may be to accelerate income to the Fund, defer Fund
losses, cause adjustments in the holding periods of fund securities and convert
short-term capital losses into long-term capital losses. These losses could
therefore affect the amount, timing and character of distributions.
The holding of the foreign currencies and investments by a
Fund in certain "passive foreign investment companies" may be limited in order
to avoid imposition of a tax on such Fund.
Each Fund investing in foreign securities may be subject to
foreign withholding
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<PAGE> 57
taxes on income from its investments. In any year in which more than 50% in
value of a Fund's total assets at the close of the taxable year consists of
securities of foreign corporations, the Fund may elect to treat any foreign
taxes paid by it as if they had been paid by its shareholders. The insurance
company segregated asset accounts holding Fund shares should consider the impact
of this election.
Holders of Contracts under which assets are invested in the
Funds should refer to the prospectus for the Contracts for information regarding
the tax aspects of ownership of such Contracts.
Each Fund is treated as a separate association taxable as a
corporation. Each Fund intends to qualify under the Internal Revenue Code of
1986, as amended (the "Code"), as a regulated investment company ("RIC") for
each taxable year. Accordingly, each Fund must, among other things, meet the
following requirements: A. Each Fund must generally derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies. B. Each Fund must diversify its holdings
so that, at the end of each fiscal quarter or within 30 days thereafter: (i) at
least 50% of the market value of the Fund's assets is represented by cash, cash
items (including receivables), U.S. Government securities, securities of other
RICs, and other securities, with such other securities limited, with respect to
any one issuer, to an amount not greater than 5% of the Fund's assets and not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than U.S. Government securities or securities of other RICs).
The Code imposes a nondeductible 4% excise tax on a RIC that
fails to distribute during each calendar year at least 98% of its ordinary
income for the calendar year, at least 98% of its capital gain net income for
the 12-month period ending on October 31 of the calendar year and certain other
amounts. Each Fund intends to make sufficient distributions to avoid imposition
of the excise tax. Some Funds meet an exception which results in their not being
subject to excise tax.
As a RIC, each Fund will not be subject to federal income tax
on its income and gains distributed to shareholders if it distributes at least
(i) 90% of its investment company taxable income for the taxable year; and (ii)
90% of the excess of its tax-exempt interest income under Code Section 103(a)
over its deductions disallowed under Code Sections 265 and 171(a)(2).
Each Fund intends to comply with the diversification
requirements imposed by Section 817(h) of the Code and the regulations
thereunder. These requirements, which are in addition to the diversification
requirements imposed on each Fund by the 1940 Act and Subchapter M of the Code,
place certain limitations on (i) the assets of the insurance company separate
accounts that may be invested in securities of a single issuer and (ii) eligible
investors. Because Section 817(h) and those regulations treat the assets of each
Fund as assets of the corresponding division of the insurance company separate
accounts, each Fund intends to comply with these diversification requirements.
Specifically, the regulations provide that,
42
<PAGE> 58
except as permitted by the "safe harbor" described below, as of the end of each
calendar quarter or within 30 days thereafter no more than 55% of a Fund's total
assets may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments and no more than 90% by
any four investments. For this purpose, all securities of the same issuer are
considered a single investment, and while each U.S. Government agency and
instrumentality is considered a separate issuer, a particular foreign government
and its agencies, instrumentalities and political subdivisions all will be
considered the same issuer. The regulations also provide that a Fund's
shareholders are limited, generally, to life insurance company separate
accounts, general accounts of the same life insurance company, an investment
adviser or affiliate in connection with the creation or management of a Fund or
the trustee of a qualified pension plan. Section 817(h) provides, as a safe
harbor, that a separate account will be treated as being adequately diversified
if the diversification requirements under Subchapter M are satisfied and no more
than 55% of the value of the account's total assets are cash and cash items,
government securities and securities of other RICs. Failure of a Fund to satisfy
the Section 817(h) requirements would result in taxation of and treatment of the
Contract holders investing in a corresponding division other than as described
in the applicable prospectuses of the various insurance company separate
accounts.
OTHER INFORMATION
Capitalization
The Trust is a Delaware business trust established under a
Trust Instrument dated July 15, 1999 and currently consists of eight separately
managed portfolios, all of which are discussed in this SAI. Each portfolio is
comprised of one class of 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, conversion 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.
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<PAGE> 59
Code of Ethics
The Code of Ethics of the Manager and the Funds prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of a Fund's planned portfolio
transactions. Both organizations maintain careful monitoring of compliance with
the Code of Ethics.
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.
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.
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<PAGE> 60
Custodian
State Street Bank and 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.
Quotations of yield for the Funds will be based on the
investment income per share earned during a particular 30-day period, less
expenses accrued 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 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.
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<PAGE> 61
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 which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Performance of the Underlying Funds
The following chart shows the average annual total return
(unaudited) for the longest outstanding class of shares for each of the
underlying funds in which the Fund of Funds may invest for the most recent one-,
five-, and ten-year periods (or since inception if shorter and giving effect to
the maximum applicable sales charges), the 30-day yields for income-oriented
funds and the 7-day yields for Money Market funds, in each case for the period
ended March 31, 2000.
<TABLE>
<CAPTION>
ONE-YEAR SINCE INCEPTION
-------- ---------------
<S> <C> <C>
ING Large Cap Growth Fund 13.44% 21.70%
ING Growth & Income Fund 9.62% 13.69%
ING Mid Cap Growth Fund 28.43% 19.00%
ING Small Cap Growth Fund 65.26% 48.350%
ING Global Brand Names Fund 12.86% 19.50%
ING International Equity Fund 24.26% 24.76%
ING European Equity Fund 13.17% 13.58%
ING Focus Fund 15.57% 27.33%
NG Global Information Technology Fund 147.85% 137.07%
ING Internet Fund 1.25% 119.99%*
ING Emerging Markets Equity Fund -- (9.80)%*
ING Global Communications Fund -- (10.65)%*
ING Intermediate Bond Fund % (30-day period ended March 31, 2000)
ING High Yield Fund % (30-day period ended March 31, 2000)
ING International Bond Fund % (30-day period ended March 31, 2000)
ING Money Market Fund 5.38% (7-day period ended March 31, 2000)
(effective yield 5.53%)
</TABLE>
* Cumulative total returns. The underlying funds are in operations for less than
one year.
The Fund of Funds will invest only in Class I shares of the
underlying ING Funds and, accordingly, will not pay any sales load or 12b-1
service or distribution fees in connection with their investments in shares of
the underlying funds. The Fund of Funds, however, will indirectly bear their pro
rata share of the fees and expenses incurred by the underlying funds that are
applicable to Class I shareholders. The investment returns of each portfolio,
therefore, will be net of the expense of the underlying funds in which it is
invested. The following chart shows the expense ratios applicable to Class I
shareholders of each underlying fund held by a portfolio, based on net operating
expenses for its most recent fiscal year:
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<PAGE> 62
<TABLE>
<CAPTION>
UNDERLYING FUND EXPENSE RATIO
--------------- -------------
<S> <C>
ING Large Cap Growth Fund 0.74%
ING Growth & Income Fund 0.77%
ING Mid Cap Growth Fund 0.95%
ING Small Cap Growth Fund 0.88%
ING Global Brand Names Fund 0.98%
ING International Equity Fund 1.04%
ING European Equity Fund 1.07%
ING Tax Efficient Equity Fund 0.75%
ING Focus Fund 0.85%
ING Global Information Technology Fund 1.04%
ING Internet Fund 1.04%
ING Emerging Markets Equity Fund 1.15%
ING Global Communications Fund 0.98%
ING Intermediate Bond Fund 0.64%
ING High Yield Fund 0.69%
ING International Bond Fund 1.06%
ING Money Market Fund 0.31%
</TABLE>
Other Performance Comparisons
The Funds may from time to time include in advertisements,
sales literature, communications to shareholders and other materials,
comparisons of its total return to the return of other mutual funds with similar
investment objectives, broadly-based market indices, other investment
alternatives, rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the funds may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc., the S&P 500 Index, the Dow Jones
Industrial Average, the Russell 2000 or, in the case of the ING Money Market
Fund, iMoneyNet, Inc. Lipper Analytical Services, Inc. maintains statistical
performance databases, as reported by a diverse universe of
independently-managed mutual funds. Morningstar, Inc. is a mutual fund
performance rating service that rates mutual funds on the basis of risk-adjusted
performance. Evaluations of fund performance made by independent sources may
also be used in advertisements concerning the Funds, including reprints of, or
selections from editorials or articles about the Funds or the Funds' managers.
The Funds may also publish rankings or ratings of the
managers. Materials may include a list of representative clients of the Funds'
investment advisers and may contain information regarding the background,
expertise, etc. of the Funds' investment advisers or portfolio managers. The
distributor may provide information that discusses the managers' philosophy,
investment strategy, investment process, security selection criteria and
screening methodologies.
In addition, the Funds may also include in materials
discussions and/or illustrations of the potential investment goals of a
prospective investor, investment
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<PAGE> 63
management strategies, techniques, policies or investment suitability of a Fund,
economic and political conditions, the relationship between sectors of the
economy and the economy as a whole, various securities markets, the effects of
inflation and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury securities, and hypothetical investment
returns based on certain assumptions. From time to time, materials may summarize
the substance of information contained in shareholder reports (including the
investment composition of a Fund) as well as the views of the advisers as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Fund. Material may also contain fund holdings,
sector allocations, asset allocations, credit ratings, and regional allocations.
Material may refer to various fund identifiers such as the CUSIP numbers or
NASDAQ symbols.
Legal Counsel
Paul, Weiss, Rifkind, Wharton & Garrison serves as counsel to
the Trust. Paul, Weiss, Rifkind, Wharton & Garrison's address is 1285 Avenue of
the Americas, New York, NY 10169-6064.
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, 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.
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<PAGE> 64
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.
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<PAGE> 65
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.
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
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<PAGE> 66
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."
ING-VIT-SAI (4/00)
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