FIRST QUARTER REPORT
May 31, 2002 ING PRIME RATE TRUST
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ING FUNDS
ING Prime Rate Trust
FIRST QUARTER REPORT
May 31, 2002
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Table of Contents
Portfolio Managers' Report ..................................... 2
Statistics and Performance ..................................... 5
Performance Footnotes .......................................... 7
Additional Notes and information ............................... 8
Portfolio of Investments ....................................... 10
Statement of Assets and Liabilities ............................ 30
Statement of Operations ........................................ 31
Statement of Changes in Net Assets ............................. 32
Statements of Cash Flows ....................................... 33
Financial Highlights ........................................... 34
Notes to Financial Statements .................................. 36
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ING Prime Rate Trust
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PORTFOLIO MANAGERS' REPORT
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Dear Shareholders:
We are pleased to present the May 31, 2002 Quarterly report for the ING Prime
Rate Trust.
ING Prime Rate Trust (the "Trust") invests in a diversified portfolio of
non-investment grade senior floating rate loans made primarily to U.S. based
corporations. During the quarter ended May 31, 2002, the Trust paid its 169th
consecutive dividend.
PERFORMANCE OF THE TRUST
The Trust declared and paid $0.11 of dividends to common shareholders during the
period ended May 31, 2002, which resulted in an annualized distribution rate of
6.09%1 for the quarter. The Trust's annualized market yield based on the
quarterly dividend was 6.52%, which, in the current low interest rate
environment, continues to present an attractive yield advantage over many other
income investment alternatives. Total return based on net asset value ("NAV")
for the quarter was 2.28% (as compared to 0.33% and -3.06% for the quarters
ended February 28, 2002 and November 30, 2001, respectively), which earned the
Trust a second quartile ranking among all loan participation fund classes ranked
by Lipper.
In short, the Trust's improved sequential performance (based on NAV) since the
final calendar quarter of 2001 has been driven by the general firming of
indicative loan prices since the lows reached in the aftermath of September 11,
2001, coupled with the prospects of a reasonably robust economic upturn. That
said, given an increasingly uncertain and uneven corporate earnings picture and
the constant threat of terrorism activity within U.S borders, the senior loan
market continues to mirror, albeit to a lesser degree, the volatility
experienced in the equity and fixed income markets. Clearly, credit conditions
remain problematical across several industry groupings. Further, default and
recovery experience market-wide remains challenging, particularly in those
sectors in which fresh capital is scarce or non-existent. We continue to attempt
to position the Trust's holdings to withstand this type of volatility.
LEVERAGE
The Trust utilizes financial leverage to seek to increase the yield to the
holders of common shares. As of May 31, 2002, the Trust had $615 million of
borrowings outstanding, consisting of $450 million of `aaa/AAA' rated cumulative
auction rate preferred shares, and $165 million under $550 million in credit
facilities. Total leverage, as a percentage of total assets (including preferred
shares), was 38.2% at May 31, 2002, down from 42.5% at February 28, 2002. The
weighted average cost of all borrowing and leveraging as of quarter-end was
1.99%.
2
OUTLOOK
At this juncture, an abundance of mixed signals makes formulating a near-term
forecast difficult at best. Several signs point to an improving domestic
economy, but the corporate debt capital markets seemingly do not care, and
remain focused instead on ways to shed rather than embrace risk. Eventually,
credit fundamentals should brighten, and short-term rates should commence a
movement upward. These developments could combine to provide a positive backdrop
for loan valuations and new transaction flow. Until that time, we will remain
relatively defensive in terms of credit selection, look to constantly improve
portfolio diversification and seek appropriate returns relative to risk.
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
ING Prime Rate Trust
July 16, 2002
3
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PORTFOLIO MANAGERS' FOOTNOTES
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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.
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.
4
ING Prime Rate Trust
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STATISTICS AND PERFORMANCE as of May 31, 2002
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PORTFOLIO CHARACTERISTICS
Net Assets $ 992,688,557
Assets Invested in Senior Loans* $1,523,525,072
Total Number of Senior Loans 253
Average Amount Outstanding per Loan $ 6,021,838
Total Number of Industries 35
Average Loan Amount per Industry $ 43,529,288
Portfolio Turnover Rate (YTD) 11%
Weighted Average Days to Interest Rate Reset 44
Average Loan Final Maturity 51 months
Total Leverage as a Percentage of Total Assets
(including Preferred Shares) 38.2%
* INCLUDES LOANS AND OTHER DEBT RECEIVED THROUGH RESTRUCTURINGS
TOP TEN INDUSTRY SECTORS AS A PERCENTAGE OF:
NET TOTAL
ASSETS ASSETS
------ ------
Cable Television 11.6% 7.1%
Cellular Communications 11.0% 6.8%
Healthcare, Education and Childcare 10.3% 6.3%
Lodging 9.5% 5.8%
Leisure, Amusement, Motion Pictures and Entertainment 7.9% 4.9%
Automobile 7.6% 4.7%
Containers, Packaging and Glass 7.5% 4.6%
Chemicals, Plastics and Rubber 7.1% 4.4%
Aerospace and Defense 6.1% 3.7%
Beverage, Food and Tobacco 5.5% 3.4%
TOP TEN SENIOR LOANS AS A PERCENTAGE OF:
NET TOTAL
ASSETS ASSETS
------ ------
Nextel Finance Co. 5.0% 3.1%
Charter Communications Operating LLC 4.7% 2.9%
Wyndham International, Inc. 2.6% 1.6%
SC International Services 2.4% 1.5%
Ford Motor Credit Corp. 2.0% 1.2%
Broadwing Corporation 1.9% 1.2%
Allied Waste Industries, Inc. 1.8% 1.1%
Dean Foods Corporation 1.7% 1.1%
Mandalay Resort Group 1.7% 1.1%
Western Wireless Corporation 1.7% 1.0%
5
ING Prime Rate Trust
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STATISTICS AND PERFORMANCE as of May 31, 2002
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YIELDS AND DISTRIBUTION RATES
AVERAGE AVERAGE
(NAV) (MKT) ANNUALIZED ANNUALIZED
PRIME 30-DAY SEC 30-DAY SEC DISTRIBUTION DISTRIBUTION
QUARTER-ENDED RATE YIELD A YIELD A RATE AT NAV B RATE AT MKT B
------------- ---- ------- ------- ------------- -------------
May 31, 2002 4.75% 7.32% 7.94% 6.09% 6.52%
February 28, 2002 4.75% 7.26% 7.73% 6.80% 7.31%
November 30, 2001 5.00% 8.33% 9.26% 7.48% 8.23%
August 31, 2001 6.50% 10.49% 10.69% 8.19% 8.37%
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
------ ------
1 Year 0.04% -6.25%
3 Years 1.50% -2.16%
5 Years 3.76% 0.89%
10 Years 5.80% 5.59%
Since Trust Inception(F,H) 6.78% N/A
Since Initial Trading on NYSE(G) N/A 5.47%
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 performance footnotes on page 7.
6
ING Prime Rate Trust
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PERFORMANCE FOOTNOTES
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(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.
(G) Initial Trading on NYSE -- March 9, 1992.
(H) Reflects partial waiver of fees.
7
ING Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program", formerly known
as the Dividend Reinvestment and Cash Purchase Plan) which allows common
shareholders a simple way to reinvest dividends and capital gains distributions,
if any, in additional common shares of the Trust. The Program also offers Trust
common shareholders the ability to make optional cash investments in any amount
from $100 to $5,000 on a monthly basis. Amounts in excess of $5,000 require
prior approval of the Trust. DST Systems, Inc., the Trust's Transfer Agent, is
the Administrator for the Program.
For dividend reinvestment purposes, the Administrator 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 Administrator 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 2002 DIVIDENDS:
DECLARATION DATE EX-DATE PAYABLE DATE
---------------- ------- ------------
January 31 February 7 February 25
February 28 March 7 March 22
March 28 April 8 April 22
April 30 May 8 May 22
May 31 June 6 June 24
June 28 July 8 July 22
July 31 August 8 August 22
August 30 September 6 September 23
September 30 October 8 October 22
October 31 November 7 November 22
November 29 December 6 December 23
December 20 December 27 January 13, 2003
RECORD DATE WILL BE TWO BUSINESS DAYS AFTER EACH EX-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. On November 16, 1998 the Trust's name
changed to Pilgrim Prime Rate Trust and its cusip number became 72146W 10 3.
Prior to November 16, 1998 the Trust's name was Pilgrim America Prime Rate Trust
and its cusip number was 720906 10 6. 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.
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(THIS PAGE INTENTIONALLY LEFT BLANK)
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ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
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SENIOR LOANS*
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
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AEROSPACE AND DEFENSE: 6.1%
AEROSTRUCTURES CORPORATION NR BB-
$ 1,991,170 Term Loan, maturing May 09, 2003 $ 1,958,814
ALLIANT TECHSYSTEMS, INC. Ba2 BB-
3,000,000 Term Loan, maturing April 20, 2009 3,039,999
AVBORNE, INC. NR NR
14,546,889 Term Loan, maturing June 30, 2005(3) 5,818,755
DRS TECHNOLOGIES, INC. Ba3 BB-
1,990,000 Term Loan, maturing September 30, 2008 2,009,900
ERICKSON AIR-CRANE COMPANY, LLC NR NR
8,203,692 Term Loan, maturing December 31, 2004 8,053,509
NEW PIPER AIRCRAFT, INC. NR NR
8,528,509 Term Loan, maturing April 15, 2005 8,421,902
PIEDMONT AVIATION SERVICES NR NR
6,239,878 Term Loan, maturing July 23, 2006 6,177,479
6,239,878 Term Loan, maturing July 23, 2007 6,177,479
TITAN CORPORATION Ba3 BB-
3,000,000 Term Loan, maturing May 10, 2009 2,996,250
TRANSDIGM HOLDING CORPORATION B1 B+
553,020 Term Loan, maturing May 15, 2006 551,638
1,423,125 Term Loan, maturing May 15, 2007 1,419,567
TRANSTAR METALS, INC. NR NR
14,866,071 Term Loan, maturing December 31, 2005(3) 7,433,036
UNITED DEFENSE INDUSTRIES, INC. Ba3 BB-
6,053,734 Term Loan, maturing August 13, 2009 6,082,009
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60,140,337
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AUTOMOBILE: 7.6%
AFTERMARKET TECHNOLOGY CORPORATION Ba2 BB-
842,105 Term Loan, maturing February 08, 2008 845,132
1,157,895 Term Loan, maturing February 08, 2008 1,162,056
BREED TECHNOLGIES, INC. NR NR
1,612,242 Term Loan, maturing December 20, 2004 1,362,345
CAPITAL TOOL & DESIGN, LTD. NR NR
9,047,614 Term Loan, maturing May 31, 2003 8,957,020
COLLINS & AIKMAN PRODUCTS Ba3 BB-
2,992,500 Term Loan, maturing June 30, 2005 3,013,073
DURA OPERATING CORPORATION Ba3 BB
3,200,000 Term Loan, maturing December 31, 2008 3,230,666
EXIDE TECHNOLOGIES(2) Caa2 D
5,210,467 Term Loan, maturing March 18, 2005(3) 3,556,143
FORD MOTOR CREDIT COMPANY A3 BBB+
20,000,000 Floating Rate Note, maturing October 25, 2004 20,014,580
See Accompanying Notes to Financial Statements
10
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
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BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
AUTOMOBILE (CONTINUED)
HAYES LEMMERZ INTERNATIONAL, INC.(2) NR D
$ 3,478,750 Term Loan, maturing December 31, 2005(3) $ 3,141,746
METALDYNE COMPANY, LLC B1 BB-
3,354,532 Term Loan, maturing June 21, 2009 3,339,856
POLYPORE, INC. Ba3 B+
5,500,000 Term Loan, maturing December 31, 2007 5,527,500
SAFELITE GLASS CORPORATION B3 NR
8,691,748 Term Loan, maturing September 30, 2007 8,409,266
6,622,627 Term Loan, maturing September 30, 2007 6,407,391
STONERIDGE, INC. Ba3 BB
2,000,000 Term Loan, maturing April 30, 2008 2,015,000
TENNECO AUTOMOTIVE, INC. B2 B
2,496,231 Term Loan, maturing November 04, 2007 2,404,010
2,496,231 Term Loan, maturing May 04, 2008 2,402,622
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75,788,406
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BANKING: 1.2%
OUTSOURCING SOLUTIONS, INC. B2 B+
12,087,136 Term Loan, maturing June 10, 2006 11,664,086
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11,664,086
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BEVERAGE, FOOD AND TOBACCO: 5.5%
AURORA FOODS, INC. B2 B-
4,706,827 Term Loan, maturing June 30, 2005 4,321,456
1,805,714 Revolving Loan, maturing June 30, 2005 1,628,754
COMMONWEALTH BRANDS, INC. Ba3 BB-
1,837,670 Term Loan, maturing December 31, 2004 1,851,453
COTT BEVERAGES, INC. Ba3 BB
1,908,054 Term Loan, maturing December 31, 2006 1,917,595
CP KELCO APS B3 B+
5,037,208 Term Loan, maturing March 31, 2008 4,550,276
1,678,275 Term Loan, maturing September 30, 2008 1,516,041
DEAN FOODS COMPANY Ba2 BB+
16,978,750 Term Loan, maturing July 15, 2008 17,082,219
EMPIRE KOSHER POULTRY, INC. NR NR
13,545,000 Term Loan, maturing July 31, 2004(3) 8,262,450
FLOWERS FOODS, INC. Ba2 BBB-
2,481,250 Term Loan, maturing March 26, 2007 2,503,271
INTERSTATE BAKERIES CORPORATION Ba1 BBB-
1,000,000 Term Loan, maturing July 19, 2007 1,007,292
2,977,500 Term Loan, maturing July 19, 2007 2,998,902
MAFCO WORLDWIDE CORPORATION B1 B
3,365,511 Term Loan, maturing March 31, 2006 3,331,856
See Accompanying Notes to Financial Statements
11
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD AND TOBACCO (CONTINUED)
NATIONAL DAIRY HOLDINGS, L.P. Ba2 BB+
$ 1,000,000 Term Loan, maturing April 29, 2009 $ 1,009,583
NUTRASWEET ACQUISITION CORPORATION Ba3 NR
873,959 Term Loan, maturing May 25, 2007 879,057
PABST BREWING COMPANY NR CCC
2,315,919 Term Loan, maturing April 27, 2003 2,171,174
--------------
55,031,379
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BUILDINGS AND REAL ESTATE: 1.6%
ASSOCIATED MATERIALS, INC. Ba3 BB-
1,000,000 Term Loan, maturing April 19, 2009 1,012,500
HQ GLOBAL WORKPLACES, INC.(2) NR NR
3,865,243 Term Loan, maturing November 06, 2005(3) 2,744,323
KEVCO, INC.(2) NR D
1,075,454 Term Loan, maturing February 02, 2005(3) 400,069
NATIONAL GOLF OPERATING PARTNERSHIP, L.P. NR NR
7,804,618 Term Loan, maturing March 29, 2004 7,219,271
U.S. AGGREGATES, INC.(2) NR NR
5,171,415 Term Loan, maturing March 31, 2006(3) 4,004,351
296,481 DIP Revolver, maturing April 11, 2007 290,551
--------------
15,671,065
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CABLE TELEVISION: 11.6%
CC VI OPERATING CO., LLC Ba3 BB
8,000,000 Term Loan, maturing November 12, 2008 7,637,000
CC VIII OPERATING, LLC Ba3 BB+
4,488,750 Term Loan, maturing February 02, 2008 4,286,756
CENTURY CABLE HOLDINGS, LLC Caa1 CCC
8,000,000 Term Loan, maturing June 30, 2009 7,160,336
5,000,000 Term Loan, maturing December 31, 2009 4,471,875
CHARTER COMMUNICATIONS OPERATING, LLC Ba3 BBB-
29,056,250 Term Loan, maturing March 18, 2008 27,706,355
20,000,000 Term Loan, maturing September 18, 2008 19,054,540
INSIGHT MIDWEST HOLDINGS, LLC Ba3 BB+
14,500,000 Term Loan, maturing December 31, 2009 14,552,867
LODGENET ENTERTAINMENT CORPORATION Ba3 B+
995,000 Term Loan, maturing June 30, 2006 1,003,706
MCC IOWA MEDIACOM BROADBAND Ba3 BB+
13,500,000 Term Loan, maturing September 30, 2010 13,540,311
OLYMPUS CABLE HOLDINGS, LLC B2 CCC
17,000,000 Term Loan, maturing September 30, 2010 15,406,250
--------------
114,819,996
--------------
See Accompanying Notes to Financial Statements
12
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
CARGO TRANSPORT: 2.8%
AMERICAN COMMERCIAL LINES, LLC B3 B
$ 1,358,758 Term Loan, maturing June 30, 2006 $ 1,314,740
1,948,946 Term Loan, maturing June 30, 2007 1,885,808
EVERGREEN INTERNATIONAL AVIATION, INC. Ba2 B+
346,239 Term Loan, maturing May 07, 2003 336,718
2,242,297 Term Loan, maturing May 07, 2003 2,180,634
GEMINI LEASING, INC. B1 NR
4,117,116 Term Loan, maturing August 12, 2005(3) 1,749,775
MOTOR COACH INDUSTRIES INTERNATIONAL, INC. B2 B
4,934,210 Term Loan, maturing June 16, 2006 4,483,963
NEOPLAN USA CORPORATION NR NR
9,614,276 Term Loan, maturing May 29, 2005 9,119,891
OMNITRAX RAILROADS, LLC NR NR
4,479,583 Term Loan, maturing May 13, 2005 4,468,384
OSHKOSH TRUCK COMPANY Ba1 BB+
1,998,214 Term Loan, maturing January 31, 2007 2,016,198
--------------
27,556,111
--------------
CELLULAR COMMUNICATIONS: 11.0%
AIRGATE PCS, INC. NR B-
967,427 Term Loan, maturing August 29, 2007 943,241
8,241,042 Term Loan, maturing September 30, 2008 8,035,017
AMERICAN CELLULAR CORPORATION B3 CCC+
2,585,717 Term Loan, maturing March 31, 2008 2,163,598
4,510,423 Term Loan, maturing March 31, 2009 3,774,097
INDEPENDENT WIRELESS ONE CORPORATION B2 B
10,000,000 Term Loan, maturing June 20, 2008 9,825,000
MICROCELL CONNEXIONS, INC. Caa2 B
5,000,000 Term Loan, maturing February 22, 2007 3,125,000
NEXTEL FINANCE COMPANY Ba3 BB-
4,750,000 Term Loan, maturing June 30, 2008 4,011,969
4,750,000 Term Loan, maturing December 31, 2008 4,011,969
50,500,000 Term Loan, maturing March 31, 2009 41,839,755
NEXTEL OPERATIONS, INC. Ba3 BB-
5,791,757 Term Loan, maturing March 15, 2006 5,619,690
RURAL CELLULAR CORPORATION Ba3 B+
4,911,130 Term Loan, maturing October 03, 2008 4,577,581
4,911,130 Term Loan, maturing April 03, 2009 4,577,581
WESTERN WIRELESS CORPORATION B1 B
4,200,000 Revolving Loan, maturing March 31, 2008 3,496,500
8,000,000 Term Loan, maturing March 31, 2008 6,640,000
8,000,000 Term Loan, maturing September 30, 2008 6,680,000
--------------
109,320,998
--------------
See Accompanying Notes to Financial Statements
13
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER: 7.1%
ACADIA ELASTOMERS CORPORATION NR NR
$ 9,416,058 Term Loan, maturing March 31, 2004 $ 9,100,539
CEDAR CHEMICALS CORPORATION(2) NR NR
9,852,754 Term Loan, maturing October 31, 2003(3) 1,644,856
EQUISTAR CHEMICALS, L.P. Ba2 BBB-
4,975,000 Term Loan, maturing August 24, 2007 5,006,984
EURO UNITED CORPORATION(4) NR NR
14,887,500 Term Loan, maturing May 31, 2001(3) 4,466,250
FOAM FABRICATORS, INC. NR NR
3,326,530 Term Loan, maturing March 05, 2005 3,318,214
FOAMEX, L.P. B2 BB-
1,682,843 Term Loan, maturing June 30, 2005 1,682,002
1,529,863 Term Loan, maturing June 30, 2006 1,529,098
GEO SPECIALITY CHEMICALS, INC. B1 B+
2,785,714 Term Loan, maturing December 31, 2007 2,629,018
HUNTSMAN CORPORATION Caa2 NR
5,800,000 Term Loan, maturing December 31, 2002 5,792,750
3,395,120 Revolving Loan, maturing February 07, 2003 3,000,437
7,000,000 Term Loan, maturing December 31, 2005 6,174,000
HUNTSMAN INTERNATIONAL, LLC B2 B+
904,712 Term Loan, maturing June 30, 2005 893,517
3,940,128 Term Loan, maturing June 30, 2007 3,955,723
3,940,128 Term Loan, maturing June 30, 2008 3,955,723
JOHNSONDIVERSEY, INC. Ba3 BB-
4,000,000 Term Loan, maturing November 03, 2009 4,050,356
LYONDELL CHEMICAL COMPANY Ba3 BB
4,952,772 Term Loan, maturing May 17, 2006 5,013,012
MILLENNIUM AMERICA, INC. Baa3 BBB-
1,840,000 Term Loan, maturing June 18, 2006 1,848,740
NOVEON, INC. B1 BB-
4,687,575 Term Loan, maturing September 30, 2008 4,704,666
OM GROUP, INC. Ba3 BB
1,989,907 Term Loan, maturing April 01, 2007 2,001,930
--------------
70,767,815
--------------
CONTAINERS, PACKAGING AND GLASS: 7.5%
BLUE RIDGE PAPER PRODUCTS, INC. B2 B+
8,749,774 Term Loan, maturing May 14, 2006 8,749,774
GRAPHIC PACKAGING CORPORATION Ba3 BB
1,995,000 Term Loan, maturing February 28, 2009 2,018,691
See Accompanying Notes to Financial Statements
14
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING AND GLASS (CONTINUED)
GREIF BROS. CORPORATION Ba3 BB
$ 2,233,638 Term Loan, maturing March 02, 2006 $ 2,225,727
2,305,841 Term Loan, maturing February 28, 2008 2,324,576
IMPAXX, INC. NR NR
4,775,000 Term Loan, maturing December 31, 2005 4,249,750
JEFFERSON SMURFIT CORPORATION Ba3 B+
3,000,000 Term Loan, maturing March 31, 2007 3,006,876
LINCOLN PULP & EASTERN FINE(2) NR NR
92,280 Term Loan, maturing December 31, 2001 92,737
14,881,108 Term Loan, maturing August 31, 2004 13,475,970
NEXPAK CORPORATION B1 B+
2,289,517 Term Loan, maturing December 31, 2005 1,980,432
2,289,517 Term Loan, maturing December 31, 2006 1,980,432
PACKAGING CORPORATION OF AMERICA Baa3 BBB
1,446,837 Term Loan, maturing June 29, 2006 1,444,426
PLIANT CORPORATION B2 B+
2,946,429 Term Loan, maturing May 31, 2008 2,950,570
RIVERWOOD INTERNATIONAL CORPORATION B1 B
1,246,667 Revolving Loan, maturing December 31, 2006 1,213,162
15,000,000 Term Loan, maturing December 31, 2006 15,075,000
STONE CONTAINER CORPORATION Ba3 B+
5,630,489 Term Loan, maturing December 31, 2005 5,652,104
5,068,574 Term Loan, maturing December 31, 2006 5,081,773
TEKNI-PLEX, INC. B1 B+
2,947,500 Term Loan, maturing June 21, 2008 2,957,324
--------------
74,479,324
--------------
DATA AND INTERNET SERVICES: 1.4%
360NETWORKS, INC.(2) NR NR
5,000,000 Term Loan, maturing September 30, 2007(3) 950,000
2,500,000 Term Loan, maturing December 31, 2007(3) 500,000
ARCH WIRELESS HOLDINGS, INC.(2) Ca D
8,365,373 Term Loan, maturing June 30, 2006(3) 1,521,452
ICG EQUIPMENT, INC.(2) B3 NR
6,995,226 Term Loan, maturing March 31, 2006 6,634,998
MCLEODUSA, INC. Caa2 D
1,858,824 Term Loan, maturing May 30, 2008 1,115,294
TELETOUCH COMMUNICATIONS, INC. NR NR
2,750,000 Term Loan, maturing April 30, 2005 2,653,750
TELIGENT, INC.(2) NR NR
4,687,500 Term Loan, maturing June 30, 2006(3) 140,625
TSR WIRELESS, LLC(1) NR NR
11,440,280 Term Loan, maturing June 30, 2005(3) 188,480
--------------
13,704,599
--------------
See Accompanying Notes to Financial Statements
15
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 4.2%
ALLIED DIGITAL TECHNOLOGIES CORPORATION(2) NR NR
$ 8,498,223 Term Loan, maturing December 31, 2005(3) $ 186,960
BARJAN PRODUCTS, LLC NR NR
4,863,375 Term Loan, maturing May 31, 2006 4,644,523
DRESSER, INC. Ba3 BB-
5,942,563 Term Loan, maturing April 10, 2009 5,985,896
FLOWSERVE CORPORATION Ba3 BB-
2,000,000 Term Loan, maturing June 30, 2009 2,024,166
GENERAL CABLE CORPORATION Ba3 BB+
2,594,377 Term Loan, maturing May 27, 2007 2,489,305
MANITOWOC COMPANY, INC. Ba2 BB
1,985,000 Term Loan, maturing May 09, 2007 2,004,354
MUELLER GROUP, INC. B1 B+
2,984,772 Term Loan, maturing April 17, 2008 3,000,630
NEPTUNE TECHNOLOGY GROUP, INC. NR NR
3,985,000 Term Loan, maturing November 01, 2008 4,024,850
SPX CORPORATION Ba2 BB+
6,352,381 Term Loan, maturing September 30, 2004 6,320,619
4,877,416 Term Loan, maturing December 31, 2007 4,896,720
UNITED PET GROUP NR NR
6,102,625 Term Loan, maturing March 31, 2006 6,052,478
--------------
41,630,501
--------------
DIVERSIFIED/CONGLOMERATE SERVICE: 2.4%
ENTERPRISE PROFIT SOLUTIONS CORPORATION NR NR
1,494,118 Term Loan, maturing June 14, 2001(3) --
IRON MOUNTAIN, INC. Ba3 BB
2,000,000 Term Loan, maturing February 15, 2008 2,017,500
MAFCO FINANCE CORPORATION NR NR
5,702,268 Term Loan, maturing August 14, 2002 5,648,809
PRIVATE BUSINESS, INC. NR NR
3,695,028 Term Loan, maturing August 19, 2006 3,658,078
URS CORPORATION Ba3 BB
9,785,699 Term Loan, maturing June 09, 2005 9,589,985
1,215,625 Term Loan, maturing June 09, 2006 1,210,307
1,215,625 Term Loan, maturing June 09, 2007 1,210,307
--------------
23,334,986
--------------
ECOLOGICAL: 2.9%
ALLIED WASTE NORTH AMERICA, INC. Ba3 BB
1,583,197 Term Loan, maturing July 21, 2005 1,555,425
7,240,339 Term Loan, maturing July 21, 2006 7,229,617
8,688,408 Term Loan, maturing July 21, 2007 8,675,540
See Accompanying Notes to Financial Statements
16
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
ECOLOGICAL (CONTINUED)
AMERICAN REF-FUEL COMPANY, LLC Baa2 BBB
$ 3,795,349 Term Loan, maturing April 30, 2005 $ 3,823,814
IT GROUP, INC.(2) NR D
4,154,605 Term Loan, maturing June 11, 2007(3) 716,669
RUMPKE CONSOLIDATED COMPANIES, INC. NR NR
6,789,435 Term Loan, maturing September 26, 2002 6,757,185
--------------
28,758,250
--------------
ELECTRONICS: 3.1%
ACTERNA, LLC NR B
7,543,403 Term Loan, maturing September 30, 2007 4,431,750
DECISION ONE CORPORATION NR NR
10,706,098 Term Loan, maturing April 18, 2005 9,100,183
2,122,987 Term Loan, maturing April 18, 2005 1,804,539
ELECTRO MECHANICAL SOLUTIONS(2) NR D
2,405,453 Term Loan, maturing June 30, 2004(3) 12,027
INSILCO TECHNOLOGIES, INC. Caa2 D
4,925,016 Term Loan, maturing March 25, 2007(3) 2,339,382
KNOWLES ELECTRONICS, INC. B3 CCC+
3,412,764 Term Loan, maturing June 29, 2007 3,220,796
SARCOM, INC. NR NR
8,993,645 Term Loan, maturing June 30, 2001(3) 7,374,790
TRANSACTION NETWORK SERVICES, INC. Ba3 BB-
2,000,000 Term Loan, maturing April 03, 2007 1,996,250
--------------
30,279,717
--------------
FINANCE: 2.8%
ALLIANCE DATA SYSTEMS CORPORATION B1 B+
8,900,000 Term Loan, maturing July 25, 2005 8,822,125
ANTHONY CRANE RENTAL, L.P. B2 B
14,587,5000 Term Loan, maturing July 20, 2006 10,527,317
BRIDGE INFORMATION SYSTEMS, INC. NR NR
143,257 Term Loan, maturing August 01, 2002 143,257
RENT-A-CENTER, INC. Ba2 BB-
1,957,822 Term Loan, maturing January 31, 2006 1,950,480
4,307,191 Term Loan, maturing January 31, 2007 4,291,039
1,706,481 Term Loan, maturing December 31, 2007 1,705,680
VALUE ASSET MANAGEMENT, INC. B1 B+
750,000 Term Loan, maturing April 28, 2003 744,375
--------------
28,184,273
--------------
See Accompanying Notes to Financial Statements
17
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
GAMING: 4.7%
ALADDIN GAMING, LLC(2) Caa1 NR
$ 2,968,421 Term Loan, maturing August 26, 2006(3) $ 2,515,737
4,455,000 Term Loan, maturing February 26, 2008(3) 3,775,613
ALLIANCE GAMING CORPORATION B1 B+
5,000,000 Term Loan, maturing December 31, 2006 5,050,000
AMERISTAR CASINOS, INC. Ba3 B+
1,589,402 Term Loan, maturing December 20, 2006 1,603,309
1,362,345 Term Loan, maturing December 20, 2007 1,374,265
ARGOSY GAMING COMPANY Ba2 BB
4,466,250 Term Loan, maturing July 31, 2008 4,509,984
BOYD GAMING CORPORATION Ba1 BB+
3,685,161 Revolving Loan, maturing June 15, 2003 3,675,948
ISLE OF CAPRI CASINOS, INC. Ba2 BB-
1,000,000 Term Loan, maturing April 26, 2008 1,010,750
MANDALAY RESORT GROUP Ba1 BB+
17,000,000 Term Loan, maturing August 22, 2006 16,973,446
PALACE STATION HOTEL & CASINO Ba2 BB+
1,050,558 Revolving Loan, maturing September 30, 2003 1,024,294
SCIENTIFIC GAMES CORPORATION B1 B+
4,925,000 Term Loan, maturing September 30, 2007 4,947,571
--------------
46,460,917
--------------
GROCERY: 0.3%
GRAND UNION COMPANY(2) NR NR
871,054 Term Loan, maturing August 17, 2003(3) 13,066
WINN DIXIE STORES, INC. Baa3 BBB
2,460,000 Term Loan, maturing March 29, 2007 2,474,145
--------------
2,487,211
--------------
HEALTHCARE, EDUCATION AND CHILDCARE: 10.3%
ADVANCE PCS Ba1 BB+
1,319,381 Term Loan, maturing October 02, 2007 1,324,329
ALLIANCE IMAGING, INC. B1 B+
1,419,847 Term Loan, maturing November 02, 2006 1,384,351
1,302,985 Term Loan, maturing November 02, 2007 1,309,771
4,623,838 Term Loan, maturing November 02, 2008 4,647,919
ALPHARMA OPERATING CORPORATION B1 BB-
1,392,337 Term Loan, maturing October 05, 2008 1,361,445
APRIA HEALTHCARE GROUP, INC. Ba1 BBB-
4,975,000 Term Loan, maturing July 20, 2007 4,980,184
BROWN SCHOOLS NR NR
8,438,910 Term Loan, maturing June 30, 2003 8,313,664
See Accompanying Notes to Financial Statements
18
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED)
CAREMARK RX, INC. Ba2 BB+
$ 4,500,000 Term Loan, maturing March 31, 2006 $ 4,516,875
COMMUNITY HEALTH SYSTEMS, INC. Ba3 B+
2,108,288 Term Loan, maturing December 31, 2003 2,120,585
2,108,288 Term Loan, maturing December 31, 2004 2,121,464
1,292,364 Term Loan, maturing December 31, 2005 1,301,697
CONCENTRA MANAGED CARE, INC. B1 B+
3,241,667 Term Loan, maturing June 30, 2006 3,256,864
1,620,833 Term Loan, maturing June 30, 2007 1,628,735
COVENANT CARE, INC. NR NR
5,487,307 Term Loan, maturing June 30, 2003 5,391,279
DAVITA, INC. Ba3 BB-
9,000,000 Term Loan, maturing March 31, 2009 9,046,610
EXPRESS SCRIPTS, INC. Ba1 BBB-
1,752,137 Revolving Loan, maturing March 31, 2005 1,725,855
2,164,404 Term Loan, maturing March 31, 2005 2,150,877
5,000,000 Term Loan, maturing March 31, 2008 5,020,000
FOUNTAIN VIEW, INC.(2) NR NR
12,352,941 Term Loan, maturing March 31, 2004 11,815,477
GENESIS HEALTH VENTURES, INC. Ba3 BB-
1,037,126 Term Loan, maturing March 31, 2007 1,042,637
752,732 Term Loan, maturing March 31, 2007 758,378
1,555,582 Floating Rate Note, maturing April 02, 2007 1,555,582
HCA, INC. Ba1 BBB-
10,285,714 Term Loan, maturing April 30, 2006 10,189,286
KINETIC CONCEPTS, INC. Ba3 B
3,970,000 Term Loan, maturing March 31, 2006 3,975,788
MAGELLAN HEALTH SERVICES, INC. B1 B+
1,259,219 Term Loan, maturing February 12, 2005 1,260,950
1,259,219 Term Loan, maturing February 12, 2006 1,260,950
MARINER HEALTH CARE, INC. B1 B+
988,381 Term Loan, maturing September 30, 2008 983,439
MEDPOINTE, INC. B1 B+
2,985,000 Term Loan, maturing September 30, 2008 3,007,388
SYBRON DENTAL SPECIALTIES, INC. Ba3 BB-
1,160,756 Term Loan, maturing November 28, 2007 1,161,480
1,166,667 Term Loan, maturing November 28, 2007 1,167,396
TRIAD HOSPITALS, INC. Ba3 B+
1,989,091 Term Loan, maturing September 30, 2008 2,013,334
VISION TWENTY-ONE, INC. NR NR
2,898,018 Term Loan, maturing October 31, 2002(3) 289,802
--------------
102,084,391
--------------
See Accompanying Notes to Financial Statements
19
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
HOME AND OFFICE FURNISHING, HOUSEWARES, AND DURABLE CONSUMER PRODUCTS: 1.3%
AMERICAN BLIND & WALLPAPER FACTORY, INC. NR NR
$ 722,983 Term Loan, maturing December 31, 2005 $ 722,983
DESA INTERNATIONAL, INC. Caa2 NR
7,136,218 Term Loan, maturing November 26, 2004 5,405,685
HOLMES PRODUCTS CORPORATION B2 B
3,599,239 Term Loan, maturing February 05, 2007 3,284,305
IDENTITY GROUP, INC. B2 B+
4,525,000 Term Loan, maturing May 11, 2007 2,896,000
IMPERIAL HOME DECOR GROUP, INC. NR NR
833,725 Term Loan, maturing April 04, 2006 779,533
--------------
13,088,506
--------------
INSURANCE: 1.2%
USI HOLDINGS CORPORATION B2 B+
7,496,000 Term Loan, maturing September 17, 2004 7,458,520
WHITE MOUNTAINS INSURANCE GROUP, LTD. NR BBB-
4,455,000 Term Loan, maturing March 31, 2007 4,461,963
--------------
11,920,483
--------------
LEISURE, AMUSEMENT, MOTION PICTURES AND ENTERTAINMENT: 7.9%
BALLY TOTAL FITNESS HOLDING CORPORATION Ba3 B+
5,963,185 Term Loan, maturing November 10, 2004 5,978,093
FITNESS HOLDINGS WORLDWIDE, INC. NR B
9,267,625 Term Loan, maturing November 02, 2006 8,479,877
8,285,625 Term Loan, maturing November 02, 2007 7,581,347
LOEWS CINEPLEX ENTERTAINMENT CORPORATION NR NR
6,979,648 Term Loan, maturing February 29, 2008 6,840,055
METRO-GOLDWYN-MAYER STUDIOS, INC. Ba3 BB-
7,490,625 Term Loan, maturing March 31, 2005 7,460,977
7,443,750 Term Loan, maturing March 31, 2006 7,442,589
PANAVISION, INC. B3 CCC
14,064,324 Term Loan, maturing March 31, 2005 12,833,695
REGAL CINEMAS, INC. B1 B+
2,962,500 Term Loan, maturing December 31, 2007 2,994,439
SIX FLAGS THEME PARKS, INC. Ba2 BB-
5,833,333 Revolving Loan, maturing November 03, 2004 5,793,229
2,985,000 Term Loan, maturing September 30, 2005 3,005,522
WFI GROUP, INC. NR NR
3,000,000 Term Loan, maturing July 14, 2004 3,000,939
XANTERRA PARKS & RESORTS, LLC NR NR
3,454,646 Term Loan, maturing September 30, 2004 3,446,010
3,454,646 Term Loan, maturing September 30, 2005 3,446,010
--------------
78,302,782
--------------
See Accompanying Notes to Financial Statements
20
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
LODGING: 9.5%
EXTENDED STAY AMERICA, INC. Ba3 BB-
$ 16,391,771 Term Loan, maturing January 15, 2008 $ 16,483,975
HILTON HAWAIIAN VILLAGE, LLC Ba1 BBB-
13,970,588 Revolving Loan, maturing June 01, 2003 13,691,176
KSL RECREATIONAL GROUP, INC. Ba3 B+
1,513,611 Term Loan, maturing April 30, 2005 1,494,690
1,513,611 Term Loan, maturing April 30, 2006 1,504,151
9,075,000 Term Loan, maturing December 22, 2006 9,029,625
LODGIAN FINANCING CORPORATION(2) NR D
17,071,616 Term Loan, maturing July 15, 2006 16,559,468
MERISTAR INVESTMENT PARTNERS Ba3 B-
6,451,357 Term Loan, maturing March 31, 2003 6,467,485
2,500,000 Term Loan, maturing March 31, 2003 2,506,250
WYNDHAM INTERNATIONAL, INC. Caa1 B-
7,728,891 Term Loan, maturing June 30, 2004 7,510,828
19,756,144 Term Loan, maturing June 30, 2006 18,676,609
--------------
93,924,257
--------------
MACHINERY: 1.4%
ALLIANCE LAUNDRY HOLDINGS, LLC B1 B
10,099,875 Term Loan, maturing June 30, 2005 9,727,442
MORRIS MATERIAL HANDLING, INC. NR NR
258,831 Term Loan, maturing September 28, 2004 245,889
VUTEK, INC. B1 NR
1,717,272 Term Loan, maturing July 31, 2007 1,700,100
1,222,729 Term Loan, maturing December 30, 2007 1,210,501
615,851 Term Loan, maturing December 30, 2007 613,542
--------------
13,497,474
--------------
MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.1%
NATIONAL REFRACTORIES & MINERALS CORPORATION NR NR
1,250,000 Term Loan, maturing March 30, 2002 1,244,104
--------------
1,244,104
--------------
OIL AND GAS: 1.7%
PLAINS MARKETING LP Ba1 BB+
3,500,000 Term Loan, maturing September 21, 2007 3,510,938
PMC COMPANY Ba1 BB+
2,970,000 Term Loan, maturing May 05, 2006 2,973,713
TESORO PETROLEUM CORPORATION Ba3 BB+
5,985,000 Term Loan, maturing December 31, 2007 5,989,985
1,000,000 Term Loan, maturing December 31, 2007 1,000,833
W-H ENERGY SERVICES, INC. B1 B
3,465,000 Term Loan, maturing April 16, 2007 3,456,337
--------------
16,931,806
--------------
See Accompanying Notes to Financial Statements
21
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
OTHER TELECOMMUNICATIONS: 2.8%
BROADWING, INC. Ba3 BB
$ 12,279,000 Term Loan, maturing November 09, 2004 $ 11,869,704
6,358,607 Term Loan, maturing December 30, 2006 6,123,140
763,586 Term Loan, maturing June 28, 2007 734,952
INFONET SERVICES CORPORATION Ba3 BB-
4,831,250 Term Loan, maturing June 30, 2006 4,710,469
PACIFIC COIN NR NR
3,898,822 Term Loan, maturing March 31, 2004(3) 3,820,846
3,068,524 Term Loan, maturing March 31, 2004(3) 613,705
--------------
27,872,816
--------------
PERSONAL & NON DURABLE CONSUMER PRODUCTS: 4.8%
AM COSMETICS CORPORATION NR NR
2,292,689 Revolving Loan, maturing May 30, 2004(3) 1,948,786
1,305,151 Term Loan, maturing May 30, 2004(3) 1,109,378
2,610,303 Term Loan, maturing December 31, 2004(3) 2,218,758
AMSCAN HOLDINGS, INC. B1 B+
9,544,176 Term Loan, maturing December 31, 2004 9,305,572
ARMKEL, LLC Ba3 B+
1,990,000 Term Loan, maturing March 28, 2009 2,013,838
BUHRMANN U.S., INC. Ba3 BB-
2,958,821 Term Loan, maturing October 26, 2005 2,875,143
5,072,551 Term Loan, maturing October 26, 2007 4,998,273
CENTIS, INC. NR NR
3,900,000 Term Loan, maturing September 30, 2005(3) 1,365,000
3,421,250 Term Loan, maturing September 30, 2006(3) 1,197,438
CHURCH & DWIGHT CO., INC. Ba2 BB
2,000,000 Term Loan, maturing September 30, 2007 2,023,750
JOSTENS, INC. B1 BB-
1,406,408 Term Loan, maturing May 31, 2008 1,416,077
3,245,601 Term Loan, maturing May 31, 2006 3,199,620
NORWOOD PROMOTIONAL PRODUCTS, INC. NR NR
6,584,121 Term Loan, maturing February 01, 2005 6,584,121
4,418,873 Term Loan, maturing February 01, 2005 2,295,605
1,260,675 Term Loan, maturing February 01, 2005(3) --
PAINT SUNDRY BRANDS CORPORATION B2 B+
977,360 Term Loan, maturing August 11, 2005 948,039
957,213 Term Loan, maturing August 11, 2006 928,496
RELIZON COMPANY Ba3 BB-
3,576,284 Revolving Loan, maturing August 04, 2006 3,379,588
U.S. OFFICE PRODUCTS COMPANY(2) NR NR
3,324,180 Term Loan, maturing June 09, 2006(3) 41,552
--------------
47,849,034
--------------
See Accompanying Notes to Financial Statements
22
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
PERSONAL, FOOD & MISCELLANEOUS: 4.4%
COINMACH CORPORATION B1 BB-
$ 4,950,000 Term Loan, maturing July 25, 2009 $ 4,999,500
NEW WORLD RESTAURANT GROUP, INC. B3 B-
4,000,000 Secured Floating Rate Note, maturing June 15, 2003 3,600,000
OTIS SPUNKMEYER, INC. NR NR
4,383,072 Term Loan, maturing December 31, 2005 4,120,088
PAPA GINO'S, INC. NR NR
5,003,906 Term Loan, maturing August 31, 2007 5,001,644
2,096,591 Term Loan, maturing August 31, 2007 2,080,114
SC INTERNATIONAL SERVICES Ba1 BB
579,535 Term Loan, maturing March 01, 2007 556,353
24,675,652 Term Loan, maturing March 01, 2007 23,688,626
--------------
44,046,325
--------------
PRINTING AND PUBLISHING: 5.1%
ADAMS OUTDOOR ADVERTISING, L.P. B1 B+
1,995,000 Term Loan, maturing February 08, 2008 2,017,444
ADVANSTAR COMMUNICATIONS, INC. B2 B
11,657,287 Term Loan, maturing April 11, 2007 11,424,141
3,782,857 Term Loan, maturing October 11, 2007 3,740,300
CANWEST MEDIA, INC. Ba3 BB-
4,243,723 Term Loan, maturing May 15, 2008 4,292,224
4,545,047 Term Loan, maturing May 15, 2009 4,596,992
LAMAR MEDIA CORPORATION Ba2 BB-
5,632,813 Term Loan, maturing March 01, 2006 5,527,197
MAIL-WELL I CORPORATION Ba3 BB
756,550 Term Loan, maturing February 22, 2007 754,280
PRIMEDIA, INC. B3 B
3,980,000 Term Loan, maturing June 30, 2009 3,623,790
READER'S DIGEST ASSOCIATIONS, INC. Baa3 BB+
7,000,000 Term Loan, maturing May 20, 2008 7,070,000
TRANSWESTERN PUBLISHING COMPANY Ba3 B+
2,977,500 Term Loan, maturing June 27, 2008 3,010,998
VERTIS, INC. B1 B+
3,924,391 Term Loan, maturing December 07, 2008 3,755,152
ZIFF DAVIS MEDIA, INC. B3 CCC-
1,706,671 Term Loan, maturing March 31, 2007 1,484,803
--------------
51,297,321
--------------
RADIO & TELEVISION BROADCASTING: 4.5%
BENEDEK BROADCASTING CORPORATION(2) B2 NR
6,531,915 Term Loan, maturing November 20, 2007 6,502,521
See Accompanying Notes to Financial Statements
23
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
RADIO & TELEVISION BROADCASTING (CONTINUED)
CITADEL BROADCASTING COMPANY Ba3 NR
$ 4,500,000 Term Loan, maturing June 26, 2009 $ 4,542,750
CUMULUS MEDIA, INC. B1 B
3,000,000 Term Loan, maturing March 28, 2010 3,033,126
EMMIS COMMUNICATIONS CORPORATION Ba2 B+
10,484,144 Term Loan, maturing August 31, 2009 10,572,903
FISHER BROADCASTING, INC. NR NR
2,500,000 Term Loan, maturing February 28, 2010 2,518,750
GRAY COMMUNICATIONS SYSTEMS, INC. Ba3 B+
3,000,000 Term Loan, maturing September 30, 2009 3,012,189
PAXSON COMMUNICATIONS CORPORATION Ba3 BB
4,962,500 Term Loan, maturing June 30, 2006 5,012,125
PEGASUS MEDIA & COMMUNICATIONS, INC. B1 B+
5,929,975 Term Loan, maturing April 30, 2005 5,534,641
SINCLAIR BROADCAST GROUP, INC. Ba2 BB-
2,000,000 Term Loan, maturing September 30, 2009 2,018,000
SUSQUEHANNA MEDIA COMPANY Ba1 BB-
2,500,000 Term Loan, maturing June 30, 2008 2,512,500
--------------
45,259,505
--------------
RETAIL STORES: 4.9%
ADVANCE STORES COMPANY, INC. Ba3 B+
4,638,936 Term Loan, maturing November 30, 2007 4,681,702
K MART CORPORATION NR NR
3,500,000 Debtor in Possession maturing April 22, 2004 3,524,063
MURRAY'S DISCOUNT AUTO STORES INC. NR B
14,344,727 Term Loan, maturing June 30, 2003 14,206,962
PEEBLES, INC. NR NR
327,030 Term Loan, maturing April 30, 2003 317,219
7,904,718 Term Loan, maturing April 30, 2004 7,667,576
RITE AID CORPORATION B2 BB-
14,938,337 Term Loan, maturing June 27, 2005 14,776,510
SHOPPERS DRUG MART CORPORATION Ba1 BBB+
1,000,000 Term Loan, maturing February 04, 2009 1,006,875
TRAVELCENTERS OF AMERICA, INC. Ba3 BB
2,493,750 Term Loan, maturing November 14, 2008 2,515,570
--------------
48,696,477
--------------
TELECOMMUNICATION EQUIPMENT: 5.3%
AMERICAN TOWER L.P. B2 BB-
11,916,667 Term Loan, maturing June 30, 2007 10,990,646
CROWN CASTLE OPERATING COMPANY Ba3 BB-
13,000,000 Term Loan, maturing March 15, 2008 12,882,870
See Accompanying Notes to Financial Statements
24
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT (CONTINUED)
PINNACLE TOWERS, INC.(2) B3 D
$ 12,018,709 Term Loan, maturing June 30, 2007 $ 11,797,120
SPECTRASITE COMMUNICATIONS, INC. B3 CC
8,500,000 Term Loan, maturing December 31, 2007 7,988,071
TRIPOINT GLOBAL COMMUNICATIONS, INC. NR NR
5,062,061 Term Loan, maturing May 31, 2006 4,798,748
TSI TELECOMMUNICATION SERVICES, INC. Ba3 B+
4,500,000 Term Loan, maturing December 31, 2006 4,387,500
--------------
52,844,955
--------------
TEXTILES AND LEATHER: 3.0%
ACCESSORY NETWORK GROUP, INC. NR NR
8,222,064 Term Loan, maturing June 30, 2003 6,711,721
GALEY & LORD, INC.(2) Caa2 NR
4,464,858 Term Loan, maturing April 02, 2005 3,396,365
3,167,310 Term Loan, maturing April 01, 2006 2,410,145
LEVI STRAUSS & CO Ba3 BB+
373,077 Term Loan, maturing August 29, 2003 374,988
MALDEN MILLS INDUSTRIES, INC.(2) NR NR
9,340,635 Term Loan, maturing October 28, 2006(3) 5,137,349
POLYMER GROUP, INC.(2) NR D
4,779,769 Term Loan, maturing December 20, 2005 4,514,320
3,000,000 Term Loan, maturing December 20, 2006 2,835,624
TARGUS GROUP, INC. NR NR
3,441,181 Term Loan, maturing August 31, 2006 3,234,710
WILLIAM CARTER COMPANY Ba3 BB-
995,000 Term Loan, maturing September 30, 2008 1,007,438
--------------
29,622,660
--------------
UTILITIES: 1.5%
CALPINE CORPORATION Ba3 BBB-
5,000,000 Term Loan, maturing March 08, 2004 4,977,230
MICHIGAN ELECTRIC TRANSMISSION COMPANY Baa2 NR
3,000,000 Term Loan, maturing May 01, 2007 3,037,500
PIKE ELECTRIC, INC. Ba3 BB-
1,917,647 Term Loan, maturing April 18, 2010 1,936,225
SOUTHERN CALIFORNIA EDISON COMPANY Ba2 BB
5,000,000 Term Loan, maturing March 01, 2003 5,011,250
--------------
14,962,205
--------------
TOTAL SENIOR LOANS -- 153.5%
(COST $1,680,423,762) 1,523,525,072
--------------
See Accompanying Notes to Financial Statements
25
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
OTHER CORPORATE DEBT
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------------------
AUTOMOBILE: 0.5%
CAPITAL TOOL & DESIGN, LTD. NR NR
$ 6,000,000 Subordinated Note, maturing July 26, 2003 $ 4,800,000
FINANCE: 1.0%
VALUE ASSET MANAGEMENT, INC. B2 B
10,000,000 Sr. Sub. Bridge, maturing August 31, 2005 9,925,000
HEALTHCARE, EDUCATION AND CHILDCARE: 0.0%
VISION TWENTY-ONE NR NR
368,022 Convertible Note, maturing October 31, 2003(3) 37
HOME AND OFFICE FURNISHINGS, HOUSEWARES, AND DURABLE CONSUMER PRODUCTS: 0.0%
MP HOLDINGS NR NR
64,527 Subordinated Note, maturing March 14, 2007 61,301
OIL AND GAS: 0.9%
PREMCOR REFINING, INC. B1 BB-
9,000,000 Floating Rate Note, maturing November 15, 2004 8,730,000
PERSONAL & NONDURABLE CONSUMER PRODUCTS: 0.2%
AM COSMETICS CORPORATION NR NR
3,127,215 Subordinated Note, maturing
May 30, 2007(3) --
PAINT SUNDRY BRANDS, LLC B3 B
2,875,000 Subordinated Note, maturing August 11, 2008 2,386,250
TEXTILES AND LEATHER: 0.1%
TARTAN TEXTILE SERVICES NR NR
1,332,583 Subordinated Note, maturing April 1, 2011 1,265,954
--------------
TOTAL OTHER CORPORATE DEBT -- 2.7%
(COST $32,215,955) $ 27,168,542
--------------
See Accompanying Notes to Financial Statements
26
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
COMMON STOCK
SHARES VALUE
-------- -------------
AEROSPACE AND DEFENSE: 0.0%
11,130 Stellex Technologies, Inc.@(R) $ 275,767
AUTOMOBILE: 1.0%
212,171 Breed Technologies, Inc.@(R) 2,989,490
660,808 Safelite Glass Corporation@(R) 7,427,482
44,605 Safelite Realty@(R) 1
-------------
10,416,973
-------------
DIVERSIFIED / CONGLOMERATE SERVICES: 0.0%
60,056 Staff Leasing, Inc.@ 234,218
ELECTRONICS: 0.2%
350,059 Decision One Corporation@(R) 1,501,753
HEALTHCARE, EDUCATION AND CHILDCARE: 0.5%
190,605 Genesis Health Ventures, Inc.@ 3,621,495
126,525 Mariner Health Care, Inc.@ 1,668,201
-------------
5,289,696
-------------
HOME AND OFFICE FURNISHINGS: 0.0%
80,400 American Blind and Wallpaper, Inc.@(R) 804
300,141 Imperial Home Decor Group, Inc.@(R) 1
300,141 IHDG Realty@(R) 1
590 MP Holdings, Inc.@(R) 6
17,582 Soho Publishing, Inc.@(R) 176
-------------
988
-------------
MACHINERY: 0.2%
481,373 Morris Material Handling, Inc.@(R) 1,771,453
OTHER TELECOMMUNICATIONS: 0.0%
1,091 Pacific Coin, Inc.@(R) 1
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 0.0%
37,197 AM Cosmetics Corporation@(R) --
RETAIL STORES: 0.0%
17 Murray's Discount Auto Stores, Inc.@(R) 62,442
TEXTILES AND LEATHER: 0.1%
127,306 Dan River, Inc.@ 514,316
-------------
TOTAL EQUITY SECURITIES -- 2.0%
(COST $15,533,975) 20,067,607
-------------
See Accompanying Notes to Financial Statements
27
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
SHARES VALUE
-------- -------------
415 AM Cosmetics Corporation, Series E-1 Preferred Stock, exchangable for
common shares on a 1-for-1 basis@(R) $ --
1 Autotote Systems, Inc., Option representing 0.248% common shares
issued and outstanding @(R) --
80,208 Boston Chicken, Inc., residual interest in Boston Chicken Plan Trust@(R)(2) 8,014,962
80,634 Capital Tool & Design, Ltd., Warrants representing 19,000 common
shares@(R) --
10,000 Casden Properties Operation, 10,000 shares of junior Cumulative
Preferred partnership Units(R) 250,000
19,000 Covenant Care, Inc., Warrants representing 19,000 common shares
expiring June 30, 2003@(R) --
167,239 Tembec, Inc. -- common shares@(R) 1,624,877
2,696 Electro Mechanical Solutions, Warrants representing 2,564 common
shares, expires September 29, 2002@(R)(2) --
16,501 Exide Technologies, Warrants representing 16,501 common shares,
expires March 16, 2006@(R)(2) 165
2,223 Genesis Health Ventures, Preferred Stock@ 210,740
19,397 Holmes Group, Warrants representing 19,397 common shares, expiring
May 7, 2006@(R) --
25,000 Humphreys, Inc., residual interest in liquidating estate@(R) 25,000
955 Murray's Discount Auto Stores, Inc., Warrants representing common
stock, expires January 22, 2007@(R) 3,515,004
4,000 New World Coffee, Manhattan Bagel, Inc., Warrants representing 4,000
common shares, expiring June 15, 2006@(R) 99,960
48,930 Scientific Games Corp., Warrants to purchase Class B common stock,
non-voting@(R) 196,238
23,449 Tartan Textiles Services, Series D Preferred Stock@(R) 2,227,655
36,775 Tartan Textiles Services, Series E Preferred Stock@(R) 2,333,852
243,778 Vision Twenty-One, Warrant representing 243,778 common share@(R) --
-------------
TOTAL STOCK PURCHASE WARRANTS AND OTHER SECURITIES -- 1.9%
(COST $14,046,842) 18,498,453
-------------
TOTAL INVESTMENTS (COST $1,742,220,534)(5) 160.1% 1,589,259,674
PREFERRED SHARES AND LIABILITES IN EXCESS OF CASH AND
OTHER ASSETS -- NET (60.1)% (596,571,117)
----- -------------
NET ASSETS 100.0% $ 992,688,557
===== =============
See Accompanying Notes to Financial Statements
28
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
----------
@ Non-income producing security.
(R) Restricted security.
* Senior loans, while exempt from registration under the Securities Act of
1933, 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 Prime Rate of a U.S. bank
specified in the credit agreement, LIBOR, the certificate of deposit rate,
or in some cases another base lending rate.
NR Not Rated
+ Bank Loans rated below Baa by Moody's Investors 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 investments is $1,738,202,534
and net unrealized depreciation consists of the following:
Gross Unrealized Appreciation $ 25,928,982
Gross Unrealized Depreciation (174,871,842)
--------------
Net Unrealized Depreciation $ (148,942,860)
==============
See Accompanying Notes to Financial Statements
29
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
ASSETS:
Investments in securities at value (Cost $1,742,220,534) $1,589,259,674
Cash 12,887,909
Receivables:
Interest 8,693,205
Other 79,449
Prepaid expenses 129,707
Prepaid arrangement fees on notes payable 187,797
--------------
Total assets 1,611,237,741
--------------
LIABILITIES:
Notes payable 165,000,000
Deferred arrangement fees on senior loans 970,661
Accrued interest payable 345,781
Accrued preferred shares dividend payable 64,383
Payable to affiliates 1,415,748
Accrued expenses 752,611
--------------
Total liabilities 168,549,184
--------------
Preferred shares, $25,000 stated value per share
at liquidation value (18,000 shares outstanding) 450,000,000
NET ASSETS $ 992,688,557
==============
Net asset value per common share outstanding (net assets
divided by 136,972,914 common shares
authorized and outstanding, par value $0.01) $ 7.25
==============
Net Assets Consist of:
Paid in capital $1,287,948,209
Undistributed net investment income 8,867,792
Accumulated net realized loss on investments (151,166,584)
Net unrealized depreciation of investments (152,960,860)
--------------
Net assets $ 992,688,557
==============
See Accompanying Notes to Financial Statements
30
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Three Months Ended May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 23,159,642
Arrangement fees earned 249,563
Dividends 3,003
Other 1,145,803
--------------
Total investment income 24,558,011
--------------
EXPENSES:
Interest 1,197,665
Investment management fees 3,314,637
Administration fees 1,035,824
Transfer agent and registrar fees 121,283
Reports to shareholders 70,840
Custodian fees 181,350
Revolving credit facility fees 83,014
Professional fees 294,401
Preferred shares -- dividend disbursing agent fees 299,367
Insurance expense 9,541
Pricing fees 19,677
Postage fees 64,400
Trustees' fees 18,400
Miscellaneous fees 4,211
NYSE registration fees 121,200
--------------
Total expenses 6,835,810
--------------
Net investment income 17,722,201
--------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (24,068,191)
Net change in unrealized depreciation of investments 30,764,033
--------------
Net gain on investments 6,695,842
--------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERES:
From net investment income (2,163,369)
--------------
Net increase in net assets resulting from operations $ 22,254,674
==============
See Accompanying Notes to Financial Statements
31
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
THREE MONTHS ENDED
MAY 31, YEAR ENDED
2002 FEBRUARY 28,
(UNAUDITED) 2002
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 17,722,201 $ 101,753,746
Net realized loss on investments (24,068,191) (53,063,828)
Change in unrealized depreciation
of investments 30,764,033 (69,951,020)
Distributions to preferred shareholders from net
investment income (2,163,369) (15,273,093)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations 22,254,674 (36,534,195)
--------------- ---------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Distributions from net investment income (15,547,796) (85,728,945)
--------------- ---------------
Decrease in net assets from distributions to
common shareholders (15,547,796) (85,728,945)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Common shares issued from dividend reinvestment -- 919,219
Common shares sold in connection with shelf offerings -- 87,513
Offering costs of preferred shares -- (194,010)
--------------- ---------------
Net increase from capital share transactions -- 812,722
--------------- ---------------
Net increase (decrease) in net assets 6,706,878 (121,450,418)
NET ASSETS:
Beginning of year 985,981,679 1,107,432,097
--------------- ---------------
End of period (including undistributed net investment
income of $8,867,792 and $8,856,756, respectively) $ 992,688,557 $ 985,981,679
=============== ===============
SUMMARY OF COMMON SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income -- 114,904
Shares sold in connection with shelf offerings -- 10,939
--------------- ---------------
Net increase in shares common shares outstanding -- 125,843
=============== ===============
See Accompanying Notes to Financial Statements
32
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Three Months Ended May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 22,970,592
Dividends received 3,003
Dividends paid to preferred shareholders (2,176,597)
Arrangement fee received 602,002
Other income received 1,208,233
Interest paid (1,368,950)
Other operating expenses paid (5,080,208)
Purchases of portfolio securities (175,576,476)
Proceeds from disposition of portfolio securities 303,987,018
--------------
Net cash provided by operating activities 144,568,617
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to common shareholders (15,547,796)
Loan advance (117,000,000)
--------------
Net cash flows used in financing activities (132,547,796)
--------------
Net change in cash 12,020,821
Cash at beginning of period 867,088
--------------
Cash at end of year $ 12,887,909
==============
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ 22,254,674
--------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used for operating activities:
Change in unrealized depreciation of investments (30,764,033)
Net accretion of discounts on investments (488,000)
Realized loss on sale of investments 24,068,191
Purchase of investments (175,576,476)
Proceeds on sale of investments 303,987,018
Decrease in interest receivable 298,950
Decrease in other assets 62,430
Decrease in prepaid arrangement fees on notes payable 83,014
Decrease in prepaid expenses 197,687
Increase in deferred arrangement fees on senior loans 352,439
Decrease in accrued interest payable (171,285)
Decrease in preferred shareholders dividend payable (13,228)
Increase in payable to affiliates 37,386
Increase in accrued expenses 239,850
--------------
Total adjustments 122,313,943
--------------
Net cash provided by operating activities $ 144,568,617
==============
See Accompanying Notes to Financial Statements
33
ING Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a common share outstanding throughout the period
THREE MONTHS
ENDED YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
MAY 31, -----------------------------------------
2002 2002 2001 2000
---------- ---------- ---------- ----------
(UNAUDITED)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 7.20 $ 8.09 $ 8.95 $ 9.24
Net investment income 0.13 0.74 0.88 0.79
Net realized and unrealized gain (loss) on
investments 0.05 (0.89) (0.78) (0.30)
Distribution to Preferred Shareholders (0.02) (0.11) (0.06) --
Increase (decrease) in net asset value from
investment operations 0.16 (0.26) 0.04 0.49
Distributions to Common Shareholders from net
investment income (0.11) (0.63) (0.86) (0.78)
Increase in net asset value from share offerings -- -- -- --
Reduction in net asset value from rights offering -- -- -- --
Increase in net asset value from
repurchase of capital stock -- -- -- --
Reduction in net asset value from
Preferred Shares offerings -- -- (0.04) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 7.25 $ 7.20 $ 8.09 $ 8.95
========== ========== ========== ==========
Closing market price at end of period $ 6.69 $ 6.77 $ 8.12 $ 8.25
TOTAL RETURN(3)
Total investment return at closing
market price(4) 0.47% (9.20)% 9.10% (5.88)%
Total investment return at net asset value(5) 2.38% (3.02)% 0.19% 5.67%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (000's) $ 992,689 $ 985,982 $1,107,432 $1,217,339
Preferred Rate Shares
Aggregate amount outstanding (000's) $ 450,000 $ 450,000 $ 450,000 --
Liquidation and market value Per Share $ 25,000 $ 25,000 $ 25,000 --
Asset coverage Per Share** 261% 235% 215% --
Average borrowings (000's) $ 200,772 $ 365,126 $ 450,197 $ 524,019
Ratios to average net assets including preferred*
Expenses (before interest and other fees related
to revolving credit facility) 1.51% 1.57% 1.62% --
Expenses 1.86% 2.54% 3.97% --
Net investment income 4.88%(A) 6.83%(A) 9.28% --
Ratios to average net assets plus borrowing
Expenses (before interest and other fees related
to revolving credit facility) 1.86% 1.66% 1.31% 1.00%(9)
Expenses 2.26% 2.70% 3.21% 2.79%(9)
Net investment income 5.87%(B) 7.24%(B) 7.50% 6.12%
Ratios to average net assets
Expenses (before interest and other fees related
to revolving credit facility) 2.22% 2.25% 1.81% 1.43%(9)
Expenses 2.74% 3.64% 4.45% 4.00%(9)
Net investment income 7.06%(C) 9.79%(C) 10.39% 8.77%
Portfolio turnover rate 11% 53% 46% 71%
Common shares outstanding at end of period
(000's) 136,973 136,973 136,847 136,036
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
------------------------------------------
1999(8) 1998(8) 1997(8)
---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.34 $ 9.45 $ 9.61
Net investment income 0.79 0.87 0.82
Net realized and unrealized gain (loss) on
investments (0.10) (0.13) (0.02)
Distribution to Preferred Shareholders -- -- --
Increase (decrease) in net asset value from
investment operations 0.69 0.74 0.80
Distributions to Common Shareholders from net
investment income (0.82) (0.85) (0.82)
Increase in net asset value from share offerings 0.03 -- --
Reduction in net asset value from rights offering -- -- (0.14)
Increase in net asset value from
repurchase of capital stock -- -- --
Reduction in net asset value from
Preferred Shares offerings -- -- --
---------- ---------- ----------
Net asset value, end of period $ 9.24 $ 9.34 $ 9.45
========== ========== ==========
Closing market price at end of period $ 9.56 $ 10.31 $ 10.00
TOTAL RETURN(3)
Total investment return at closing
market price(4) 1.11% 12.70% 15.04%(6)
Total investment return at net asset value(5) 7.86% 8.01% 8.06%(6)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (000's) $1,202,565 $1,034,403 $1,031,089
Preferred Rate Shares
Aggregate amount outstanding (000's) -- -- --
Liquidation and market value Per Share -- -- --
Asset coverage Per Share** -- -- --
Average borrowings (000's) $ 490,978 $ 346,110 $ 131,773
Ratios to average net assets including preferred*
Expenses (before interest and other fees related
to revolving credit facility) -- -- --
Expenses -- -- --
Net investment income -- -- --
Ratios to average net assets plus borrowing
Expenses (before interest and other fees related
to revolving credit facility) 1.05%(9) 1.04% 1.13%
Expenses 2.86%(9) 2.65% 1.92%
Net investment income 6.00% 6.91% 7.59%
Ratios to average net assets
Expenses (before interest and other fees related
to revolving credit facility) 1.50%(9) 1.39% 1.29%
Expenses 4.10%(9) 3.54% 2.20%
Net investment income 8.60% 9.23% 8.67%
Portfolio turnover rate 68% 90% 82%
Common shares outstanding at end of period
(000's) 130,206 110,764 109,140
----------
(1) Annualized.
(2) Prior to the waiver of expenses, the ratios of expenses to average net
assets were 1.95% (annualized), 1.48% and 1.44% for the period from May 12,
1988 to February 28, 1989, and for the fiscal years ended February 28, 1990
and February 29, 1992, respectively, and the ratios of net investment
income to average net assets were 8.91% (annualized), 10.30% and 7.60% for
the period from May 12, 1988 to February 28, 1989, and for the fiscal years
ended February 28, 1990 and February 29, 1992, respectively.
(3) Total return calculations are attributable to common shareholders.
(4) 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. On March 9, 1992, the shares of the Trust were initially
listed for trading on the New York Stock Exchange. Accordingly, the total
investment return for the year ended February 28, 1993, covers only the
period from March 9, 1992, to February 28, 1993. Total investment return
for periods prior to the year ended February 28, 1993, are not presented
since market values for the Trust's shares were not available. Total
returns for less than one year are not annualized.
(5) 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. Total returns for less than one year are not
annualized.
(6) Calculation of total return excludes the effects of the per share dilution
resulting from the rights offering as the total account value of a fully
subscribed shareholder was minimally impacted.
See Accompanying Notes to Financial Statements
34
ING Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Continued)
--------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
------------------------------------------------------------------------------------------------------------------
1996(7) 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- ----------- ----------- ---------
$ 9.66 $ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00
0.89 0.74 0.60 0.60 0.76 0.98 1.06 0.72
(0.08) 0.07 (0.05) 0.01 (0.02) (0.05) -- --
--------- --------- --------- --------- --------- ----------- ----------- ---------
0.81 0.81 0.55 0.61 0.74 0.93 1.06 0.72
(0.86) (0.73) (0.60) (0.57) (0.75) (0.96) (1.06) (0.72)
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- (0.44) -- -- -- -- -- --
-- -- 0.02 0.05 -- -- -- --
-- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- ---------
$ 9.61 $ 9.66 $ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00
========= ========= ========= ========= ========= =========== =========== =========
$ 9.50 $ 8.75 $ 9.25 $ 9.13 -- -- -- --
19.19% 3.27%(6) 8.06% 10.89% -- -- -- --
9.21% 5.24%(6) 6.28% 7.29% 7.71% 9.74% 11.13% 7.35%
$ 862,938 $ 867,083 $ 719,979 $ 738,810 $ 874,104 $ 1,158,224 $ 1,036,470 $ 252,998
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
1.23% 1.30% 1.31% 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2)
9.23% 7.59% 6.04% 5.88% 7.62%(2) 9.71% 10.32%(2) 9.68%(1)(2)
88% 108% 87% 81% 53% 55% 100% 49%(1)
89,794 89,794 71,835 73,544 87,782 116,022 103,660 25,294
----------
(7) ING Investments, LLC, the Trust's investment manager, acquired certain
assets of Pilgrim Management Corporation, the Trust's former investment
manager, in a transaction that closed on April 7, 1995.
(8) The 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.
(9) Calculated on total expenses before impact of earnings credits.
* Ratios do not reflect the effect of dividend payments to Preferred
Shareholders; income ratios reflect income earned on assets attributable to
preferred shares.
** 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.
(A) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets including preferred shares
would have been 4.72% for the three months ended May 31, 2002.
(B) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets plus borrowings applicable to
common shares would have been 5.71% for the three months ended May 31,
2002.
(C) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets applicable to common shares
would have been 6.90% for the three months ended May 31, 2002.
See Accompanying Notes to Financial Statements
35
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
ING Prime Rate Trust (formerly known as Pilgrim Prime Rate Trust, the "Trust"),
is registered under the Investment Company Act of 1940, as amended, 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
(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 to be independent
and believed to be reliable. Loans for which reliable quotations are not
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. 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. 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.
ING Investments, LLC (formerly ING Pilgrim Investments, LLC, the
"Investment Manager") 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
charactistics 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 or the NASDAQ National Market System are
stated at the last reported sale price on the day of valuation. Debt and
equity securities traded in the over-the-counter market and listed
securities for 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
36
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
maturing in less than 60 days from the date of acquisition are valued at
amortized cost, which, when combined with accrued interest, approximates
market value.
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 substantially all of its taxable
income to its shareholders. Therefore, no federal income tax provision is
required.
At February 28, 2002, the Trust had capital loss carryforwards for federal
income tax purposes of approximately $125,806,013 which are scheduled to
expire through February 28, 2011.
The Board of Trustees intends to offset any future net capital gains with
the capital loss carryforwards until each carryforward has been fully
utilized or expires.
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 and the borrower has demonstrated sustained performance.
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, arrangement fees are treated as discounts
and accreted as described in Note 1.H. Arrangement 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 SHAREHOLDERS. The Trust records distributions to its
shareholders on the ex-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. 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
accounting principles generally accepted in the United States of America
for items such as the treatment of short term capital gains and the
amortization of premiums and accretion of discounts. These "book/tax"
differences are either considered temporary or permanent in nature. 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.
Distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are
reported as distributions in excess of net investment income and/or
realized capital gains. To the extent they exceed net investment income and
net realized capital gains for tax purposes, they are reported as a tax
return of capital. During the year ended February 28, 2002 the Trust
reclassified $2,580,000 from undistributed net investment income to
accumulated net realized loss on investments, to reflect the treatment of
permanent book/tax differences.
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
37
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
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.
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.
I. RECLASSIFICATION. Under EITF Topic D-98, CLASSIFICATION AND MEASUREMENT OF
REDEEMABLE SECURITIES, which was issued on July 19, 2001, preferred
securities that are redeemable for cash or other assets are to be
classified outside of permanent equity to the extent that the redemption is
at a fixed or determinable price and at the option of the holder or upon
the occurrence of an event that is not solely within the control of the
issuer. Subject to the guidance of the EITF, the Trust's preferred stock,
which was previously classified as a component of net assets, has been
reclassified outside of permanent equity (net assets) in the accompanying
financial statements. Prior year amounts have also been reclassified to
conform with this presentation. The impact of this reclassification creates
no change to the net assets available to common shareholders.
NOTE 2 -- INVESTMENTS
For the three months ended May 31, 2002, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $175,576,476 and $303,987,018, respectively. At May 31, 2002, the Trust
held senior loans valued at $1,523,525,072 representing 95.9% of its total
investments. The market value of these assets is established as set forth in
Note 1.
38
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
The senior loans acquired by the Trust may take the form of a direct co-lending
relationship with the corporate issuer, an assignment of a co-lender's interest
in a loan, or a participation interest in a co-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. Additionally, certain situations may arise where the
Trust acquires a participation in a co-lender's interest in a loan and the Trust
does not have privity with or direct recourse against the corporate issuer.
Accordingly, the Trust may incur additional credit risk as a participant because
it must assume the risk of insolvency or bankruptcy of the co-lender from which
the participation was acquired. Common and preferred stocks, 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 stock or warrant. These
restricted securities are valued at fair value as determined by the Board of
Trustees by considering quality, dividend rate, and marketability of the
securities compared to similar issues. In order to assist in the determination
of fair value, the Trust will obtain quotes from dealers who periodically trade
in such securities where such quotes are available. Dates of acquisition and
cost or assigned basis of restricted securities are as follows:
DATE OF COST OR
ACQUISITION ASSIGNED BASIS
----------- --------------
American Blind and Wallpaper, Inc. -- Common 01/12/99 --
AM Cosmetics Corporation -- Common 06/08/99 $ 385,610
AM Cosmetics Corporation -- Preferred Stock 06/02/99 --
Autotote Systems, Inc. -- Option 02/26/97 --
Boston Chicken, Inc. -- Residual interest in Boston Chicken Trust 12/26/00 8,014,961
Breed Technologies -- Common 12/27/00 3,343,665
Capital Tool & Design, Ltd. -- Warrants 07/26/96 --
Casden Properties Corporation -- Preferred Partnership Units 12/31/98 --
Covenant Care, Inc. -- Warrants 12/22/95 --
Decision One Corporation -- Common 06/16/00 --
Electro Mechanical Solutions -- Warrants 06/20/00 --
Exide Technologies -- Warrants 11/30/01 --
Holmes Group -- Warrants 10/24/01 --
Humphry's, Inc. -- Common 05/01/02 25,000
Imperial Home Decor Group -- Common 05/02/01 1,654,378
IHDG Realty -- Common 05/02/01 1
Morris Material Handling, Inc. -- Common 01/10/01 3,009,059
MP Holdings, Inc. -- Common 03/14/01 6
Murray's Discount Auto Stores, Inc. -- Warrants 02/16/99 --
New World Coffee Manhattan Bagel, Inc. -- Warrants 09/27/01 40
Pacific Coin, Inc. -- Common 07/09/01 1
Safelite Glass Corporation -- Common 09/12/00 --
Safelite Realty 09/12/00 --
Scientific Games Corp. -- Common 05/11/01 --
Soho Publishing, Inc. -- Common 03/14/01 176
Stellex Technologies, Inc. -- Common 10/17/01 275,767
Tartan Textiles Services, Series D Preferred Stock 07/17/01 2,227,655
Tartan Textiles Services, Series E Preferred Stock 07/17/01 2,333,852
Tembec, Inc. -- Conversion rights representing
Tembec Common Shares 01/10/01 1,442,942
Vision Twenty-One -- Warrants 11/28/00 --
-----------
Total restricted securities excluding senior loans (market value
of $32,527,830 was 3.3% of net assets at May 31, 2002) $22,713,113
===========
39
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Investment Management Agreement with the
Investment Manager, a wholly-owned subsidiary of ING Funds Services, LLC
(formerly ING Pilgrim Group, 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 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 May 31, 2002, the Trust had the following amounts recorded in payable to
affiliates on the accompanying Statement of Assets and Liabilities:
ACCRUED INVESTMENT ACCRUED ADMINISTRATIVE
MANAGEMENT FEES FEES TOTAL
--------------- ---- -----
$ 1,078,666 $337,082 $1,415,748
NOTE 4 -- COMMITMENTS
The Trust has entered into both a 364 day and a five year revolving credit
agreement, collateralized by assets of the Trust, to borrow up to $550 million
from a syndicate of major financial institutions maturing July 15, 2003.
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 May 31, 2002, was $165 million, at a
weighted average interest rate of 2.3%. The amount of borrowings represented
10.3% of net assets plus borrowings at May 31, 2002. Average borrowings for the
the three months ended May 31, 2002 were $200,771,739 and the average annualized
interest rate was 2.5%.
As of May 31, 2002, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Airgate PCS, Inc. $ 1,791,531
Aladdin Gaming, LLC 5,000,000
Aurora Foods, Inc. 194,286
Boyd Gaming Corporation 4,540,645
Doshi Diagnostic 1,287,031
Express Scripts, Inc. 1,339,869
Hilton Hawaiian Village, LLC 1,654,412
Huntsman Corporation 2,270,595
Insight Health Services Corp. 5,000,000
Key Energy Group, Inc. 7,133,334
Lamar Media Corporation 6,398,437
Levi Strauss & Co. 4,994,213
Murray's Discount Auto Stores, Inc. 3,700,000
Packaging Corporation of America 2,753,594
Palace Station Hotel and Casino 5,114,905
Relizon Company (The) 4,637,505
Riverwood International Corp. 4,253,333
Six Flags Theme Parks, Inc. 4,166,667
U.S. Aggregates, Inc. 305,507
URS Corporation 5,714,286
Western Wireless Corporation 5,800,000
-----------
$78,050,150
===========
NOTE 5 -- RIGHTS AND OTHER OFFERINGS
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.
40
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
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.
As of May 31, 2002, 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. All such Preferred Shares were outstanding
as of February 28, 2001. 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 Investment Company
Act of 1940. Preferred Shares pay dividends based on a rate set at auctions,
normally held every 7 days. In the 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, Kansas City ("SSBKC") serves as the Trust's custodian and
recordkeeper. Custody fees paid to SSBKC are reduced by earnings credits based
on the cash balances held by SSBKC for the Trust. There were no earnings credits
for the three months ended May 31, 2002.
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 acqusition, 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 May 31, 2002, the Trust held 2.9% of its total assets in
subordinated loans and unsecured loans.
41
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
NOTE 8 -- SUBSEQUENT EVENTS
Subsequent to May 31, 2002, the Trust paid to Common Shareholders the following
dividends from net investment income:
PER SHARE AMOUNT DECLARATION DATE RECORD DATE PAYABLE DATE
---------------- ---------------- ----------- ------------
$ 0.0365 05/31/2002 06/10/2002 06/24/2002
$ 0.0350 06/30/2002 07/10/2002 07/22/2002
Subsequent to May 31, 2002, 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 $ 54.94 06/03/02 to 07/08/02 06/10/02 to 07/15/02 06/11/02 to 07/16/02
Series T $ 53.09 06/04/02 to 07/10/02 06/11/02 to 07/16/02 06/12/02 to 07/17/02
Series W $ 54.81 06/05/02 to 07/10/02 06/12/02 to 07/17/02 06/13/02 to 07/18/02
Series Th $ 53.72 06/06/02 to 07/11/02 06/13/02 to 07/18/02 06/14/02 to 07/19/02
Series F $ 52.69 06/07/02 to 07/12/02 06/14/02 to 07/19/02 06/17/02 to 07/22/02
MANAGEMENT'S ADDITIONAL OPERATING INFORMATION (UNAUDITED)
APPROVAL OF CHANGES IN INVESTMENT POLICIES
At a Special Meeting of Trust Shareholders, held August 6, 1998, Shareholders
approved changes in the Trust's fundamental investment policies which make
available certain additional investment opportunities to the Trust, including
(i) investing in loans in any form of business entity, as long as the loans
otherwise meet the Trust's requirements regarding the quality of loans in which
it may invest; (ii) the treatment of lease participations as Senior Loans which
would constitute part of the 80% of the Trust's assets normally invested in
Senior Loans; (iii) investing in all types of hybrid loans that meet credit
standards established by the Investment Manager constituting part of the 20% of
the Trust's assets that may be invested in Other Investments; (iv) the ability
to invest up to 5% of its total assets in both subordinated loans and unsecured
loans which would constitute part of the 20% of the Trust's assets that may be
invested in Other Investments.
Additionally, another policy change approved by the Board of Trustees of the
Trust, which does not require shareholder approval, permits the Trust to accept
guarantees and expanded forms of intangible assets as collateral, including
copyrights, patent rights, franchise value, and trademarks. Another policy
change approved by the Board, that does not require shareholder approval,
provides that 80% of the Trust's gross assets, as opposed to 80% of its net
assets, may normally be invested in Senior Loans.
The Trust's Manager considered the evolving nature of the syndicated loan market
and the potential benefits to the Trust and its shareholders of revising the
restriction to permit the Trust to invest in loans other than Senior Loans and
the increase in the number of attractive investment opportunities available to
the Trust due to the change.
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule
23c-1 under the Investment Company Act of 1940, 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.
42
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, Inc.
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
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, California 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, Inc., Distributor, at 1-800-992-0180. Please
read the prospectus carefully before you invest or send money.
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ING FUNDS PRT1Q053102-072502