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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-5410
---------------------------------------------
ING Prime Rate Trust
-------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
7337 E. Doubletree Ranch Rd., Scottsdale, AZ 85258
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
C T Corporation System, 101 Federal Street, Boston, MA 02110
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-992-0180
----------------------------
Date of fiscal year end: February 28
--------------------------
Date of reporting period: August 31, 2003
-------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
The following is a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1):
SEMI-ANNUAL REPORT
SEMI-ANNUAL REPORT
AUGUST 31, 2003
ING PRIME RATE TRUST
[GRAPHIC]
[ING FUNDS LOGO]
ING Prime Rate Trust
SEMI-ANNUAL REPORT
August 31, 2003
Table of Contents
Portfolio Managers' Report 2
Statistics and Performance 5
Additional Notes and Information 8
Statement of Assets and Liabilities 9
Statement of Operations 10
Statements of Changes in Net Assets 11
Statement of Cash Flows 12
Financial Highlights 13
Notes to Financial Statements 14
Portfolio of Investments 21
Shareholder Meeting Information 38
Additional Information 39
Trustee and Officer Information 40
ING Prime Rate Trust
PORTFOLIO MANAGERS' REPORT
Dear Shareholders:
ING Prime Rate Trust (the "Trust") is a diversified, closed-end investment
company that seeks to provide investors with as high a level of current income
as is consistent with the preservation of capital. The Trust seeks to achieve
this objective by investing in a professionally managed portfolio comprised
primarily of senior loans.
PERFORMANCE SUMMARY
The Trust declared $0.11 of common dividends during the second fiscal quarter
ended August 31, 2003, which, based on the average month-end net asset value
("NAV") per share of $7.01, resulted in an annualized distribution rate of
5.98%.(1) Total return (based on NAV) for the quarter was 3.43%, versus a gross
total return of 2.09% for the S&P/LSTA Loan Index, while total return for the
six months ended August 31, 2003 was 7.52%. The Trust's common shares also
continued to perform well during the quarter. Total return based on the market
value of the Trust's common shares (assuming full dividend reinvestment) for the
quarter was 7.54% and was 19.52% for the six months. The returns for the S&P 500
Index for the same time periods were 5.07% and 20.88% respectively.
MARKET/TRUST SPECIFIC DEVELOPMENT
The overall tone of the senior loan market continued to brighten during the
quarter. Against the backdrop of an increasingly healthy macroeconomic picture
and improving corporate earnings, the default rate on non-investment grade bank
debt continued to decline, as evidenced by a 2.7% twelve-month lagging default
rate at the end of August, as compared to 6.0% at the beginning of 2003.
Further, many issuers that were struggling earlier in the year were able to take
advantage of more receptive capital markets to improve their balance sheet and
liquidity positions. The net effect has been a broad-based rally in loan prices
and markedly improved investor sentiment.
Specific to the Trust, recent performance continues to be favorably impacted by
three primary factors: 1) ongoing strength within sectors for which we have been
increasing relative weightings; 2) further improvement in market prices for
several of the Trust's larger holdings; and 3) continued decline in the number
of existing non-performing assets. During the quarter, we increased our exposure
to the Cable Television (10.5% of total assets at August 31, 2003, versus 8.6%
at May 31, 2003) and Cellular Communications (8.3%, as compared to 7.4%)
sectors. Both industry groups continue to display improving operating and credit
trends, and renewed acceptance by -- and access to -- alternative capital
markets. Buoyed largely by positive balance sheet developments at Charter
Communications (3.2% of total assets as of August 31, 2003), each of the Trust's
cable holdings gained ground during the quarter. The same can be said for the
Trust's wireless positions, led by Nextel Communications (at 5.0% of total
assets as of August 31, 2003, the single largest holding in the portfolio). We
continue to monitor developments in both the cable and wireless sectors closely.
As a key component of our ongoing strategy, we remain focused on maintaining an
appropriate level of diversification across both industry sector and issuer
lines. During the quarter, the Trust's average amount outstanding per loan
remained at roughly 0.3% of total loan assets, while the number of individual
loans declined modestly, to 330 from 343, based largely on refinancing
activities. As stated in prior reports, we continue to believe that adequate
diversification represents the best line of defense against broad-based credit
risk.
2
USE OF LEVERAGE
The Trust utilizes financial leverage to seek to increase the yield to the
holders of common shares. As of August 31, 2003, the Trust had $484 million of
leverage, consisting of $450 million of "Aaa(2)/AAA(3)" rated cumulative auction
rate preferred shares, and $34 million outstanding under $415 million in
available credit facilities. Total leverage, as a percentage of total assets
(including preferred shares), was 33.2% at quarter end. The weighted average
leverage cost including all borrowings and preferred shares as of quarter end
was 1.35%. While the use of leverage for investment purposes increases both
investment opportunity and investment risk, we continue to deploy leverage only
when it is in the best interest of the Trust's common shareholders.
OUTLOOK
Coming off the impressive turnaround in the secured loan market that commenced
earlier in the year, we expect the balance of 2003 to be marked by relative
stability. Clearly, given the rapid price appreciation experienced during the
first half of the year, there generally remains minimal upside in existing loan
prices. Nonetheless, near-term performance could be underpinned by continued
improvement in credit and market conditions generally, and the continuation of a
reasonably sanguine attitude on the part of loan investors. Moreover, the
prospect of rising short-term rates in response to the now visible recovery in
the U.S. economy bodes well for the performance of adjustable rate senior loans.
As we move into the last part of 2003, we will continue to adhere to a
disciplined investment strategy that seeks to maintain a high degree of
diversification while attempting to take advantage of selective market
opportunities.
We thank you for your investment in ING Prime Rate Trust.
/s/ Jeffrey A. Bakalar /s/ Daniel A. Norman
Jeffrey A. Bakalar Daniel A. Norman
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
CO-SENIOR PORTFOLIO MANAGER CO-SENIOR PORTFOLIO MANAGER
AELTUS INVESTMENT MANAGEMENT, INC. AELTUS INVESTMENT MANAGEMENT, INC.
ING Prime Rate Trust
October 15, 2003
3
1. The distribution rate is calculated by annualizing dividends declared
during the quarter and dividing the resulting annualized dividend by the
Trust's average month-end net asset value (in the case of NAV) or the
average month-end NYSE Composite closing price (in the case of Market). The
distribution rate is based solely on the actual dividends and
distributions, which are made at the discretion of management. The
distribution rate may or may not include all investment income and
ordinarily will not include capital gains or losses, if any.
2. Obligations rated Aaa by Moody's are judged to be of the highest quality,
with minimal credit risk.
3. An obligator rated 'AAA' has extremely strong capacity to meet its
financial commitments. 'AAA' is the highest Issuer Credit Rating assigned
by Standard & Poor's.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
SENIOR LOANS ARE SUBJECT TO CREDIT RISKS AND THE POTENTIAL FOR NON-PAYMENT OF
SCHEDULED PRINCIPAL OR INTEREST PAYMENTS, WHICH MAY RESULT IN A REDUCTION OF THE
TRUST'S NAV.
THIS LETTER CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING STATEMENTS." ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING
STATEMENTS."
THE VIEWS EXPRESSED IN THIS LETTER REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
PORTFOLIO MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
INDEX DESCRIPTIONS
The S&P 500 INDEX is a capitalization-weighted index of 500 stocks chosen for
market size, liquidity, and industry group representation.
The S&P/LSTA LEVERAGED LOAN INDEX ("LLI") is a total return index that captures
accrued interest, repayments, and market value changes. It represents a broad
cross section of leveraged loans syndicated in the United States, including
dollar-denominated loans to overseas issuers. Standard & Poor's and the Loan
Syndications & Trading Association ("LSTA") conceived the LLI to establish a
performance benchmark for the syndicated leveraged loan industry.
ALL INDICES ARE UNMANAGED. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
4
STATISTICS AND PERFORMANCE as of August 31, 2003
PORTFOLIO CHARACTERISTICS
Net Assets $ 963,746,424
Assets Invested in Senior Loans $ 1,372,978,553
Senior Loans Represented 330
Average Amount Outstanding per Loan $ 4,160,541
Industries Represented 36
Average Loan Amount per Industry $ 38,138,293
Portfolio Turnover Rate 35%
Weighted Average Days to Interest Rate Reset 50 days
Average Loan Final Maturity 51 months
Total Leverage as a Percentage of Total Assets (including Preferred Shares) 33.2%
TOP TEN INDUSTRY SECTORS AS A PERCENTAGE OF:
NET ASSETS TOTAL ASSETS
Cable Television 15.8% 10.5%
Cellular Communications 12.6% 8.3%
Healthcare, Education and Childcare 10.9% 7.2%
Automotive 9.3% 6.2%
Leisure, Amusement and Entertainment 9.1% 6.0%
Containers, Packaging and Glass 8.8% 5.8%
Beverage, Food and Tobacco 6.5% 4.3%
Chemicals, Plastics and Rubber 6.5% 4.3%
Printing and Publishing 5.8% 3.8%
Diversified/Conglomerate Manufacturing 5.4% 3.6%
TOP TEN SENIOR LOAN ISSUERS AS A PERCENTAGE OF:
NET ASSETS TOTAL ASSETS
Nextel Communications(1) 7.6% 5.0%
Charter Communications Operating, LLC 4.8% 3.2%
Wyndham International, Inc. 2.0% 1.3%
Century Cable Holdings, Inc. 1.8% 1.2%
Olympus Cable Holdings, LLC 1.8% 1.2%
Safelite Glass Corporation 1.8% 1.2%
Graphic Packaging International, Inc. 1.8% 1.2%
Community Health Systems, Inc. 1.8% 1.2%
Dean Foods Company 1.6% 1.1%
Lamar Media Corporation 1.6% 1.0%
----------
(1) INCLUDES NEXTEL FINANCE COMPANY AND NEXTEL OPERATIONS, INC.
5
YIELDS AND DISTRIBUTION RATES
NET ASSET AVERAGE AVERAGE
VALUE ("NAV") MARKET ANNUALIZED ANNUALIZED
PRIME 30-DAY SEC 30-DAY SEC DISTRIBUTION DISTRIBUTION
QUARTER ENDED RATE YIELD(A) YIELD(A) RATE AT NAV(B) RATE AT MARKET(B)
------------- ----- ------------- ---------- -------------- -----------------
August 31, 2003 4.00% 5.82% 5.45% 5.98% 5.72%
May 31, 2003 4.25% 6.93% 6.75% 6.16% 6.07%
February 28, 2003 4.25% 6.93% 7.23% 6.52% 6.93%
November 30, 2002 4.25% 8.02% 9.10% 6.86% 7.87%
AVERAGE ANNUAL TOTAL RETURNS
NAV MARKET
1 Year 10.16% 35.41%
3 Years 0.86% 3.33%
5 Years 2.81% 2.69%
10 Years 6.14% 6.44%
Since Trust Inception(F), (H) 6.58% N/A
Since Initial Trading on NYSE(G) N/A 6.69%
ASSUMES RIGHTS WERE EXERCISED AND EXCLUDES SALES CHARGES AND
COMMISSIONS(C), (D), (E)
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
See statistics and performance footnotes on page 7.
6
STATISTICS AND PERFORMANCE FOOTNOTES
(A) Yield is calculated by dividing the Trust's net investment income per share
for the most recent thirty days by the net asset value (in the case of NAV)
or the NYSE Composite closing price (in the case of market) at quarter-end.
Yield calculations do not include any commissions or sales charges, and are
compounded for six months and annualized for a twelve-month period to
derive the Trust's yield consistent with the SEC standardized yield formula
for open-end investment companies.
(B) The distribution rate is calculated by annualizing each monthly dividend,
then averaging the annualized dividends declared for each month during the
quarter and dividing the resulting average annualized dividend amount by
the Trust's average net asset value (in the case of NAV) or the NYSE
Composite closing price (in the case of Market) at the end of the period.
(C) Calculation of total return assumes a hypothetical initial investment at
the net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) on the last business day before the first day
of the stated period, with all dividends and distributions reinvested at
the actual reinvestment price.
(D) On December 27, 1994, the Trust issued to its shareholders transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. On January 27, 1995, the offering expired and was fully
subscribed. The Trust issued 17,958,766 shares of its common stock to
exercising rights holders at a subscription price of $8.12. Offering costs
of $4,470,955 were charged against the offering proceeds.
(E) On October 18, 1996, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 18,122,963 shares of the
Trust's common stock at the rate of one share of common stock for each five
rights held. On November 12, 1996, the offering expired and was fully
subscribed. The Trust issued 18,122,963 shares of its common stock to
exercising rights holders at a subscription price of $9.09. Offering costs
of $6,972,203 were charged against the offering proceeds.
(F) Inception Date -- May 12, 1988. Since inception return is not applicable
since the Trust did not trade on the NYSE prior to March 9, 1992.
(G) Initial Trading on NYSE -- March 9, 1992.
(H) Reflects partial waiver of fees.
7
ADDITIONAL NOTES AND INFORMATION
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program," formerly known
as the Dividend Reinvestment and Cash Purchase Plan) which allows holders of the
Trust's common shares a simple way to reinvest dividends and capital gains
distributions, if any, in additional common shares of the Trust. The Program
also offers holders of the Trust's common shares the ability to make optional
cash investments in any amount from $100 to $25,000 on a monthly basis. Amounts
in excess of $25,000 require prior approval of the Trust. DST Systems, Inc., the
Trust's Transfer Agent, is the administrator for the Program.
For dividend reinvestment purposes, DST Systems, Inc. will purchase shares of
the Trust on the open market when the market price plus estimated commissions is
less than the net asset value on the valuation date. The Trust may issue new
shares when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date. New shares may be issued at the
greater of (i) net asset value or (ii) the market price of the shares during the
pricing period, minus a discount of 5%.
For optional cash investments, shares will be purchased on the open market by
the DST Systems, Inc. when the market price plus estimated commissions is less
than the net asset value on the valuation date. New shares may be issued by the
Trust when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date.
There is no charge to participate in the Program. Participants may elect to
discontinue participation in the Program at any time. Participants will share,
on a pro-rata basis, in the fees or expenses of any shares acquired in the open
market.
Participation in the Program is not automatic. If you would like to receive more
information about the Program or if you desire to participate, please contact
your broker or our Shareholder Services Department at (800) 992-0180.
KEY FINANCIAL DATES -- CALENDAR 2003 DIVIDENDS:
DECLARATION DATE EX-DIVIDEND DATE PAYABLE DATE
---------------- ---------------- ------------
January 31 February 6 February 25
February 28 March 6 March 24
March 31 April 8 April 23
April 30 May 8 May 22
May 30 June 6 June 23
June 30 July 8 July 22
July 31 August 7 August 22
August 29 September 8 September 22
September 30 October 8 October 22
October 31 November 6 November 24
November 28 December 8 December 22
December 19 December 29 January 13, 2004
RECORD DATE WILL BE TWO BUSINESS DAYS AFTER EACH EX-DIVIDEND
DATE. THESE DATES ARE SUBJECT TO CHANGE.
STOCK DATA
The Trust's shares are traded on the New York Stock Exchange (Symbol: PPR).
Effective March 1, 2002, the Trust's name changed to ING Prime Rate Trust and
its CUSIP number changed to 44977W106. The Trust's NAV and market price are
published daily under the "Closed-End Funds" feature in Barron's, The New York
Times, The Wall Street Journal and many other regional and national
publications.
8
STATEMENT OF ASSETS AND LIABILITIES as of August 31, 2003 (Unaudited)
ASSETS:
Investments in securities at value (Cost $1,495,277,021) $ 1,430,278,573
Cash 17,887,497
Receivables:
Interest 7,344,125
Other 118,266
Prepaid expenses 132,488
-----------------
Total assets 1,455,760,949
-----------------
LIABILITIES:
Notes payable 34,000,000
Deferred arrangement fees on senior loans 5,373,982
Dividends payable -- preferred shares 67,804
Payable to affiliates 1,285,525
Accrued trustees' fees 34,532
Other accrued expenses 1,252,682
-----------------
Total liabilities 42,014,525
-----------------
Preferred shares, $25,000 stated value per share at liquidation
value (18,000 shares outstanding) 450,000,000
-----------------
NET ASSETS $ 963,746,424
=================
Net assets value per common share outstanding (net assets less preferred shares
at liquidation value, divided by 137,287,725 shares of beneficial interest
authorized and outstanding, no par value) $ 7.02
NET ASSETS CONSIST OF:
Paid-in capital $ 1,290,262,014
Undistributed net investment income 14,296,066
Accumulated net realized loss on investments (275,813,208)
Net unrealized depreciation of investments (64,998,448)
-----------------
NET ASSETS $ 963,746,424
=================
See Accompanying Notes to Financial Statements
9
STATEMENT OF OPERATIONS for the Six Months Ended August 31, 2003 (Unaudited)
INVESTMENT INCOME:
Interest $ 41,488,971
Arrangement fees earned 1,564,952
Dividends 6,006
Other 1,964,436
-----------------
Total investment income 45,024,365
-----------------
EXPENSES:
Investment management fees 6,028,136
Administration fees 1,883,792
Transfer agent fees 354,417
Interest expense 1,000,045
Shareholder reporting expense 76,176
Custodian fees 254,472
Revolving credit facility fees 92,614
Professional fees 468,112
Preferred Shares -- Dividend disbursing agent fees 596,577
Insurance expense 17,708
Pricing expense 29,511
ICI fees 6,175
Postage expense 147,992
Trustees' fees 36,800
Miscellaneous expense 142,397
-----------------
Total expenses 11,134,924
-----------------
Net investment income 33,889,441
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (30,356,789)
Net change in unrealized appreciation of investments 66,833,349
-----------------
Net realized and unrealized gain on investments 36,476,560
-----------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
From net investment income (2,665,338)
-----------------
Net increase in net assets resulting from operations $ 67,700,663
=================
See Accompanying Notes to Financial Statements
10
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS YEAR
ENDED ENDED
AUGUST 31, FEBRUARY 28,
2003 2003
---- ----
(UNAUDITED)
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 33,889,441 $ 69,429,083
Net realized loss on investments (30,356,789) (115,778,026)
Net change in unrealized appreciation on
investments 66,833,349 51,893,096
Distributions to preferred shareholders
from net investment income (2,665,338) (7,499,067)
--------------- ---------------
Net increase (decrease) in net assets
resulting from operations 67,700,663 (1,954,914)
--------------- ---------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Distributions from net investment income (28,651,386) (61,643,423)
--------------- ---------------
Decrease in net assets from distributions
to common shareholders (28,651,386) (61,643,423)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Dividends reinvested for common shares 2,313,805 --
--------------- ---------------
Net increase from capital share transactions 2,313,805 --
--------------- ---------------
Net increase (decrease) in net assets 41,363,082 (63,598,337)
--------------- ---------------
NET ASSETS:
Beginning of period 922,383,342 985,981,679
--------------- ---------------
End of period (including undistributed
net investment income of $14,296,066
and $11,723,349, respectively) $ 963,746,424 $ 922,383,342
=============== ===============
See Accompanying Notes to Financial Statements
11
STATEMENT OF CASH FLOWS for the Six Months Ended August 31, 2003 (Unaudited)
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 37,088,183
Dividends received 6,006
Facility fees paid (97,957)
Dividends paid to preferred shareholder (2,643,948)
Arrangement fees received 3,846,367
Other income received 1,927,152
Interest paid (1,000,045)
Other operating expenses paid (9,802,501)
Purchases of securities (524,779,319)
Proceeds from sales of securities 671,339,418
-----------------
Net cash provided by operating activities $ 175,883,356
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to common shareholders (28,651,386)
Net repayment of notes payable (133,000,000)
Dividends reinvested for common shares 2,313,805
-----------------
Net cash flows used in financing activities (159,337,581)
-----------------
Net change in cash 16,545,775
Cash at beginning of period 1,341,722
-----------------
Cash at end of period $ 17,887,497
=================
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 67,700,663
-----------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Change in unrealized depreciation of securities (66,833,349)
Net accretion of discounts on securities (4,435,240)
Realized loss on sale of securities 30,356,789
Purchase of securities (524,779,319)
Proceeds on sale of securities 671,339,418
Increase in other assets (37,284)
Decrease in interest receivable 34,452
Decrease in prepaid expenses 71,289
Increase in deferred arrangement fees on senior loans 2,281,415
Increase in dividends payable -- preferred shareholder 21,390
Increase in payable to affiliate 52,958
Increase in accrued trustees' fees 5,157
Increase in other accrued expenses 105,017
-----------------
Total adjustments 108,182,693
-----------------
Net cash provided by operating activities $ 175,883,356
=================
See Accompanying Notes to Financial Statements
12
FINANCIAL HIGHLIGHTS
For a common share outstanding throughout the period
SIX MONTHS
ENDED YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
AUGUST 31, -----------------------------------------------
2003 2003 2002
------------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 6.73 7.20 8.09
Net investment income $ 0.23 0.50 0.74
Net realized and unrealized gain (loss) on investments $ 0.29 (0.47) (0.89)
--------------- ------- -------
Increase (decrease) in net asset value from $ 0.52 0.03 (0.15)
investment operations
Distributions to Common Shareholders from $ (0.21) (0.45) (0.63)
net investment income
Distribution to Preferred Shareholders $ (0.02) (0.05) (0.11)
Increase in net asset value from share offerings $ -- -- --
Reduction in net asset value from Preferred Shares offerings $ -- -- --
--------------- ------- -------
Net asset value, end of period $ 7.02 6.73 7.20
=============== ======= =======
Closing market price at end of period $ 7.37 6.46 6.77
TOTAL INVESTMENT RETURN(1)
Total investment return at closing market price(2) % 19.52 2.53 (9.20)
Total investment return at net asset value(3) % 7.52 0.44 (3.02)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (000's) $ 963,746 922,383 985,982
Preferred Shares-Aggregate amount outstanding (000's) $ 450,000 450,000 450,000
Liquidation and market value per share of Preferred Shares $ 25,000 25,000 25,000
Borrowings at end of period (000's) $ 34,000 167,000 282,000
Asset coverage ratios(6) % 299 250 235
Average borrowings (000's) $ 105,598 190,671 365,126
Ratios to average net assets including Preferred Shares(7)
Expenses (before interest and other fees
related to revolving credit facility)(8) % 1.43 1.49 1.57
Expenses(8) % 1.59 1.81 2.54
Net investment income(8) % 4.83 4.97 6.83
Ratios to average net assets plus borrowing
Expenses (before interest and other fees related to
revolving credit facility)(8) % 1.90 1.82 1.66
Expenses(8) % 2.11 2.23 2.70
Net investment income(8) % 6.41 6.10 7.24
Ratios to average net assets
Expenses (before interest and other fees
related to revolving credit facility)(8) % 2.11 2.19 2.25
Expenses(8) % 2.34 2.68 3.64
Net investment income(8) % 7.13 7.33 9.79
Portfolio turnover rate % 35 48 53
Common shares outstanding at end of period (000's) 137,288 136,973 136,973
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
----------------------------------------------
2001 2000 1999(4)
--------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period 8.95 9.24 9.34
Net investment income 0.88 0.79 0.79
Net realized and unrealized gain (loss) on investments (0.78) (0.30) (0.10)
--------- --------- ---------
Increase (decrease) in net asset value from 0.10 0.49 0.69
investment operations
Distributions to Common Shareholders from (0.86) (0.78) (0.82)
net investment income
Distribution to Preferred Shareholders (0.06) -- --
Increase in net asset value from share offerings -- -- 0.03
Reduction in net asset value from Preferred Shares offerings (0.04) -- --
--------- --------- ---------
Net asset value, end of period 8.09 8.95 9.24
========= ========= =========
Closing market price at end of period 8.12 8.25 9.56
TOTAL INVESTMENT RETURN(1)
Total investment return at closing market price(2) 9.10 (5.88) 1.11
Total investment return at net asset value(3) 0.19 5.67 7.86
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (000's) 1,107,432 1,217,339 1,202,565
Preferred Shares-Aggregate amount outstanding (000's) 450,000 -- --
Liquidation and market value per share of Preferred Shares 25,000 -- --
Borrowings at end of period (000's) 510,000 484,000 534,000
Asset coverage ratios(6) 215 352 325
Average borrowings (000's) 450,197 524,019 490,978
Ratios to average net assets including Preferred Shares(7)
Expenses (before interest and other fees
related to revolving credit facility)(8) 1.62 -- --
Expenses(8) 3.97 -- --
Net investment income(8) 9.28 -- --
Ratios to average net assets plus borrowing
Expenses (before interest and other fees related to
revolving credit facility)(8) 1.31 1.00(5) 1.05(5)
Expenses(8) 3.21 2.79(5) 2.86(5)
Net investment income(8) 7.50 6.12 6.00
Ratios to average net assets
Expenses (before interest and other fees
related to revolving credit facility)(8) 1.81 1.43(5) 1.50(5)
Expenses(8) 4.45 4.00(5) 4.10(5)
Net investment income(8) 10.39 8.77 8.60
Portfolio turnover rate 46 71 68
Common shares outstanding at end of period (000's) 136,847 136,036 130,206
(1) Total investment return calculations are attributable to common
shareholders.
(2) Total investment return measures the change in the market value of your
investment assuming reinvestment of dividends and capital gain
distributions, if any, in accordance with the provisions of the dividend
reinvestment plan.
(3) Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at
net asset value at the end of each period and assumes reinvestment of
dividends and capital gain distributions in accordance with the provisions
of the dividend reinvestment plan. This calculation differs from total
investment return because it excludes the effects of changes in the market
values of the Trust's shares.
(4) The Investment Manager agreed to reduce its fee for a period of three years
from the Expiration Date of the November 12, 1996 Rights Offering to 0.60%
of the average daily net assets, plus the proceeds of any outstanding
borrowings, over $1.15 billion.
(5) Calculated on total expenses before impact on earnings credits.
(6) Asset coverage represents the total assets available for settlement of
Preferred Stockholder's interest and notes payables in relation to the
Preferred Shareholder interest and notes payable balance outstanding. The
Preferred Shares were first offered November 2, 2000.
(7) Ratios do not reflect the effect of dividend payments to Preferred
Shareholders; income ratios reflect income earned on assets attributable to
preferred shares.
(8) Annualized for periods less than one year.
See Accompanying Notes to Financial Statements
13
NOTES TO FINANCIAL STATEMENTS as of August 31, 2003 (Unaudited)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
ING Prime Rate Trust (the "Trust"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, closed-end, investment management company. The Trust
invests in senior loans which are exempt from registration under the Securities
Act of 1933 as amended (the "33 Act"), but contain certain restrictions on
resale and cannot be sold publicly. These loans bear interest (unless otherwise
noted) at rates that float periodically at a margin above the Prime Rate of a
U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate
("LIBOR"), the certificate of deposit rate, or in some cases another base
lending rate. The following is a summary of the significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with accounting principles generally
accepted in the United States of America.
A. SENIOR LOAN AND OTHER SECURITY VALUATION. Loans are normally valued at the
mean of the means of one or more bid and asked quotations obtained from a
pricing service or other sources determined by the Board of Trustees to be
independent and believed to be reliable. Loans for which reliable market
value quotations are not readily available may be valued with reference to
another loan or a group of loans for which quotations are more readily
available and whose characteristics are comparable to the loan being
valued. Under this approach, the comparable loan or loans serve as a proxy
for changes in value of the loan being valued. The Trust has engaged an
independent pricing service to provide quotations from dealers in loans and
to calculate values under the proxy procedure described above. As of August
31, 2003, 94.68% of total investments were valued based on these
procedures. It is expected that most of the loans held by the Trust will be
valued with reference to quotations from the independent pricing service or
with reference to the proxy procedure described above.
Prices from a pricing source may not be available for all loans and ING
Investments, LLC (the "Investment Manager") or Aeltus Investment
Management, Inc. ("ING Aeltus" the "Sub-Advisor"), may believe that the
price for a loan derived from market quotations or the proxy procedure
described above is not reliable or accurate. Among other reasons, this may
be the result of information about a particular loan or borrower known to
the Investment Manager that the Investment Manager believes may not be
known to the pricing service or reflected in a price quote. In this event,
the loan is valued at fair value as determined in good faith under
procedures established by the Trust's Board of Trustees and in accordance
with the provisions of the 1940 Act. Under these procedures, fair value is
determined by the Investment Manager and monitored by the Trust's Board of
Trustees through its Valuation Committee. In fair valuing a loan,
consideration is given to several factors, which may include, among others,
the following: (i) the characteristics of and fundamental analytical data
relating to the loan, including the cost, size, current interest rate,
period until the next interest rate reset, maturity and base lending rate
of the loan, the terms and conditions of the loan and any related
agreements, and the position of the loan in the borrower's debt structure;
(ii) the nature, adequacy and value of the collateral, including the
Trust's rights, remedies and interests with respect to the collateral;
(iii) the creditworthiness of the borrower and the cash flow coverage of
outstanding principal and interest, based on an evaluation of its financial
condition, financial statements and information about the borrower's
business, cash flows, capital structure and future prospects; (iv)
information relating to the market for the loan, including price quotations
for, and trading in, the loan and interests in similar loans; (v) the
reputation and financial condition of the agent for the loan and any
intermediate participants in the loan; (vi) the borrower's management; and
(vii) the general economic and market conditions affecting the fair value
of the loan. Securities for which the primary market is a national
securities exchange are valued at the last reported sale price. Securities
reported by NASDAQ will be valued at NASDAQ official closing price. Debt
and equity securities traded in the over-the-counter market and listed
securities for
14
which no sale was reported on that date are valued at the mean between the
last reported bid and asked price. Securities other than senior loans for
which reliable quotations are not readily available and all other assets
will be valued at their respective fair values as determined in good faith
by, or under procedures established by, the Board of Trustees of the Trust.
Investments in securities maturing in less than 60 days from the date of
acquisition are valued at amortized cost.
B. FEDERAL INCOME TAXES. It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated
investment companies" and to distribute all of its taxable income to its
shareholders. Therefore, no provision for Federal income taxes is required.
In addition, by distributing during each calendar year substantially all of
its net investment income and net realized capital gains (if any), the
Trust intends not to be subject to any federal excise tax.
C. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Loans are booked on a
settlement date basis and security transactions are accounted for on trade
date (date the order to buy or sell is executed). Realized gains or losses
are reported on the basis of identified cost of securities delivered.
Dividend income is recognized on the ex-dividend date. Interest income is
recorded on an accrual basis at the then-current interest rate of the loan.
The accrual of interest on loans is discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to meet
payments as they become due. Upon such discontinuance, all unpaid accrued
interest is reversed. Cash collections on nonaccrual senior loans are
generally applied as a reduction to the recorded investment of the loan.
Senior loans are returned to accrual status only after all past due amounts
have been received. For all loans acquired prior to March 1, 2001,
arrangement fees, which represent non-refundable fees associated with the
acquisition of loans are deferred and recognized over the shorter of 2.5
years or the actual terms of the loan. For all loans, except revolving
credit facilities, acquired subsequent to February 28, 2001, fees are
treated as discounts and accreted as described in Note 1.H. Fees associated
with revolving credit facilities acquired subsequent to February 28, 2001
are deferred and recognized over the shorter of 4 years or the actual term
of the loan.
D. DISTRIBUTIONS TO COMMON SHAREHOLDERS. The Trust records distributions to
its shareholders on the ex-dividend date. Distributions from income are
declared by the Trust on a monthly basis. Distributions from capital gains,
if any, are declared on an annual basis.
E. DIVIDEND REINVESTMENTS. Pursuant to the Shareholder Investment Program
(formerly known as the Automatic Dividend Reinvestment Plan), DST Systems,
Inc., the Plan Agent, purchases, from time to time, shares of beneficial
interest of the Trust on the open market to satisfy dividend reinvestments.
Such shares are purchased only when the closing sale or bid price plus
commission is less than the net asset value per share of the stock on the
valuation date. If the market price plus commissions is equal to or exceeds
the net asset value, new shares are issued at the greater of (i) net asset
value or (ii) the market price of the shares during the pricing period,
minus a discount of 5%.
F. USE OF ESTIMATES. Management of the Trust has made certain estimates and
assumptions relating to the reporting of assets, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with generally accepted accounting principles in the United
States of America. Actual results could differ from these estimates.
G. SHARE OFFERINGS. During the year ended February 28, 1999, the Trust began
issuing shares under various shelf registration statements, whereby the net
proceeds received by the Trust from share sales may not be less than the
greater of (i) the NAV per share or (ii) 94% of the average daily market
price over the relevant pricing period.
15
H. CHANGE IN ACCOUNTING PRINCIPLE. In November 2000 the American Institute of
Certified Public Accountants (the "AICPA") issued a revised version of the
AICPA Audit and Accounting Guide for Investment Companies (the "Guide").
Effective March 1, 2001, the Fund adopted the provisions of the Guide and
began amortizing premiums and accreting discounts on debt securities. Prior
to March 1, 2001, the Trust had not amortized premiums nor accreted
discounts. The cumulative effect of this accounting change had no impact on
net assets of the Trust, but resulted in a $3,653,000 increase in the cost
of securities and a corresponding $3,653,000 increase in net unrealized
depreciation of investments, based on securities held by the Trust on March
1, 2001.
NOTE 2 -- INVESTMENTS
For the six months ended August 31, 2003, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $515,831,953 and $665,034,023, respectively. At August 31, 2003, the
Trust held senior loans valued at $1,372,978,553 representing 96.0% of its total
investments. The market value of these assets is established as set forth in
Note 1.
The senior loans acquired by the Trust may take the form of a direct lending
relationship with the borrower, an assignment of a lender's interest in a loan.
The lead lender in a typical corporate loan syndicate administers the loan and
monitors collateral. In the event that the lead lender becomes insolvent, enters
FDIC receivership or, if not FDIC insured, enters into bankruptcy, the Trust may
incur certain costs and delays in realizing payment, or may suffer a loss of
principal and/or interest.
Common and preferred shares, and stock purchase warrants held in the portfolio
were acquired in conjunction with senior loans held by the Trust. Certain of
these stocks and warrants are restricted and may not be publicly sold without
registration under the '33 Act, or without an exemption under the '33 Act. In
some cases, these restrictions expire after a designated period of time after
issuance of the shares or warrant.
The Fund values portfolio securities by using the market value of the securities
when reliable market value quotations for the securities are readily available.
When reliable market value quotations are not readily available, the Fund
determines, in good faith, the fair value of the
16
securities in accordance with the Trust's fair valuation procedures as
established by the Board of Trustees. Dates of acquisition and cost or assigned
basis of restricted securities are as follows:
DATE OF COST OR
ACQUISITION ASSIGNED BASIS
----------- --------------
Allied Digital Technologies Corporation -- Residual Interest in
Bankruptcy Estate 06/05/02 186,961
AM Cosmetics Corporation -- Liquidation Interest 03/07/03 100
Block Vision Holdings Corporation -- Common Shares 09/30/02 --
Boston Chicken Inc. -- Residual Interest in Boston Chicken Plan Trust 12/26/00 8,014,961
Cedar Chemical -- Liquidation Interest 12/31/02 --
Covenant Care, Inc. -- Warrants 12/22/95 --
Covenant Care, Inc. -- Warrants 01/18/02 --
Decision One Corporation -- Common Shares 06/16/00 --
Electro Mechanical Solutions -- Residual Interest in Bankruptcy Estate 10/02/02 358
Enterprise Profit Solutions -- Liquidation Interest 10/21/02 --
Euro United Corporation -- Residual Interest in Bankruptcy Estate 06/21/02 4,466,250
Exide Technologies -- Warrants 11/30/01 --
Gevity HR -- Common Shares 07/21/97 34,325
Grand Union Company -- Residual Interest in Bankruptcy Estate 07/01/02 4,268
Holmes Products Corporation -- Warrants 10/24/01 --
Humphreys, Inc. -- Residual Interest in Bankruptcy Estate 05/15/02 100
Imperial Home Decor Group, Inc. -- Common Shares 05/02/01 1,654,378
IHDG Realty -- Common Shares 05/02/01 1
Insilco Technologies -- Residual Interest in Bankruptcy Estate 05/02/03 43,482
Intera Group, Inc. -- Common Shares 11/29/02 --
Kevco, Inc. -- Residual Interest in Bankruptcy Estate 06/05/02 147,443
Morris Material Handling, Inc. -- Common Shares 10/09/01 3,009,059
MP Holdings, Inc. -- Common Shares 04/16/01 6
Murray's Discount Auto Stores, Inc. -- Escrow 08/11/03 594,332
Neoplan USA Corporation -- Common Shares 08/29/03 --
Neoplan USA Corporation -- Series B Preferred Shares 08/29/03 --
Neoplan USA Corporation -- Series C Preferred Shares 08/29/03 428,603
Neoplan USA Corporation -- Series D Preferred Shares 08/29/03 3,524,300
New Piper Aircraft -- Residual Interest in Litigation Proceeds 07/02/03 --
New World Restaurant Group, Inc. -- Warrants 09/27/01 40
Safelite Glass Corporation -- Common Shares 09/12/00 --
Safelite Realty -- Common Shares 09/12/00 --
Sarcom Corporation -- Common Shares 12/11/02 --
Sarcom Corporation -- Preferred Shares 12/11/02 2,782,654
Scientific Games Corporation -- Warrants 05/11/01 --
Soho Publishing -- Common Shares 01/10/02 176
Stellex Aerostructures, Inc. -- Common Shares 10/17/01 275,767
Targus Group, Inc. -- Common Shares 03/11/03 --
Tartan Textile Services, Inc. -- Series D Preferred Shares 07/16/01 2,227,655
Tartan Textile Services, Inc. -- Series E Preferred Shares 07/16/01 2,333,852
Telinget, Inc. -- Common Shares 09/18/02 --
Tembec, Inc. -- Common Shares 01/08/02 1,442,942
Transtar Metals -- Residual Interest in Bankruptcy Estate 01/09/03 160,918
TSR Wireless, LLC -- Residual Interest in Bankruptcy Estate 10/15/02 --
U.S. Aggregates -- Residual Interest in Bankruptcy Estate 04/07/03 --
U.S. Office Products Company -- Residual Interest in Bankruptcy Estate 06/11/02 --
--------------
Total restricted securities excluding senior loans (market value of
$32,355,438 was 3.4% of net assets at August 31, 2003) $ 31,332,931
==============
17
NOTE 3 -- MANAGEMENT AND ADMINISTRATION AGREEMENTS
The Trust has entered into an Investment Management Agreement with the
Investment Manager, a wholly-owned subsidiary of ING Funds Services, LLC (the
"Administrator"), to provide advisory and management services. The Investment
Management Agreement compensates the Investment Manager with a fee, computed
daily and payable monthly, at an annual rate of 0.80% of the Trust's average
daily net assets (inclusive of preferred stock) plus borrowings ("Managed
Assets").
The Investment Manager entered into a subadvisory agreement with ING Aeltus, a
wholly owned subsidiary of ING Groep N.V. effective August 19, 2003. Subject to
such policies as the Board or the Investment Manager may determine, ING Aeltus
manages the Trust's assets in accordance with the Trust's investment objectives,
policies, and limitations.
The Trust has also entered into an Administration Agreement with the
Administrator to provide administrative services and also to furnish facilities.
The Administrator is compensated with a fee, computed daily and payable monthly,
at an annual rate of 0.25% of the Trust's average daily Managed Assets.
At August 31, 2003, the Trust had the following amounts recorded in payable to
affiliates on the accompanying Statement of Assets and Liabilities:
ACCRUED INVESTMENT ACCRUED
MANAGEMENT FEES ADMINISTRATIVE FEES TOTAL
------------------ ------------------- -----
$ 979,448 $ 306,077 $ 1,285,525
The Trust has adopted a Retirement Policy covering all independent trustees of
the Trust who will have served as a independent trustee for at least five years
at the time of retirement. Benefits under this plan are based on an annual rate
as defined in the plan agreement.
NOTE 4 -- COMMITMENTS
The Trust has entered into both a $90 million 364-day revolving credit agreement
which matures on August 25, 2004 and a $325 million 364-day revolving
securitization facility which matures on June 12, 2004, collateralized by assets
of the Trust. Borrowing rates under these agreements are based on a fixed spread
over LIBOR, the federal funds rate, or a commercial paper-based rate. Prepaid
arrangement fees for any unborrowed amounts are amortized over the term of the
agreements. The amount of borrowings outstanding at August 31, 2003, was $34
million, at a weighted average interest rate of 1.8%. The amount of borrowings
represented 2.3% of total assets at August 31, 2003. Average borrowings for the
period ended August 31, 2003 were $105,597,826 and the average annualized
interest rate was 2.1%.
As of August 31, 2003, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Amerco, Inc. $ 11,744,035
Aurora Foods, Inc. 91,429
Block Vision Holdings Corporation 118,771
Centennial Cellular Operating Company 2,000,000
Cincinnati Bell, Inc. 977,392
Citadel Broadcasting Company 3,500,000
Express Script, Inc. 3,092,006
Fleming Companies, Inc. 1,204,412
Hercules Inc. 1,500,000
Houghton Mifflin Company 1,923,077
Levi Strauss & Company 2,033,333
Lyondell Chemical Company 9,000,000
Neoplan USA Corporation $ 2,057,038
Nextel Finance Company 8,524,898
Park Place Entertainment Corporation 4,951,971
Primedia, Inc. 1,223,947
Relizon Company 7,556,646
Sears Roebuck and Company 10,000,000
Six Flags Theme Parks, Inc. 3,000,000
Smurfit-Stone Container 2,046,432
United Defense Industries, Inc. 3,000,000
Waste Connections, Inc. 4,862,069
Western Wireless Corporation 6,000,000
--------------
$ 90,437,456
==============
18
NOTE 5 -- RIGHTS AND OTHER OFFERINGS
As of August 31, 2003, share offerings pursuant to shelf registrations were as
follows:
REGISTRATION SHARES SHARES
DATE REGISTERED REMAINING
------------ ---------- ----------
6/11/98 15,000,000 --
6/19/98 10,000,000 9,730,800
9/15/98 25,000,000 19,170,354
3/04/99 5,000,000 3,241,645
On November 2, 2000, the Trust issued 3,600 shares each of Series M, Series W
and Series F Auction Rate Cumulative Preferred Shares, $.01 Par Value, $25,000
liquidation preference, for a total issuance of $270 million. Also, on November
16, 2000, the Trust issued 3,600 shares of Series T and Series Th Auction Rate
Cumulative Preferred Shares, $.01 Par Value, $25,000, liquidation preference,
for a total issuance of $180 million. Costs associated with the offering of
approximately $5,438,664 were charged against the proceeds received. The Trust
used the net proceeds of the offering to partially pay down the then existing
indebtedness. The Trust may reborrow amounts in the future to increase its use
of leverage which will be consistent with the limitations imposed by the 1940
Act. Preferred Shares pay dividends based on a rate set at auctions, normally
held every 7 days. In most instances dividends are also payable every 7 days, on
the first business day following the end of the rate period.
NOTE 6 -- CUSTODIAL AGREEMENT
State Street Bank and Trust Company ("SSB") serves as the Trust's custodian and
recordkeeper. Custody fees paid to SSB are reduced by earnings credits based on
the cash balances held by SSB for the Trust. There were no earnings credits for
the period ended August 31, 2003.
NOTE 7 -- SUBORDINATED LOANS AND UNSECURED LOANS
The primary risk arising from investing in subordinated loans or in unsecured
loans is the potential loss in the event of default by the issuer of the loans.
The Trust may acquire a subordinated loan only if, at the time of acquisition,
it acquires or holds a Senior Loan from the same borrower. The Trust will
acquire unsecured loans only where the Investment Manager believes, at the time
of acquisition, that the Trust would have the right to payment upon default that
is not subordinate to any other creditor. The Trust may invest up to 5% of its
total assets, measured at the time of investment, in subordinated loans and
unsecured loans. As of August 31, 2003, the Trust held 2.1% of its total assets
in subordinated loans and unsecured loans.
NOTE 8 -- FEDERAL INCOME TAXES
Dividends paid by the Trust from net investment income and distributions of net
realized short-term capital gains (if any) are, for federal income tax purposes,
taxable as ordinary income to shareholders. The tax composition of dividends and
distributions to common shareholders for six months ended August 31, 2003 and
year ended February 28, 2003 were as follows:
ORDINARY LONG-TERM TAX RETURN
INCOME CAPITAL GAINS OF CAPITAL
------------ --------------- ------------
August 31, 2003 $ 28,651,386 $ -- $ --
February 28, 2003 61,643,423 -- --
The amount of distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or
19
permanent in nature. Key differences are the treatment of short-term capital
gains, foreign currency transactions, organization costs and other temporary
differences. To the extent that these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassifications. To
the extent distributions exceed net investment income and/or net realized
capital gains for tax purposes, they are reported as distributions of paid-in
capital.
NOTE 9 -- SUBSEQUENT EVENTS
Subsequent to August 31, 2003, the Trust paid to Common Shareholders the
following dividends from net investment income:
PER SHARE AMOUNT DECLARATION DATE RECORD DATE PAYABLE DATE
---------------- ---------------- ----------- ------------
$ 0.0340 9/30/03 10/10/03 10/22/03
Subsequent to August 31, 2003, the Trust paid to Preferred Shareholders the
following dividends from net investment income:
TOTAL
PREFERRED PER SHARE AUCTION RECORD PAYABLE
SHARES AMOUNT DATES DATES DATES
--------- --------- ------- ------ -------
Series M $ 32.89 09/08/03 to 10/10/03 09/16/03 to 10/20/03 09/16/03 to 10/21/03
Series T $ 33.53 09/02/03 to 10/07/03 09/09/03 to 10/14/03 09/10/03 to 10/15/03
Series W $ 32.33 09/03/03 to 10/08/03 09/10/03 to 10/15/03 09/11/03 to 10/16/03
Series Th $ 31.14 09/04/03 to 10/09/03 09/11/03 to 10/16/03 09/12/03 to 10/17/03
Series F $ 33.23 09/05/03 to 10/10/03 09/12/03 to 10/17/03 09/15/03 to 10/20/03
20
PORTFOLIO OF INVESTMENTS as of August 31, 2003 (Unaudited)
SENIOR LOANS*: 142.5%
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE: 2.6%
ALLIANT TECHSYSTEMS, INC. Ba2 BB-
$ 2,282,527 Term Loan, maturing April 20, 2009 $ 2,293,369
DRS TECHNOLOGIES, INC. Ba3 BB-
1,965,053 Term Loan, maturing September 30, 2008 1,982,247
PIEDMONT AVIATION SERVICES NR NR
4,680,432 Term Loan, maturing July 23, 2006 4,633,627
4,680,432 Term Loan, maturing July 23, 2007 4,633,628
TITAN CORPORATION Ba3 BB-
2,970,000 Term Loan, maturing June 30, 2009 2,978,972
TRANSDIGM, INC. B1 B+
2,000,000 Term Loan, maturing July 22, 2010 2,020,000
UNITED DEFENSE INDUSTRIES, INC. Ba3 BB
6,224,849 Term Loan, maturing August 13, 2009 6,247,638
-------------
24,789,481
-------------
AUTOMOTIVE: 9.3%
AFTERMARKET TECHNOLOGY CORPORATION Ba2 BB-
1,718,025 Term Loan, maturing February 08, 2008 1,713,729
1,249,438 Term Loan, maturing February 08, 2008 1,251,780
AMERICAN AXLE & MANUFACTURING, INC. Ba1 BB+
5,116,000 Term Loan, maturing April 30, 2006 5,116,711
COLLINS & AIKMAN PRODUCTS B1 B+
4,413,703 Term Loan, maturing December 31, 2005 4,380,601
DURA OPERATING CORPORATION Ba3 BB
3,168,000 Term Loan, maturing December 31, 2008 3,181,366
(2) EXIDE TECHNOLOGIES NR D
1,612,012 (3) Revolver, maturing December 18, 2003 1,053,181
371,195 (3) Term Loan, maturing December 18, 2003 242,514
3,227,260 (3) Term Loan, maturing March 18, 2005 2,085,617
(2) FEDERAL-MOGUL CORPORATION Ca D
1,500,000 Term Loan, maturing February 24, 2004 1,143,750
5,880,000 Term Loan, maturing February 24, 2005 4,451,160
FORD MOTOR CREDIT COMPANY A3 BBB
10,000,000 Floating Rate Note, maturing
October 25, 2004 10,062,760
GOODYEAR TIRE & RUBBER COMPANY Ba2 BB+
5,500,000 Term Loan, maturing March 31, 2006 5,486,250
HLI OPERATING COMPANY, INC. Ba3 BB-
5,000,000 Term Loan, maturing June 03, 2009 5,031,250
METALDYNE COMPANY, LLC B2 BB-
3,990,000 Term Loan, maturing December 31, 2009 3,850,350
POLYPORE, INC. Ba3 BB-
5,431,250 Term Loan, maturing December 31, 2007 5,471,984
SAFELITE GLASS CORPORATION B3 B+
6,729,690 Term Loan, maturing September 30, 2007 6,628,744
10,823,607 Term Loan, maturing September 30, 2007 10,661,253
STONERIDGE, INC. Ba3 BB
575,000 Term Loan, maturing April 30, 2008 574,880
See Accompanying Notes to Financial Statements
21
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
AUTOMOTIVE (CONTINUED)
TENNECO AUTOMOTIVE, INC. B1 B
$ 1,281,583 Term Loan, maturing November 04, 2007 $ 1,284,901
1,281,583 Term Loan, maturing May 04, 2008 1,285,818
TRW AUTOMOTIVE ACQUISITIONS CORPORATION Ba2 BB
11,000,000 Term Loan, maturing February 28, 2011 11,045,837
UNITED COMPONENTS, INC. B1 BB-
3,500,000 Term Loan, maturing June 30, 2010 3,529,166
-------------
89,533,601
-------------
BANKING: 0.6%
(2) OUTSOURCING SOLUTIONS, INC. NR D
12,055,854 (3) Term Loan, maturing June 10, 2006 5,545,693
-------------
5,545,693
-------------
BEVERAGE, FOOD AND TOBACCO: 6.5%
AURORA FOODS, INC. B3 CC
1,908,571 Revolver, maturing June 30, 2005 1,712,943
3,080,832 Term Loan, maturing June 30, 2005 3,034,620
BIRDS EYE FOODS, INC. Ba3 B+
6,959,969 Term Loan, maturing June 30, 2008 6,988,971
COMMONWEALTH BRANDS, INC. Ba3 BB-
7,221,500 Term Loan, maturing August 28, 2007 7,244,067
CONSTELLATION BRANDS, INC. Ba1 BB
5,225,250 Term Loan, maturing November 30, 2008 5,279,462
COTT BEVERAGES, INC. Ba3 BB+
170,000 Term Loan, maturing December 31, 2006 170,531
CP KELCO APS B3 B
3,031,650 Term Loan, maturing March 31, 2008 3,031,650
1,008,020 Term Loan, maturing September 30, 2008 1,008,020
DEAN FOODS COMPANY Ba1 BB+
15,339,361 Term Loan, maturing July 15, 2008 15,388,033
DEL MONTE CORPORATION Ba3 BB-
4,632,124 Term Loan, maturing December 20, 2010 4,677,287
(2) FLEMING COMPANIES, INC. B3 D
2,141,029 Revolver, maturing June 18, 2007 2,042,895
1,685,300 Term Loan, maturing June 18, 2008 1,605,248
INTERSTATE BRANDS CORPORATION Ba2 BBB-
941,272 Term Loan, maturing July 19, 2007 943,743
990,000 Term Loan, maturing July 19, 2007 990,310
MAFCO WORLDWIDE CORPORATION B1 B
1,913,076 Term Loan, maturing March 31, 2006 1,893,945
NATIONAL DAIRY HOLDINGS, L.P. Ba2 BB+
2,468,750 Term Loan, maturing April 30, 2009 2,469,779
NUTRASWEET ACQUISITION CORPORATION Ba3 NR
384,204 Term Loan, maturing June 30, 2006 382,763
REDDY ICE GROUP, INC. B1 B+
2,000,000 Term Loan, maturing August 15, 2009 2,020,000
SOUTHERN WINE & SPIRITS OF AMERICA, INC. Ba3 BBB-
1,980,000 Term Loan, maturing July 02, 2008 1,989,900
-------------
62,874,168
-------------
See Accompanying Notes to Financial Statements
22
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
BUILDINGS AND REAL ESTATE: 1.0%
(2) AMERCO, INC. NR NR
$ 225,966 Debtor in Possession Term Loan, maturing
August 13, 2004 $ 224,836
BUILDING MATERIALS HOLDING CORPORATION Ba2 BB-
2,000,000 Term Loan, maturing August 21, 2010 2,007,500
(2) HQ GLOBAL WORKPLACES, INC. NR NR
3,865,243 (3) Term Loan, maturing November 06, 2005 2,009,927
MACERICH PARTNERSHIP, L.P. Ba2 NR
4,723,200 Term Loan, maturing July 26, 2005 4,740,912
WERNER HOLDINGS COMPANY, INC. Ba3 B+
1,000,000 Term Loan, maturing June 11, 2009 1,013,333
-------------
9,996,508
-------------
CABLE TELEVISION: 15.8%
(2) ADELPHIA COMMUNICATIONS CORPORATION NR BBB
2,945,693 Debtor in Possession Term Loan, maturing
June 25, 2004 2,965,026
BRESNAN COMMUNICATIONS, LLC B1 BB-
5,000,000 Term Loan, maturing December 31, 2007 5,020,315
CC VI OPERATING COMPANY, LLC B2 CCC+
10,252,739 Term Loan, maturing November 12, 2008 9,237,718
CC VIII OPERATING, LLC B2 B-
4,432,500 Term Loan, maturing February 02, 2008 4,160,216
(2) CENTURY CABLE HOLDINGS, LLC Caa1 D
1,230,000 Revolver, maturing March 31, 2009 1,020,900
15,000,000 Term Loan, maturing June 30, 2009 12,583,935
5,000,000 Term Loan, maturing December 31, 2009 4,115,000
CHARTER COMMUNICATIONS OPERATING, LLC B2 B
33,139,417 Term Loan, maturing March 18, 2008 31,148,997
16,313,699 Term Loan, maturing September 18, 2008 15,200,061
COMCAST CABLE COMMUNICATIONS Ba1 BBB
10,000,000 Term Loan, maturing November 05, 2006 9,955,000
FALCON CABLE COMMUNICATIONS, LLC B2 BB
1,284,138 Term Loan, maturing December 31, 2007 1,171,776
(2) FRONTIERVISION OPERATING PARTNERS, L.P. B2 D
2,593,939 Revolver, maturing October 31, 2005 2,468,567
2,000,000 Term Loan, maturing September 30, 2005 1,903,334
2,400,000 Term Loan, maturing March 31, 2006 2,284,001
(2) HILTON HEAD COMMUNICATIONS, L.P. Caa1 NR
4,000,000 Revolver, maturing September 30, 2007 3,252,000
INSIGHT MIDWEST HOLDINGS, LLC Ba3 BB+
14,500,000 Term Loan, maturing December 31, 2009 14,527,188
MCC IOWA MEDIACOM BROADBAND Ba3 BB+
13,500,000 Term Loan, maturing September 30, 2010 13,521,560
(2) OLYMPUS CABLE HOLDINGS, LLC B2 D
2,000,000 Term Loan, maturing June 30, 2010 1,720,000
18,250,000 Term Loan, maturing September 30, 2010 15,945,938
-------------
152,201,530
-------------
See Accompanying Notes to Financial Statements
23
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
CARGO TRANSPORT: 1.9%
(2) AMERICAN COMMERCIAL LINES, LLC Ba3 NR
$ 2,000,000 Debtor in Possession Term Loan, maturing
July 31, 2004 $ 1,995,000
(2) AMERICAN COMMERCIAL LINES, LLC Caa1 D
1,258,356 Term Loan, maturing June 30, 2006 1,053,244
1,804,934 Term Loan, maturing June 30, 2007 1,510,730
CSX/HORIZON LINES, LLC Ba3 BB-
1,664,286 Term Loan, maturing February 27, 2009 1,671,307
GEMINI LEASING, INC. B1 NR
4,117,116 (3) Term Loan, maturing August 12, 2005 1,543,919
NEOPLAN USA CORPORATION NR NR
5,442,111 Term Loan, maturing June 30, 2006 5,442,111
PACER INTERNATIONAL, INC. B1 BB-
2,788,235 Term Loan, maturing June 10, 2010 2,814,375
TEREX CORPORATION B1 BB-
1,965,025 Term Loan, maturing December 31, 2009 1,950,902
-------------
17,981,588
-------------
CELLULAR COMMUNICATIONS: 12.6%
AIRGATE PCS, INC. B2 CCC-
1,015,735 Term Loan, maturing June 06, 2007 944,634
11,868,789 Term Loan, maturing September 30, 2008 11,037,974
CENTENNIAL CELLULAR OPERATING CORPORATION B3 B
1,898,194 Term Loan, maturing November 30, 2006 1,823,848
CENTENNIAL PUERTO RICO OPERATIONS
CORPORATION B3 B
632,731 Term Loan, maturing November 30, 2006 607,949
INDEPENDENT WIRELESS ONE CORPORATION Caa1 D
10,000,000 (3) Term Loan, maturing June 20, 2008 7,200,000
MICROCELL TELECOMMUNICATIONS, INC. NR CCC+
2,489,235 Term Loan, maturing March 01, 2006 2,232,015
NEXTEL FINANCE COMPANY Ba2 BB
777,734 Revolver, maturing December 31, 2007 746,819
29,979,462 Term Loan, maturing December 31, 2007 29,001,382
1,739,339 Term Loan, maturing June 30, 2008 1,739,027
1,739,339 Term Loan, maturing December 31, 2008 1,739,027
38,312,488 Term Loan, maturing March 31, 2009 38,144,870
NEXTEL OPERATIONS, INC. Ba2 BB
2,006,617 Term Loan, maturing February 10, 2007 2,023,880
RURAL CELLULAR CORPORATION B2 B-
3,000,000 Term Loan, maturing April 03, 2008 2,863,125
3,459,377 Term Loan, maturing October 03, 2008 3,370,422
3,459,377 Term Loan, maturing April 03, 2009 3,370,422
WESTERN WIRELESS CORPORATION B3 B-
4,000,000 Revolver, maturing March 31, 2008 3,773,332
6,825,000 Term Loan, maturing March 31, 2008 6,517,875
4,135,439 Term Loan, maturing September 30, 2008 4,001,037
-------------
121,137,639
-------------
See Accompanying Notes to Financial Statements
24
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER: 6.5%
ACADIA ELASTOMERS CORPORATION NR NR
$ 8,503,650 Term Loan, maturing March 31, 2004 $ 8,078,467
EQUISTAR CHEMICALS, L.P. Ba2 BB
4,950,238 Term Loan, maturing August 24, 2007 4,973,301
FMC CORPORATION Ba1 BBB-
3,980,000 Term Loan, maturing October 21, 2007 4,033,730
GEO SPECIALTY CHEMICALS, INC. B3 CCC+
1,740,101 Term Loan, maturing December 31, 2007 1,574,791
HERCULES, INC. Ba1 BB
4,975,000 Term Loan, maturing May 15, 2007 4,999,875
HUNTSMAN, LLC B2 B+
4,579,474 Term Loan, maturing March 31, 2007 4,071,917
9,393,213 Term Loan, maturing March 31, 2007 8,352,135
HUNTSMAN INTERNATIONAL, LLC B1 B+
509,663 Term Loan, maturing June 30, 2005 505,586
4,624,593 Term Loan, maturing June 30, 2007 4,641,935
4,624,593 Term Loan, maturing June 30, 2008 4,640,973
JOHNSONDIVERSEY, INC. Ba3 BB-
3,814,010 Term Loan, maturing November 03, 2009 3,835,464
MILLENNIUM AMERICA, INC. Ba1 BB
760,000 Term Loan, maturing June 18, 2006 762,375
NOVEON, INC. B1 BB-
7,901,655 Term Loan, maturing September 30, 2008 7,980,671
ROCKWOOD SPECIALTIES GROUP, INC. B1 B+
4,000,000 Term Loan, maturing July 23, 2010 4,041,668
-------------
62,492,890
-------------
CONTAINERS, PACKAGING AND GLASS: 8.8%
BERRY PLASTICS CORPORATION B1 B+
2,970,000 Term Loan, maturing July 22, 2010 2,990,047
BLUE RIDGE PAPER PRODUCTS, INC. B3 B+
8,539,269 Term Loan, maturing May 14, 2006 8,026,913
CONSTAR INTERNATIONAL, INC. B1 BB-
2,977,500 Term Loan, maturing November 20, 2009 2,926,635
CROWN CORK & SEAL COMPANY, INC. Ba3 BB
3,500,000 Term Loan, maturing September 15, 2008 3,524,938
GRAPHIC PACKAGING INTERNATIONAL, INC. B1 B+
17,000,000 Term Loan, maturing August 08, 2009 17,094,695
GREIF BROS. CORPORATION Ba3 BB
2,970,000 Term Loan, maturing August 23, 2009 2,986,335
IMPAXX, INC. NR NR
4,139,485 Term Loan, maturing April 30, 2005 3,684,142
JEFFERSON SMURFIT CORPORATION Ba3 B+
1,647,273 Term Loan, maturing March 31, 2007 1,654,137
KERR GROUP, INC. B1 BB-
2,500,000 Term Loan, maturing August 13, 2010 2,523,438
(2) LINCOLN PULP & EASTERN FINE NR NR
92,280 (3) Term Loan, maturing December 31, 2001 42,449
See Accompanying Notes to Financial Statements
25
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING AND GLASS (CONTINUED)
$ 14,881,108 (3) Term Loan, maturing August 31, 2004 $ 6,845,310
NEXPAK CORPORATION NR NR
2,191,514 (3) Term Loan, maturing March 31, 2004 547,879
2,191,551 (3) Term Loan, maturing March 31, 2004 547,888
OWENS-ILLINOIS GROUP, INC. B1 BB
12,000,000 Term Loan, maturing April 01, 2008 12,042,504
PLIANT CORPORATION B2 BB-
1,752,828 Term Loan, maturing May 31, 2008 1,749,177
SILGAN HOLDINGS, INC. Ba2 BB
2,990,000 Term Loan, maturing November 30, 2008 3,004,328
SMURFIT-STONE CONTAINER Ba3 B+
953,568 Revolver, maturing February 28, 2005 930,921
SMURFIT-STONE CONTAINER CANADA, INC. Ba3 B+
1,589,025 Term Loan, maturing June 30, 2009 1,596,374
STONE CONTAINER CORPORATION Ba3 B+
9,378,477 Term Loan, maturing June 30, 2009 9,421,852
TEKNI-PLEX, INC. B1 B+
2,910,000 Term Loan, maturing June 21, 2008 2,869,987
-------------
85,009,948
-------------
DATA AND INTERNET SERVICES: 0.6%
ARCH WIRELESS HOLDINGS, INC. Caa3 NR
74,806 Senior Note, maturing May 15, 2007 74,806
ICG COMMUNICATIONS, INC. NR NR
4,808,187 Term Loan, maturing May 31, 2005 4,050,897
MCLEODUSA, INC. Caa2 NR
1,329,412 Term Loan, maturing May 30, 2008 684,647
-------------
4,810,350
-------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 5.4%
BARJAN PRODUCTS, LLC NR NR
4,813,875 (3) Term Loan, maturing May 31, 2006 2,214,383
BRAND SERVICES, INC. B1 B+
3,980,000 Term Loan, maturing October 16, 2009 3,997,413
DRESSER, INC. Ba3 BB-
5,219,136 Term Loan, maturing April 10, 2009 5,250,821
FLOWSERVE CORPORATION Ba3 BB-
1,391,258 Term Loan, maturing June 30, 2006 1,394,736
4,293,900 Term Loan, maturing June 30, 2009 4,319,968
GENERAL CABLE CORPORATION B1 BB-
1,528,207 Term Loan, maturing May 28, 2007 1,409,771
MANITOWOC COMPANY, INC. Ba2 BB-
1,960,000 Term Loan, maturing May 09, 2007 1,968,330
MUELLER GROUP, INC. B1 B+
5,940,000 Term Loan, maturing May 31, 2008 5,945,304
NEPTUNE TECHNOLOGY GROUP, INC. B1 B+
4,625,000 Term Loan, maturing March 31, 2010 4,677,031
NORCROSS SAFETY PRODUCTS, LLC B1 B+
958,413 Term Loan, maturing March 20, 2009 962,008
See Accompanying Notes to Financial Statements
26
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: (CONTINUED)
SPX CORPORATION Ba2 BBB-
$ 14,084,108 Term Loan, maturing September 30, 2009 $ 14,163,331
UNITED PET GROUP NR NR
5,734,052 Term Loan, maturing March 31, 2006 5,744,803
-------------
52,047,899
-------------
DIVERSIFIED/CONGLOMERATE SERVICE: 1.0%
IRON MOUNTAIN, INC. Ba3 BB
1,992,000 Term Loan, maturing February 15, 2008 2,004,807
PRIVATE BUSINESS, INC. NR NR
3,485,669 Term Loan, maturing August 19, 2006 3,433,384
US INVESTIGATIONS SERVICES, LLC B1 BB-
4,394,708 Term Loan, maturing January 10, 2009 4,400,202
-------------
9,838,392
-------------
ECOLOGICAL: 0.9%
ALLIED WASTE NORTH AMERICA, INC. Ba3 BB
3,642,857 Term Loan, maturing January 15, 2010 3,668,878
(2) IT GROUP, INC. Caa1 NR
4,154,605 (3) Term Loan, maturing June 11, 2007 353,141
WASTE CONNECTIONS, INC. Ba3 BB
5,137,931 Revolver, maturing May 16, 2005 5,060,862
-------------
9,082,882
-------------
ELECTRONICS: 1.8%
(2) ACTERNA, LLC Caa1 D
6,098,973 (3) Term Loan, maturing September 30, 2007 1,372,269
DECISION ONE CORPORATION B3 CCC
8,962,218 Term Loan, maturing April 18, 2005 7,617,885
1,777,181 Term Loan, maturing April 18, 2005 1,510,604
KNOWLES ELECTRONICS, INC. B2 CCC+
2,174,459 Term Loan, maturing June 29, 2007 2,139,124
SARCOM, INC. NR NR
1,003,670 Term Loan, maturing June 30, 2007 1,003,670
TRANSACTION NETWORK SERVICES, INC. Ba3 BB-
3,687,500 Term Loan, maturing April 03, 2007 3,671,367
-------------
17,314,919
-------------
FINANCE: 0.5%
RENT-A-CENTER, INC. Ba2 BB
5,000,000 Term Loan, maturing May 28, 2009 5,039,585
-------------
5,039,585
-------------
GAMING: 4.2%
(2) ALADDIN GAMING, LLC Caa1 NR
2,968,421 (3) Term Loan, maturing August 26, 2006 2,411,842
4,455,000 (3) Term Loan, maturing February 26, 2008 3,619,688
ALLIANCE GAMING CORPORATION B1 BB-
4,937,500 Term Loan, maturing December 31, 2006 4,973,504
AMERISTAR CASINOS, INC. Ba3 BB-
2,914,266 Term Loan, maturing December 20, 2006 2,927,745
See Accompanying Notes to Financial Statements
27
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
GAMING (CONTINUED)
ARGOSY GAMING COMPANY Ba2 BB
$ 4,410,000 Term Loan, maturing July 31, 2008 $ 4,434,806
BOYD GAMING CORPORATION Ba1 BB+
990,000 Term Loan, maturing June 24, 2008 993,836
ISLE OF CAPRI CASINOS, INC. Ba2 BB-
987,500 Term Loan, maturing April 26, 2008 991,280
MANDALAY RESORT GROUP Ba2 BB+
9,000,000 Term Loan, maturing August 21, 2006 8,973,747
PARK PLACE ENTERTAINMENT CORPORATION Ba1 BBB-
5,048,029 Revolver, maturing December 31, 2003 4,983,878
PENN NATIONAL GAMING Ba3 B+
3,491,250 Term Loan, maturing September 01, 2007 3,509,143
UNITED AUBURN INDIAN COMMUNITY Ba3 BB-
2,351,351 Term Loan, maturing January 24, 2009 2,368,986
-------------
40,188,456
-------------
GROCERY: 0.2%
GIANT EAGLE, INC. Ba2 BB+
1,980,000 Term Loan, maturing August 02, 2009 1,987,425
-------------
1,987,425
-------------
HEALTHCARE, EDUCATION AND CHILDCARE: 10.9%
ALARIS MEDICAL SYSTEMS, INC. B1 BB
2,755,102 Term Loan, maturing June 30, 2009 2,783,342
ALLIANCE IMAGING, INC. B1 B+
1,038,168 Term Loan, maturing November 02, 2006 1,021,298
6,217,331 Term Loan, maturing June 10, 2008 6,057,235
AMERIPATH, INC. B1 B+
2,094,750 Term Loan, maturing March 27, 2010 2,099,987
APRIA HEALTHCARE GROUP, INC. Ba1 BBB-
4,912,500 Term Loan, maturing July 20, 2008 4,915,570
CAREMARK RX, INC. Ba2 BBB-
2,463,800 Term Loan, maturing March 31, 2006 2,470,731
COMMUNITY HEALTH SYSTEMS, INC. Ba3 BB-
14,897,475 Term Loan, maturing July 16, 2010 14,953,340
2,000,000 Term Loan, maturing January 16, 2011 2,007,500
COVENANT CARE, INC. NR NR
5,215,273 Term Loan, maturing February 15, 2004 4,589,440
DAVITA, INC. Ba3 BB-
9,000,000 Term Loan, maturing March 31, 2009 9,039,375
EXPRESS SCRIPTS, INC. Ba1 BBB-
3,076,923 Term Loan, maturing March 31, 2008 3,090,111
FISHER SCIENTIFIC INTERNATIONAL, INC. Ba3 BB+
3,990,000 Term Loan, maturing March 31, 2010 4,015,935
GENESIS HEALTH VENTURES, INC. Ba3 B+
1,539,950 Floating Rate Note, maturing April 02, 2007 1,539,950
HCA, INC. Ba1 BBB-
8,742,857 Term Loan, maturing April 30, 2006 8,611,714
IASIS HEALTHCARE CORPORATION B1 B+
1,850,000 Term Loan, maturing February 09, 2009 1,862,950
See Accompanying Notes to Financial Statements
28
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED)
INSIGHT HEALTH SERVICES CORPORATION B1 B+
$ 3,324,867 Term Loan, maturing October 17, 2008 $ 3,339,413
1,666,667 Term Loan, maturing October 17, 2008 1,664,583
KINETIC CONCEPTS, INC. B1 BB-
5,000,000 Term Loan, maturing August 05, 2010 5,037,500
MAGELLAN HEALTH SERVICES, INC. NR D
1,231,415 Term Loan, maturing February 12, 2005 1,212,944
1,231,415 Term Loan, maturing February 12, 2006 1,212,944
MARINER HEALTH CARE, INC. B1 NR
988,381 Floating Rate Note, maturing May 13, 2009 985,259
MEDCO HEALTH Ba1 BBB
3,000,000 Term Loan, maturing June 30, 2010 3,001,875
OXFORD HEALTH PLANS, INC. Ba2 BB+
3,491,250 Term Loan, maturing April 25, 2009 3,505,798
PACIFICARE HEALTH SYSTEMS, INC. B1 BB-
1,000,000 Term Loan, maturing June 03, 2008 1,006,563
SYBRON DENTAL MANAGEMENT, INC. Ba3 BB-
1,135,132 Term Loan, maturing June 06, 2009 1,140,382
TRIAD HOSPITALS, INC. Ba3 BB
1,961,818 Term Loan, maturing September 30, 2008 1,976,198
VANGUARD HEALTH SYSTEMS, INC. Ba3 B+
5,472,500 Term Loan, maturing January 03, 2010 5,499,863
VICAR OPERATING, INC. B1 B+
5,956,845 Term Loan, maturing June 30, 2009 5,986,630
-------------
104,628,430
-------------
HOME AND OFFICE FURNISHING, HOUSEWARES: 1.4%
GLOBAL IMAGING SYSTEMS, INC. Ba3 BB-
1,500,000 Term Loan, maturing June 25, 2009 1,515,000
HOLMES PRODUCTS CORPORATION B2 B
2,426,292 Term Loan, maturing February 05, 2007 2,375,745
IDENTITY GROUP, INC. NR NR
4,525,000 Term Loan, maturing May 11, 2007 2,262,500
IMPERIAL HOME DECOR GROUP, INC. NR NR
833,725 (3) Term Loan, maturing April 04, 2006 --
SEALY MATTRESS COMPANY B1 B+
1,136,956 Term Loan, maturing December 15, 2004 1,133,261
1,521,057 Term Loan, maturing December 15, 2005 1,516,114
1,944,748 Term Loan, maturing December 15, 2006 1,938,428
TEMPUR PEDIC B1 B+
2,250,000 Term Loan, maturing August 18, 2009 2,252,813
-------------
12,993,860
-------------
INSURANCE: 0.3%
INFINITY PROPERTY & CASUALTY Baa3 BBB
3,000,000 Term Loan, maturing June 30, 2010 3,022,500
-------------
3,022,500
-------------
See Accompanying Notes to Financial Statements
29
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
LEISURE, AMUSEMENT AND ENTERTAINMENT: 9.1%
AMF BOWLING WORLDWIDE, INC. B1 B
$ 1,644,961 Term Loan, maturing February 28, 2008 $ 1,648,388
FITNESS HOLDINGS WORLDWIDE, INC. B1 B
7,054,845 Term Loan, maturing November 02, 2006 7,008,551
7,159,195 Term Loan, maturing November 02, 2007 7,112,217
LODGENET ENTERTAINMENT CORPORATION B1 B+
4,957,222 Term Loan, maturing June 30, 2006 4,962,645
LOEWS CINEPLEX ENTERTAINMENT CORPORATION NR NR
8,568,107 Term Loan, maturing February 29, 2008 8,542,668
METRO-GOLDWYN-MAYER STUDIOS, INC. Ba3 BB-
500,000 Term Loan, maturing June 30, 2007 499,688
14,500,000 Term Loan, maturing June 30, 2008 14,549,851
NEW JERSEY BASKETBALL, LLC B2 B-
4,000,000 Term Loan, maturing December 08, 2003 3,980,000
PANAVISION, INC. Caa1 CCC
13,951,985 Term Loan, maturing March 31, 2005 13,010,226
PURE FISHING NR NR
3,000,000 Term Loan, maturing December 31, 2009 3,005,625
SIX FLAGS THEME PARKS, INC. Ba2 BB-
10,000,000 Term Loan, maturing June 30, 2009 9,996,880
VIVENDI UNIVERSAL ENTERTAINMENT, LLLP Ba2 BB+
7,000,000 Term Loan, maturing June 30, 2008 7,041,566
XANTERRA PARKS & RESORTS, LLC NR NR
3,287,317 Term Loan, maturing September 30, 2004 3,283,208
3,287,317 Term Loan, maturing September 30, 2005 3,283,208
-------------
87,924,720
-------------
LODGING: 3.4%
EXTENDED STAY AMERICA, INC. Ba3 BB-
9,114,441 Term Loan, maturing January 15, 2008 9,172,217
GAYLORD ENTERTAINMENT COMPANY NR NR
5,000,000 Term Loan, maturing March 22, 2006 4,975,000
WYNDHAM INTERNATIONAL, INC. NR CCC+
6,042,021 Term Loan, maturing June 30, 2004 5,160,266
16,594,997 Term Loan, maturing June 30, 2006 13,865,120
-------------
33,172,603
-------------
MACHINERY: 2.8%
ALLIANCE LAUNDRY HOLDINGS, LLC B1 B
3,650,062 Term Loan, maturing August 02, 2007 3,637,133
ANTHONY CRANE RENTAL, L.P. Caa2 CC
14,103,096 Term Loan, maturing July 20, 2006 8,649,894
MORRIS MATERIAL HANDLING, INC. NR NR
249,574 Term Loan, maturing September 28, 2004 237,095
NATIONAL WATERWORKS, INC. B1 BB-
3,000,000 Term Loan, maturing November 22, 2009 3,025,125
REXNORD CORPORATION B1 B+
6,708,333 Term Loan, maturing November 25, 2009 6,764,234
See Accompanying Notes to Financial Statements
30
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
MACHINERY (CONTINUED)
UNITED RENTALS (NORTH AMERICA), INC. Ba3 BB
$ 1,725,660 Term Loan, maturing August 31, 2007 $ 1,731,996
VUTEK, INC. B1 NR
821,051 Term Loan, maturing July 31, 2005 796,419
1,695,438 Term Loan, maturing July 31, 2007 1,644,575
647,686 Term Loan, maturing December 30, 2007 630,841
-------------
27,117,312
-------------
MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.9%
PEABODY ENERGY CORPORATION Ba1 BB+
8,977,500 Term Loan, maturing March 21, 2010 9,063,531
-------------
9,063,531
-------------
OIL AND GAS: 2.3%
CITGO PETROLEUM CORPORATION Ba2 BB+
2,500,000 Term Loan, maturing February 27, 2006 2,584,375
PACIFIC ENERGY GROUP, LLC Ba2 BBB-
4,000,000 Term Loan, maturing July 26, 2009 4,026,252
PLAINS MARKETING, L.P. Ba1 BBB-
3,465,000 Term Loan, maturing September 21, 2007 3,485,211
PMC COMPANY Ba1 BBB-
2,760,000 Term Loan, maturing May 05, 2006 2,761,725
TESORO PETROLEUM CORPORATION Ba3 BB
3,325,000 Term Loan, maturing April 17, 2007 3,354,094
W-H ENERGY SERVICES, INC. B2 B+
3,421,281 Term Loan, maturing April 16, 2007 3,412,728
WILLIAMS PRODUCTION RMT COMPANY B1 BB
2,500,000 Term Loan, maturing May 30, 2007 2,521,875
-------------
22,146,260
-------------
OTHER BROADCASTING AND ENTERTAINMENT: 1.7%
AMERICAN MOVIE CLASSICS Ba1 BBB-
1,000,000 Term Loan, maturing March 14, 2009 1,003,229
DIRECTV HOLDINGS, LLC Ba2 BB-
6,000,000 Term Loan, maturing March 06, 2010 6,040,128
PEGASUS MEDIA & COMMUNICATIONS, INC. B3 B-
5,812,722 Term Loan, maturing April 30, 2005 5,463,959
RAINBOW MEDIA GROUP Ba2 BB+
4,000,000 Term Loan, maturing March 14, 2009 4,012,916
-------------
16,520,232
-------------
OTHER TELECOMMUNICATIONS: 1.1%
CINCINNATI BELL, INC. B1 B+
1,022,608 Revolver, maturing November 09, 2004 1,000,239
2,996,643 Term Loan, maturing November 09, 2004 3,016,622
2,509,138 Term Loan, maturing December 30, 2006 2,529,301
301,315 Term Loan, maturing June 29, 2007 303,725
GCI HOLDINGS, INC. Ba3 BB+
1,500,000 Term Loan, maturing October 15, 2004 1,511,250
INTERA GROUP, INC. NR NR
2,729,873 Term Loan, maturing December 31, 2005 2,129,301
See Accompanying Notes to Financial Statements
31
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
OTHER TELECOMMUNICATIONS (CONTINUED)
$ 1,741,297 (3) Term Loan, maturing December 31, 2005 $ --
909,384 (3) Term Loan, maturing December 31, 2005 --
-------------
10,490,438
-------------
PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 4.3%
ARMKEL, LLC Ba3 B+
1,698,894 Term Loan, maturing March 28, 2009 1,711,238
BUHRMANN U.S., INC. B1 B+
2,261,865 Term Loan, maturing October 26, 2005 2,227,937
1,090,140 Term Loan, maturing October 26, 2007 1,078,557
CHURCH & DWIGHT COMPANY, INC. Ba2 BB
1,653,385 Term Loan, maturing September 30, 2007 1,665,048
JOSTENS, INC. Ba3 BB-
4,500,000 Term Loan, maturing July 29, 2010 4,525,313
NORWOOD PROMOTIONAL PRODUCTS, INC. NR NR
9,439,520 Term Loan, maturing February 01, 2005 9,439,520
7,731,328 (3) Term Loan, maturing February 01, 2005 3,440,441
1,998,167 (3) Term Loan, maturing February 01, 2005 --
PAINT SUNDRY BRANDS CORPORATION B2 B+
802,212 Term Loan, maturing August 11, 2005 798,201
785,675 Term Loan, maturing August 11, 2006 781,747
PLAYTEX PRODUCTS, INC. B1 B+
11,161,766 Term Loan, maturing May 31, 2009 11,172,236
RAYOVAC CORPORATION Ba3 BB-
4,450,000 Term Loan, maturing September 30, 2009 4,459,269
-------------
41,299,506
-------------
PERSONAL, FOOD & MISCELLANEOUS SERVICES: 3.0%
AFC ENTERPRISES, INC. B1 B
2,010,111 Term Loan, maturing May 23, 2009 2,006,091
COINMACH CORPORATION B1 BB-
4,900,000 Term Loan, maturing July 25, 2009 4,922,971
DOMINO'S, INC. B1 BB-
6,426,230 Term Loan, maturing June 25, 2010 6,486,475
GATE GOURMET BORROWER, LLC B1 BB
1,000,000 Term Loan, maturing December 31, 2008 965,000
1,000,000 Term Loan, maturing December 31, 2009 990,000
OTIS SPUNKMEYER, INC. B1 B+
6,755,577 Term Loan, maturing February 20, 2009 6,765,427
PAPA GINO'S, INC. NR NR
1,585,227 Term Loan, maturing August 31, 2006 1,567,958
4,593,750 Term Loan, maturing August 31, 2007 4,578,356
RELIZON COMPANY Ba3 BB-
657,143 Revolver, maturing August 04, 2006 598,000
-------------
28,880,278
-------------
PRINTING AND PUBLISHING: 5.8%
ADAMS OUTDOOR ADVERTISING, L.P. B1 B+
1,770,506 Term Loan, maturing February 08, 2008 1,778,252
See Accompanying Notes to Financial Statements
32
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
PRINTING AND PUBLISHING (CONTINUED)
AMERICAN MEDIA OPERATIONS, INC. Ba3 B+
$ 3,979,644 Term Loan, maturing April 01, 2007 $ 4,005,762
DEX MEDIA EAST, LLC Ba3 BB-
4,829,268 Term Loan, maturing May 08, 2009 4,911,627
HOLLINGER INTERNATIONAL PUBLISHING, INC. Ba2 BB-
2,481,250 Term Loan, maturing September 30, 2009 2,521,570
HOUGHTON MIFFLIN COMPANY Ba3 BB-
576,923 Revolver, maturing February 28, 2008 544,471
LAMAR MEDIA CORPORATION Ba2 BB-
15,000,000 Term Loan, maturing June 30, 2010 15,073,440
MOORE CORPORATION Ba2 BB+
4,000,000 Term Loan, maturing March 15, 2010 4,025,624
PRIMEDIA, INC. B3 B
776,053 Revolver, maturing June 30, 2008 722,376
3,527,706 Term Loan, maturing June 30, 2009 3,435,103
R.H. DONNELLEY, INC. Ba3 BB
7,730,788 Term Loan, maturing June 30, 2010 7,887,553
READER'S DIGEST ASSOCIATIONS, INC. Ba1 BB+
6,532,511 Term Loan, maturing May 20, 2008 6,486,430
TRANSWESTERN PUBLISHING COMPANY Ba3 BB-
2,541,000 Term Loan, maturing June 27, 2008 2,553,308
ZIFF DAVIS MEDIA, INC. B3 CCC
1,694,296 Term Loan, maturing March 31, 2007 1,552,399
-------------
55,497,917
-------------
RADIO AND TV BROADCASTING: 4.4%
BLOCK COMMUNICATIONS, INC. Ba2 BB-
2,827,160 Term Loan, maturing November 15, 2009 2,848,364
CITADEL BROADCASTING COMPANY Ba2 B+
483,778 Term Loan, maturing June 26, 2008 483,778
CUMULUS MEDIA, INC. Ba3 B+
2,992,500 Term Loan, maturing March 28, 2010 3,019,621
EMMIS OPERATING COMPANY Ba2 B+
10,982,904 Term Loan, maturing August 31, 2009 11,053,832
FISHER BROADCASTING, INC. Ba3 B+
1,990,000 Term Loan, maturing February 28, 2010 1,986,269
GRAY TELEVISION, INC. Ba3 B+
4,000,000 Term Loan, maturing December 31, 2010 4,034,168
LIN TELEVISION CORPORATION Ba2 BB
2,102,857 Term Loan, maturing December 31, 2007 2,114,248
PAXSON COMMUNICATIONS CORPORATION B1 BB-
4,900,000 Term Loan, maturing June 30, 2006 4,910,207
SINCLAIR BROADCAST GROUP, INC. Ba2 BB
4,859,000 Term Loan, maturing December 31, 2009 4,893,926
2,915,400 Term Loan, maturing December 31, 2009 2,933,490
SUSQUEHANNA MEDIA COMPANY Ba1 BB-
2,468,750 Term Loan, maturing June 30, 2008 2,481,094
TELEVICENTRO OF PUERTO RICO, LLC Ba2 BB
1,897,143 Term Loan, maturing December 31, 2007 1,907,420
-------------
42,666,416
-------------
See Accompanying Notes to Financial Statements
33
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
-------------------------------------------------------------------------------------------------------------
RETAIL: 3.1%
ADVANCE STORES COMPANY, INC. Ba3 BB-
$ 3,568,468 Term Loan, maturing November 30, 2007 $ 3,590,771
3,568,468 Term Loan, maturing November 30, 2007 3,590,029
CH OPERATING, LLC B2 B+
2,175,136 Term Loan, maturing June 21, 2007 2,177,855
CSK AUTO, INC. Ba3 BB-
1,500,000 Term Loan, maturing February 15, 2006 1,515,000
PANTRY, INC. B1 B+
4,950,593 Term Loan, maturing March 31, 2007 4,987,722
PETCO ANIMAL SUPPLIES, INC. Ba3 BB-
2,559,432 Term Loan, maturing October 26, 2008 2,575,428
RITE AID CORPORATION B1 BB
8,000,000 Term Loan, maturing April 30, 2008 8,085,000
SHOPPERS DRUG MART CORPORATION Baa3 BBB+
811,765 Term Loan, maturing February 04, 2009 813,879
TRAVELCENTERS OF AMERICA, INC. Ba3 BB
2,376,484 Term Loan, maturing November 14, 2008 2,387,625
-------------
29,723,308
-------------
TELECOMMUNICATIONS EQUIPMENT: 4.2%
AMERICAN TOWER, L.P. B2 B
8,756,739 Term Loan, maturing June 30, 2007 8,693,804
1,659,646 Term Loan, maturing December 31, 2007 1,668,416
CROWN CASTLE OPERATING COMPANY Ba3 B-
12,967,500 Term Loan, maturing March 15, 2008 13,001,073
PINNACLE TOWERS, INC. B1 D
8,108,418 Term Loan, maturing October 31, 2005 8,071,257
SPECTRASITE COMMUNICATIONS, INC. B1 B+
6,555,955 Term Loan, maturing December 31, 2007 6,598,981
TRIPOINT GLOBAL COMMUNICATIONS, INC. NR NR
2,903,533 Term Loan, maturing May 31, 2006 2,787,391
-------------
40,820,924
-------------
TEXTILES AND LEATHER: 2.6%
(2) GALEY & LORD, INC. Caa2 NR
2,692,043 Term Loan, maturing April 02, 2005 1,157,579
1,927,515 Term Loan, maturing April 01, 2006 828,831
LEVI STRAUSS & COMPANY B1 BB
466,667 Revolver, maturing March 31, 2006 446,833
4,870,982 Term Loan, maturing July 31, 2006 4,835,974
(2) MALDEN MILLS INDUSTRIES, INC. NR NR
8,958,296 (3) Term Loan, maturing October 28, 2006 4,755,010
POLYMER GROUP, INC. NR NR
8,902,127 Term Loan, maturing December 31, 2006 8,557,170
TARGUS GROUP, INC. NR NR
3,284,012 Term Loan, maturing August 31, 2006 2,906,351
WILLIAM CARTER COMPANY Ba3 BB
1,944,040 Term Loan, maturing September 08, 2008 1,954,571
-------------
25,442,318
-------------
See Accompanying Notes to Financial Statements
34
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
---------------------------------------------------------------------------------------------------------------
UTILITIES: 1.0%
CALPINE CONSTRUCTION FINANCE COMPANY, L.P. NR B+
$ 3,000,000 Term Loan, maturing February 26, 2009 $ 3,052,500
CALPINE CORPORATION Ba3 B
2,000,000 Term Loan, maturing July 16, 2007 2,003,750
MICHIGAN ELECTRIC TRANSMISSION COMPANY Baa2 BB+
2,970,000 Term Loan, maturing May 01, 2007 2,979,899
PIKE ELECTRIC, INC. Ba3 BB-
1,647,059 Term Loan, maturing April 18, 2010 1,658,898
---------------
9,695,047
---------------
TOTAL SENIOR LOANS
(COST $1,429,444,118) $ 1,372,978,553
---------------
OTHER CORPORATE DEBT: 1.5%
DATA AND INTERNET SERVICES: 0.1%
ARCH WIRELESS HOLDINGS, INC. Ca NR
739,789 (3) Subordinated Note, maturing May 15, 2009 813,768
FINANCE: 1.0%
VALUE ASSET MANAGEMENT, INC. B3 B
10,000,000 Senior Subordinated Bridge Note,
maturing August 31, 2005 9,600,000
HEALTHCARE, EDUCATION AND CHILDCARE: 0.0%
BLOCK VISION HOLDINGS CORPORATION NR NR
13,365 Junior Term Loan, maturing January 31, 2006 --
HOME AND OFFICE FURNISHINGS, HOUSEWARES: 0.0%
MP HOLDINGS, INC. NR NR
45,229 Subordinated Note, maturing March 14, 2007 42,967
PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 0.3%
PAINT SUNDRY BRANDS B2 B+
2,875,000 Subordinated Note, maturing August 11, 2008 2,601,875
TEXTILES AND LEATHER: 0.1%
TARTAN TEXTILE SERVICES, INC. NR NR
1,332,583 Subordinated Note, maturing April 01, 2011 1,332,583
---------------
TOTAL OTHER CORPORATE DEBT
(COST $14,232,242) 14,391,193
---------------
SECURITY DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
EQUITIES AND OTHER ASSETS: 4.4%
(1), (@), (R) Allied Digital Technologies Corporation
(Residual Interest in Bankruptcy Estate) 186,961
(@), (R) AM Cosmetics Corporation (Liquidation Interest) 100
(@) Arch Wireless Holdings, Inc. (102,124 Common Shares) 1,052,898
(@), (R) Block Vision Holdings Corporation (571 Common Shares) --
(2), (@), (R) Boston Chicken, Inc. (Residual Interest in Boston Chicken
Plan Trust) 8,014,961
(@), (R) Cedar Chemical (Liquidation Interest) --
See Accompanying Notes to Financial Statements
35
SECURITY DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
(@), (R) Covenant Care, Inc. (Warrants for 19,000 Common Shares,
Expires January 13, 2005) $ --
(@), (R) Covenant Care, Inc. (Warrants for 26,901
Common Shares, Expires March 31, 2013) --
(@) Dan River, Inc. (127,306 Common Shares) 222,785
(@), (R) Decision One Corporation (350,059 Common Shares) --
(2), (@), (R) Electro Mechanical Solutions (Residual Interest in Bankruptcy
Estate) 4,387
(@), (R) Enterprise Profit Solutions (Liquidation Interest) --
(4), (@), (R) Euro United Corporation (Residual Interest in Bankruptcy Estate) 4,466,250
(2), (@), (R) Exide Technologies (Warrants for 16,501 Common
Shares, Expires March 16, 2006) 165
(@) Genesis Health Ventures, Inc. (190,605 Common Shares) 4,574,520
(@) Genesis Health Ventures, Inc. (2,223 Preferred Shares) 200,070
(@), (R) Gevity HR (60,056 Common Shares) 941,078
(2), (@), (R) Grand Union Company (Residual Interest in Bankruptcy Estate) 90,339
(@) Hayes Lemmerz (73,835 Common Shares) 1,040,704
(@) Hayes Lemmerz (246 Preferred Shares) 3,467
(@), (R) Holmes Products Corporation (Warrants for 13,848,.56
Common Shares, Expires May 7, 2006) --
(2), (@), (R) Humphreys, Inc. (Residual Interest in Bankruptcy Estate) --
(@), (R) IHDG Realty (300,141 Common Shares) 1
(@), (R) Imperial Home Decor Group, Inc. (300,141 Common Shares) 1
(2), (@), (R) Insilco Technologies (Residual Interest in Bankruptcy Estate) 43,482
(@), (R) Intera Group, Inc. (864 Common Shares) --
(2), (@), (R) Kevco, Inc. (Residual Interest in Bankruptcy Estate) 147,443
(@) Mariner Health Care, Inc. (126,525 Common Shares) 1,050,158
(@) Microcell Telecommunications, Inc.
(2,473 1st Preferred Voting Shares) 1,823,931
(@) Microcell Telecommunications, Inc.
(171,635 1st Preferred Non-Voting Shares) 27,394
(@) Microcell Telecommunications, Inc.
(53,271 2nd Preferred Non-Voting Shares) 557,465
(@), (R) Morris Material Handling, Inc. (481,373 Common Shares) 904,981
(@), (R) MP Holdings, Inc. (590 Common Shares) 6
(@), (R) Murray's Discount Auto Stores, Inc. (Escrow) 594,332
(@), (R) Neoplan USA Corporation (17,348 Common Shares) --
(@), (R) Neoplan USA Corporation (1,814,180 Series B Preferred Shares) --
(@), (R) Neoplan USA Corporation (1,084,000 Series C Preferred Shares) 428,603
(@), (R) Neoplan USA Corporation (3,524,300 Series D Preferred Shares) 3,524,300
(@), (R) New Piper Aircraft (Residual Interest in Litigation Proceeds) --
(@), (R) New World Restaurant Group, Inc. (Warrants for 4,489
Common Shares, Expires June 15, 2006) 69,288
(@), (R) Safelite Glass Corporation (660,808 Common Shares) 6,568,432
(@), (R) Safelite Realty (44,605 Common Shares) 1
(@), (R) Sarcom, Inc. (462,984 Common Shares) --
(@), (R) Sarcom, Inc. (4,015 Preferred Shares) 1,391,287
See Accompanying Notes to Financial Statements
36
SECURITY DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
(@), (R) Scientific Games Corporation (48,930 Warrants for Class B
Non-Voting Common Shares, Expires October 2003) $ 208,216
(@), (R) Soho Publishing (17,582 Common Shares) 176
(@), (R) Stellex Aerostructures, Inc. (11,130 Common Shares) --
(@), (R) Targus Group, Inc. (Warrants for 66,824 Common Shares,
Expires) --
(@), (R) Tartan Textile Services, Inc. (23,449 Shares of Series D
Preferred Stock) 2,344,900
(@), (R) Tartan Textile Services, Inc. (36,775 Shares of Series E
Preferred Stock) 1,287,125
(@), (R) Teligent, Inc. (50 Common Shares) --
(@), (R) Tembec, Inc. (167,239 Common Shares) 1,138,623
(1), (@), (R) Transtar Metals (Residual Interest in Bankruptcy Estate) --
(1), (@), (R) TSR Wireless, LLC (Residual Interest in Bankruptcy Estate) --
(2), (@), (R) U.S. Aggregates (Residual Interest in Bankruptcy Estate) --
(2), (@), (R) U.S. Office Products Company (Residual Interest in
Bankruptcy Estate) --
---------------
TOTAL FOR EQUITIES AND OTHER ASSETS
(COST $51,600,661) 42,908,829
---------------
TOTAL INVESTMENTS
(COST$1,495,277,021)(5) 148.4% $ 1,430,278,575
PREFERRED SHARES AND LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS, NET (48.4) (466,532,151)
----- ---------------
NET ASSETS 100.0% $ 963,746,424
===== ===============
----------
(@) Non-income producing security.
(R) Restricted security.
* Senior loans, while exempt from registration under the Security Act of
1933, as amended contain certain restrictions on resale and cannot be
sold publicly. These senior loans bear interest (unless otherwise noted)
at rates that float periodically at a margin above the London Inter-Bank
Offered Rate ("LIBOR") and other short-term rates.
NR Not Rated
+ Bank Loans rated below Baa3 by Moody's Investor Services, Inc. or BBB-
by Standard & Poor's Group are considered to be below investment grade.
(1) The borrower filed for protection under Chapter 7 of the U.S. Federal
bankruptcy code.
(2) The borrower filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code.
(3) Loan is on non-accrual basis.
(4) The borrower filed for protection under the Canadian Bankruptcy and
Insolvency Act.
(5) For federal income tax purposes, the cost of investment is
$1,504,314,070 and net unrealized depreciation consists of the
following:
Gross Unrealized Appreciation $ 14,099,727
Gross Unrealized Depreciation (88,135,225)
--------------
Net Unrealized Depreciation $ (74,035,497)
==============
See Accompanying Notes to Financial Statements
37
SHAREHOLDER MEETING INFORMATION (Unaudited)
A special meeting of shareholders of the ING Prime Rate Trust held August 19,
2003, at the offices of ING Funds, 7337 East Doubletree Ranch Road, Scottsdale,
AZ 85258.
A brief description of each matter voted upon as well as the results are
outlined below:
ING PRIME RATE TRUST, COMMON SHARES
1. To elect nine members of the Board of Trustees to represent the interests
of the holders of the Common Shares of the Trust until the election and
qualification of their successors.
ING PRIME RATE TRUST, PREFERRED SHARES
2. To elect two members of the Board of Trustees to represent the interests of
the holders of Auction Rate Cumulative Preferred Shares -- Series M, T, W,
TH, and F of the Trust -- until the election and qualification of their
successors.
ING PRIME RATE TRUST
3. To ratify selection of KPMG LLP as the current independent auditor of the
Trust.
4. To approve a Sub-Advisory Agreement between ING Investments, LLC and Aeltus
Investment Management, Inc., with no change in the advisor, the portfolio
managers, or the overall management fee paid by the Trust.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) thereof.
SHARES VOTED SHARES BROKER TOTAL SHARES
PROPOSAL SHARES VOTED FOR AGAINST OR WITHHELD ABSTAINED NON-VOTE VOTED
--------------------- ---------------- ------------------- --------- -------- ------------
Common Paul S. Doherty 114,685,160 2,423,071 -- -- 117,108,231
Shares J. Michael Earley 114,782,052 2,326,179 -- -- 117,108,231
Trustees R. Barbara Gitenstein 114,708,163 2,400,068 -- -- 117,108,231
Thomas J. McInerney 114,686,460 2,421,771 -- -- 117,108,231
David W.C. Putnam 114,770,313 2,337,918 -- -- 117,108,231
Blaine E. Rieke 114,692,561 2,415,670 -- -- 117,108,231
John G. Turner 114,800,060 2,308,171 -- -- 117,108,231
Roger B. Vincent 114,776,458 2,331,773 -- -- 117,108,231
Richard A. Wedemeyer 114,695,507 2,412,724 -- -- 117,108,231
Preferred Shares Walter H. May 17,595 62 -- -- 17,657
Trustees Jock Patton 17,580 77 -- -- 17,657
KPMG LLP 3 114,713,065 1,205,046 1,207,777 -- 117,125,888
Sub-Advisory
Agreement 4 113,175,355 2,221,470 1,729,063 -- 117,125,888
Such other
business 5 111,634,959 2,906,152 2,584,777 -- 117,125,888
38
ADDITIONAL INFORMATION (Unaudited)
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the 1940 Act, and Rule 23c-1 under the 1940
Act the Trust may from time to time purchase shares of beneficial interest of
the Trust in the open market, in privately negotiated transactions and/or
purchase shares to correct erroneous transactions.
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program") which enables
investors to conveniently add to their holdings at reduced costs. Should you
desire further information concerning this Program, please contact the
Shareholder Servicing Agent at (800) 992-0180.
NUMBER OF SHAREHOLDERS
The approximate number of record holders of Common Stock as of September 30,
2003 was 7,821 which does not include approximately 49,749 beneficial owners of
shares held in the name of brokers of other nominees.
39
TRUSTEE AND OFFICER INFORMATION (Unaudited)
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees. A trustee who is not an interested person of the
Trust, as defined in the 1940 Act, is an independent trustee ("Independent
Trustee"). The Trustees of the Trustees are listed below. The statement of
Additional Information includes additional information about trustees of the
Registrant and is available, without charge, upon request at 1-800-992-0180.
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
NON-INTERESTED TRUSTEES:
Paul S. Doherty(2) Trustee November Mr. Doherty is President and 116 None
7337 E. Doubletree Ranch Rd. 1999 - present Partner, Doherty, Wallace,
Scottsdale, Arizona 85258 Pillsbury and Murphy, P.C.,
Born: 1934 Attorneys (1996 - Present);
Director, Tambrands, Inc.
(1993 - 1998); and Trustee of
each of the funds managed by
Northstar Investment
Management Corporation (1993 -
1999).
J. Michael Earley(3) Trustee February President and Chief Executive 116 None
7337 E. Doubletree Ranch Rd. 2002 - present Officer, Bankers Trust
Scottsdale, Arizona 85258 Company, N.A. (1992 -
Born: 1945 Present).
R. Barbara Gitenstein(2) Trustee February President, College of New 116 None
7337 E. Doubletree Ranch Rd. 2002 - present Jersey (1999 - Present).
Scottsdale, Arizona 85258 Formerly, Executive Vice
Born: 1948 President and Provost, Drake
University (1992 - 1998).
Walter H. May(2) Trustee November Retired. Formerly, Managing 116 Best Prep Charity
7337 E. Doubletree Ranch Rd. 1999 - present Director and Director of (1991 - Present).
Scottsdale, Arizona 85258 Marketing, Piper Jaffray,
Born: 1936 Inc.; Trustee of each of the
funds managed by Northstar
Investment Management
Corporation (1996 - 1999).
Jock Patton(2) Trustee August Private Investor (June 1997 116 Director, Hypercom,
7337 E. Doubletree Ranch Rd. 1995 - present - Present). Formerly Director Inc. (January 1999
Scottsdale, Arizona 85258 and Chief Executive Officer, - Present); JDA
Born: 1945 Rainbow Multimedia Group, Inc. Software Group, Inc
(January 1999 - December (January 1999 -
2001); Director of Stuart Present); Buick of
Entertainment, Inc.; Director Scottsdale, Inc.;
of Artisoft, Inc. (1994 National Airlines,
- 1998). Inc.
40
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
David W.C. Putnam(3) Trustee November President and Director, F.L. 116 Director of F.L.
7337 E. Doubletree Ranch Rd. 1999 - present Putnam Securities Company, Putnam Securities
Scottsdale, Arizona 85258 Inc. and its affiliates; company, Inc. (June
Born: 1939 President, Secretary and 1978 to Present);
Trustee, The Principled Equity F.L. Putnam
Market Fund. Formerly, Investment Managment
Trustee, Trust Realty Trust Company (December
(December Corp.; Anchor 2001 to Present);
Investment Trust; Bow 2000 - Asian Amerrican Bank
Present); Ridge Mining Company and Trust company
and each of the F.L. Putnam (June 1992 to
funds managed by Northstar Persent); and Notre
Investment Foundation Dame Health Care
Management Corporation (1994 - Center (1991 to
1999). Present). He is also
a Trustee of The
Principiled Equity
Market Fund
(November 1996 to
Present); Anchor
International Bond
(December 2000 -
Present);
Progressive Capital
Accumulation Trust
(August 1998 -
Present); Principled
Equity Market Fund
(November 1996 -
Present), Mercy
Endowment Foundation
(1995 - Present);
Director, F.L.
Putnam Investment
Management Company
(December 2001
- Present); Asian
American Bank and
Trust Company (June
1992 - Present); and
Notre Dame Health
Care Center (1991 -
Present) F.L. Putnam
Securities Company,
Inc. (June 1978 -
Present); and an
Honorary Trustee,
Mercy Hospital (1973
- Present).
Blaine E. Rieke Trustee February General Partner, Huntington 116 Morgan Chase Trust
7337 E. Doubletree Ranch Rd. 2001 - present Partners (January 1997 - Co. (January 1998 -
Scottsdale, Arizona 85258 Present). Chairman of the Present).
Born: 1933 Board and Trustee of each of
the funds managed by ING
Investment Management Co. LLC
(November 1998 - February
2001).
Roger B. Vincent Trustee February President, Springwell 116 Director, AmeriGas
7337 E. Doubletree Ranch Rd. 2002 - present Corporation (1989 - Present). Propane, Inc. (1998
Scottsdale, Arizona 85258 Formerly, Director Tatham - Present).
Born: 1945 Offshore, Inc. (1996 - 2000).
Richard A. Wedemeyer(3) Trustee February Retired. Mr. Wedemeyer was 116 Touchstone
7337 E. Doubletree Ranch Rd. 2001 - present formerly Vice President - Consulting Group
Scottsdale, Arizona 85258 Finance and Administration, (1997 - Present).
Born: 1936 Channel Corporation (June 1996
- April 2002). Formerly
Trustee, First Choice Funds
(1997 - 2001); and of each of
the funds managed by ING
Investment Management Co. LLC
(1998 - 2001).
41
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
INTERESTED TRUSTEES:
Thomas J. McInerney(4) Trustee February Chief Executive Officer, ING 170 Director,
7337 E. Doubletree Ranch Rd. 2001 - present U.S. Financial Services Hemisphere, Inc.
Scottsdale, Arizona 85258 (September 2001 to present); (May 2003 -
Born: 1956 General Manager and Chief Present). Director,
Executive Officer, ING U.S. Equitable Life
Worksite Financial Services Insurance Co.,
(December 2000 to present); Golden American Life
Member, ING Americas Executive Insurance Co., Life
Committee (2001 to present); Insurance Company of
President, Chief Executive Georgia, Midwestern
Officer and Director of United Life
Northern Life Insurance Insurance Co.,
Company (2001 to present), ING ReliaStar Life
Aeltus Holding Company, Inc. Insurance Co.,
(2000 to present), ING Retail Security Life of
Holding Company (1998 to Denver, Security
present). Formerly, ING Life Connecticut Life
Insurance and Annuity Company Insurance Co.,
(1997 to November 2002), ING Southland Life
Retirement Holdings, Inc. Insurance Co., USG
(1997 to March 2003); General Annuity and Life
Manager and Chief Executive Company, and United
Officer, ING Worksite Division Life and Annuity
(December 2000 to October Insurance Co. Inc.
2001), President, ING-SCI, (March 2001 -
Inc. (August 1997 to December Present); Trustee,
2000); President, Aetna Ameribest Life
Financial Services (August Insurance Co.,
1997 to December 2000); and (2001-2003);
has held a variety of line and Trustee, First
corporate staff positions Columbine Life
since 1978. Insurance Co.,
(2001-2002); Member
of the Board,
National Commission
on Retirement
Policy,
Competitiveness and
Technology of
Connecticut,
Connecticut Business
and Industry
Association,
Bushnell;
Connecticut Forum;
Metro Hartford
Chamber of Commerce;
and is Chairman,
Concerned Citizens
for Effective
Government.
John G. Turner(5) Trustee November Chairman, Hillcrest Capital 116 Director, Hormel
7337 E. Doubletree Ranch Rd. 1999 - present Partners (May 2002 - Present); Foods Corporation
Scottsdale, Arizona 85258 President, Turner Investment (March 2000
Born: 1939 Company (January 2002 - - Present); Shopko
Present). Mr. Turner was Stores, Inc. (August
formerly Vice Chairman of ING 1999 - Present); and
Americas (2000 - 2002); M.A. Mortenson
Chairman and Chief Executive Company (March 2002
Officer of ReliaStar Financial - Present).
Corp.
----------
(1) Trustees serve until their successors are duly elected and qualified,
subject to the Board's retirement policy.
(2) Valuation Committee member.
(3) Audit Committee member.
(4) Mr. McInerney is an "interested person," as defined by the 1940 Act,
because of his affiliation with ING U.S. Worksite Financial Services, an
affiliate of ING Investments, LLC.
(5) Mr. Turner is an "interested person," as defined by the 1940 Act, because
of his affiliation with ING Americas, an affiliate of ING Investments, LLC.
42
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- ---------------- -------------- ---------------
OFFICERS:
James M. Hennessy President and Chief February 2001 - present President and Chief Executive Officer of
7337 E. Doubletree Ranch Rd. Executive Officer ING Capital Corporation, LLC, ING Funds
Scottsdale, Arizona 85258 Services, LLC, ING Advisors, Inc., ING
Born: 1949 Chief Operating Officer June 2000 - present Investments, LLC, Lexington Funds
Distributor, Inc., Express America T.C.
Senior Executive Vice June 2000 - February 2001 Inc. and EAMC Liquidation Corp. (since
President December 2001); Executive Vice President
and Chief Operating Officer of ING Funds
Secretary April 1995 - February 2001 Distributor, LLC (since June 2000).
Michael J. Roland Executive Vice President February 2002 - present Executive Vice President, Chief Financial
7337 E. Doubletree Ranch Rd. and Assistant Secretary Officer and Treasurer of ING Funds
Scottsdale, Arizona 85258 Services, LLC, ING Funds Distributor, LLC,
Born: 1958 Chief Financial Officer June 1998 - present ING Advisors, Inc., ING Investments, LLC
(December 2001 to present), Lexington Funds
Senior Vice President June 1998 - February 2002 Distributor, Inc., Express America T.C.
Inc. and EAMC Liquidation Corp. (since
December 2001). Formerly, Executive Vice
President, Chief Financial Officer and
Treasurer of ING Quantitative Management,
Inc. (December 2001 to October 2002); and
Senior Vice President, ING Funds Services,
LLC, ING Investments, LLC, and ING Funds
Distributor, LLC (June 1998 to December
2001).
Robert S. Naka Senior Vice President November 1999 - present Senior Vice President and Assistant
7337 E. Doubletree Ranch Rd. Secretary of ING Funds Services, LLC, ING
Scottsdale, Arizona 85258 Assistant Secretary July 1996 - present Funds Distributor, LLC, ING Advisors, Inc.,
Born: 1963 ING Investments, LLC (October 2001 to
present) and Lexington Funds Distributor,
Inc. (since December 2001). Formerly,
Senior Vice President and Assistant
Secretary for ING Quantitative Management,
Inc. (October 2001 to October 2002); Vice
President, ING Investments, LLC (April 1997
to October 1999), and ING Funds Services,
LLC (February 1997 to August 1999).
Daniel Norman Senior Vice President April 1995 - present Senior Vice President, ING Investments, LLC
7337 E. Doubletree Ranch Rd. (since December 1994); ING Funds
Scottsdale, Arizona 85258 Treasurer June 1997 - present Distributor, LLC (since December 1995); has
Born: 1957 served as an officer of other affiliates of
ING since February 1992.
Jeffrey A. Bakalar Senior Vice President November 1999 - present Senior Vice President, ING Investments, LLC
7337 E. Doubletree Ranch Rd. (since November 1999). Formerly Vice
Scottsdale, Arizona 85258 President and Assistant Portfolio Manager,
Born: 1959 ING Investments, LLC (February 1998 -
November 1999).
43
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- ---------------- -------------- ---------------
Elliot Rosen Senior Vice President May 2002 - present Senior Vice President, ING Investments, LLC
7337 E. Doubletree Ranch Rd. (since February 1999). Formerly, Senior
Scottsdale, Arizona 85258 Vice President IPS-Sendero (May 1997
Born: 1953 - February 1999).
William H. Rivoir III Senior Vice President and February 2001 - present Senior Vice President and Secretary of ING
7337 E. Doubletree Ranch Rd. Assistant Secretary Capital Corporation, LLC and ING Funds
Scottsdale, Arizona 85258 Services, LLC (since February 2001). ING
Born: 1951 Funds Distributor, LLC, ING Advisors, Inc.,
ING Investments, LLC, and Lexington Funds
Distributor, Inc., ING Pilgrim Funding,
Inc., Pilgrim America Financial, Inc.,
Express America TC, Inc. and EAMC
Liquidation Corp. (since December 2001).
Formerly, Senior Vice President and
Assistant Secretary of ING Quantitative
Management, Inc. (October 2001 to October
2002) and ING Funds Services, LLC (since
June 1998). ING Investments, LLC, and
Pilgrim America Financial, Inc. (since
February 1999), Senior Vice President of
ING Investments, LLC (since December 1998)
and Assistant Secretary of ING Funds
Distributor, LLC (since February 1999) and
ING Investments, LLC (since June 1998).
America TC, Inc. and EAMC Liquidation Corp.
(since December 2001). Formerly, Senior
Vice President and Assistant Secretary of
ING Funds Services, LLC (since June 1998),
ING Investments, LLC, and Pilgrim America
Financial, Inc. (since February 1999),
Senior Vice President of ING Investments,
LLC (since December 1998) and Assistant
Secretary of ING Funds Distributor, LLC
(since February 1999) and ING Investments,
LLC (since June 1998).
Curtis F. Lee Senior Vice President and February 2002 - present Senior Vice President and Chief Credit
7337 E. Doubletree Ranch Rd. Chief Credit Officer Officer of Senior Loans of ING Investments,
Scottsdale, Arizona 85258 LLC (since August 1999). Formerly, held a
Born: 1955 series of positions with Standard Chartered
Bank in the credit approval and problem
loan management functions (August 1992 -
June 1999).
Kimberly A. Anderson Vice President February 2001 - present Vice President and Assistant Secretary of
7337 E. Doubletree Ranch Rd. ING Funds Services, LLC, ING Funds
Scottsdale, Arizona 85258 Secretary February 2001 - August Distributor, LLC, ING Advisors, Inc., ING
Born: 1964 2003 Investments, LLC (since October 2001) and
Lexington Funds Distributor, Inc. (since
December 2001). Formerly, Vice President
for ING Quantitative Management, Inc.
(October 2001 to October 2002); Assistant
Vice President of ING Funds Services, LLC
(November 1999 to January 2001) and has
held various other positions with ING Funds
Services, LLC for more than the last five
years.
44
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- ---------------- -------------- ---------------
Robyn L. Ichilov Vice President November 1997 - present Vice President of ING Funds Services, LLC
7337 E. Doubletree Ranch Rd. (October 2001 to present) and ING
Scottsdale, Arizona 85258 Investments, LLC (August 1997 to present);
Born: 1967 Accounting Manager, ING Investments, LLC
(November 1995 to present).
J. David Greenwald Vice President August 2003 - present Vice President of Mutual Fund Compliance of
7337 E. Doubletree Ranch Rd. ING Funds Services, LLC (May 2003 -
Scottsdale, Arizona 85258 Present). Formerly Assistant Treasurer and
Born: 1957 Director of Mutual Fund Compliance and
Operations of American Skandia, A
Prudential Financial Company (October 1996
- May 2003).
Lauren D. Bensinger Vice President March 2003 - present Vice President and Chief Compliance
7337 E. Doubletree Ranch Rd. Officer, ING Funds Distributor, LLC. (July
Scottsdale, Arizona 85258 1995 to Present); Vice President (February
Born: 1957 1996 to Present) and Chief Compliance
Officer (October 2001 to Present) ING
Investments, LLC; Vice President and Chief
Compliance Off
Huey P. Falgout Secretary August 2003 - present Counsel, ING U.S. Financial Services
7337 E. Doubletree Ranch Rd. (November 2002 - Present). Formerly,
Scottsdale, Arizona 85258 Associate General Counsel of AIG American
Born: 1963 General (January 1999 - November 2002) and
Associate General Counsel of Van Kampen,
Inc. (April 1992 - January 1999).
Todd Modic Vice President August 2003 - present Vice President of Financial Reporting-Fund
7337 E. Doubletree Ranch Rd. Accounting of ING Funds Services, LLC
Scottsdale, Arizona 85258 Assistant Vice President February 2002 - August (September 2002 to present). Director of
Born: 1967 2003 Financial Reporting of ING Investments, LLC
(March 2001 to September 2002). Formerly,
Director of Financial Reporting, Axient
Communications, Inc. (May 2000 to January
2001) and Director of Finance, Rural/Metro
Corporation (March 1995 to May 2000).
Susan P. Kinens Assistant Vice President February 2003 - present Assistant Vice President and Assistant
7337 E. Doubletree Ranch Rd. and Assistant Secretary Secretary, ING Funds Services, LLC
Scottsdale, Arizona 85258 (December 2002 - Present); and has held
Born: 1976 various other positions with ING Funds
Services, LLC for more than the last five
years.
Maria M. Anderson Assistant Vice President August 2001 - present Assistant Vice President of ING Funds
7337 E. Doubletree Ranch Rd. Services, LLC (since October 2001).
Scottsdale, Arizona 85258 Formerly, Manager of Fund Accounting and
Born: 1958 Fund Compliance, ING Investments, LLC
(September 1999 to November 2001); and
Section Manager of Fund Accounting, Stein
Roe Mutual Funds (July 1998 to August
1999).
----------
(1) The officers hold office until the next annual meeting of the Trustees and
until their successors have been elected and qualified.
45
INVESTMENT MANAGER
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
ADMINISTRATOR
ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
INSTITUTIONAL INVESTORS AND ANALYSTS
Call ING Prime Rate Trust
1-800-336-3436, Extension 2217
DISTRIBUTOR
ING Funds Distributor, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-334-3444
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 219368
Kansas City, Missouri 64141-9368
CUSTODIAN
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert LLP
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
355 S. Grand Avenue, Suite 2000
Los Angeles, CA 90071
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
ING Prime Rate Trust Account
c/o ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for account
or other information, at 1-800-992-0180
A prospectus containing more complete information regarding the Trust, including
charges and expenses, may be obtained by calling ING Funds Distributor, LLC,
Distributor, at 1-800-992-0180. Please read the prospectus carefully before you
invest or send money. The Form N-PX (Proxy Voting Record) will be available
without charge, upon request, by calling 800-992-0180 on or about 8/31/04; and
on the fund's website at www.ingfunds.com; and on the SEC's website www.sec.gov.
[ING FUNDS LOGO]
PRTSAR0803-102903
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEMS 4-8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on our evaluation conducted within 90 days of the filing date,
hereof, the design and operation of the registrant's disclosure controls and
procedures are effective to ensure that material information relating to the
registrant is made known to the certifying officers by others within the
appropriate entities, particularly during the period in which Forms N-CSR are
being prepared, and the registrant's disclosure controls and procedures allow
timely preparation and review of the information for the registrant's Form N-CSR
and the officer certifications of such Form N-CSR.
(b) There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
(a) Not applicable.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2 under
the Act (17 CFR 270.30a-2) is attached hereto as EX-99.CERT. The officer
certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 are
attached hereto as EX-99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ING PRIME RATE TRUST
By /s/ James M. Hennessy
-----------------------------------------------------------------------------
James M. Hennessy
President and Chief Executive Officer
Date November 6, 2003
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James M. Hennessy
-----------------------------------------------------------------------------
James M. Hennessy
President and Chief Executive Officer
Date November 6, 2003
---------------------------------------------------------------------------
By /s/ Michael J. Roland
-----------------------------------------------------------------------------
Michael J. Roland
Executive Vice President and Chief Financial Officer
Date November 6, 2003
---------------------------------------------------------------------------