Table of Contents

OMB APPROVAL

OMB Number: 3235-0570

Expires: January 31, 2014

Estimated average burden hours per response: 20.6

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-22004

 

ING Emerging Markets High Dividend Equity Fund

(Exact name of registrant as specified in charter)

 

7337 E. Doubletree Ranch Rd., Scottsdale AZ		85258
(Address of principal executive offices)		(Zip code)

Huey P. Falgout, Jr., 7337 Doubletree Ranch Rd. Scottsdale, AZ 85258

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-800-992-0180

Date of fiscal year end:                     February 28

Date of reporting period:                August 31, 2013

 

 

 

---

Table of Contents

Item 1.

Reports to Stockholders.

The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Act (17 CFR 270.30e-1):

---

Table of Contents

 

Semi-Annual Report

August 31, 2013

 

ING	Emerging Markets High Dividend Equity Fund

 

		E-Delivery Sign-up – details inside

 

 

MUTUAL FUNDS

 

 

---

Table of Contents

TABLE OF CONTENTS

 

 

 

President’s Letter			1
Market Perspective			2
Portfolio Managers’ Report			4
Statement of Assets and Liabilities			6
Statement of Operations			7
Statements of Changes in Net Assets			8
Financial Highlights			9
Notes to Financial Statements			10
Summary Portfolio of Investments			20
Shareholder Meeting Information			25
Additional Information			26

 

		Go Paperless with E-Delivery!
Sign up now for on-line prospectuses, fund reports, and proxy statements. In less than five minutes, you can help reduce paper mail and lower fund costs.   Just go to www.inginvestment.com, click on the E-Delivery icon from the home page, follow the directions and complete the quick 5 Steps to Enroll.   You will be notified by e-mail when these communications become available on the internet. Documents that are not available on the internet will continue to be sent by mail.

PROXY VOTING INFORMATION

A description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio securities is available (1) without charge, upon request, by calling Shareholder Services toll-free at (800) 992-0180; (2) on the Fund’s website at www.inginvestment.com and (3) on the SEC’s website at www.sec.gov. Information regarding how the Fund voted proxies related to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at www.inginvestment.com and on the SEC’s website at www.sec.gov.

QUARTERLY PORTFOLIO HOLDINGS

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This report contains a summary portfolio of investments for the Fund. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Forms N-Q, as well as a complete portfolio of investments, are available without charge upon request from the Fund by calling Shareholder Services toll-free at (800) 992-0180.

---

Table of Contents

PRESIDENT’S LETTER

 

 

 

 

Dear Shareholder,

ING Emerging Markets High Dividend Equity Fund (the “Fund”) is a diversified closed-end management investment company whose shares are traded on the New York Stock Exchange under the symbol “IHD.” The Fund’s investment objective is total return through a combination of current income, capital gains and capital appreciation.

The Fund seeks to achieve its investment objective by investing principally in a portfolio of equity securities, primarily of issuers in emerging market countries. The sub-adviser seeks to construct a portfolio with a weighted average gross dividend yield that exceeds the dividend yield of the MSCI Emerging Markets Index^SM. The Fund will also normally seek to secure gains and enhance the stability of returns over a market cycle by writing (selling) call options on selected exchange-traded funds (“ETFs”) and/or international, regional or country indices of equity securities, and/or on equity securities.

For the period ended August 31, 2013, the Fund made quarterly distributions totaling $0.72 per share, which were characterized as $0.48 per share return of capital and $0.24 per share of net investment income.

Based on net asset value (“NAV”), the Fund provided a total return of (9.67)% for the period ended August 31, 2013.⁽¹⁾ This NAV return reflects a decrease in the Fund’s NAV from $14.53 on February 28, 2013 to $12.44 on August 31, 2013. Based on its share price, the Fund provided a total return of (15.97)% for the period ended August 31, 2013 ⁽²⁾. This share price return reflects a decrease in the Fund’s share price from $15.13 on February 28, 2013 to $12.05 on August 31, 2013.

The global equity markets have witnessed a challenging and turbulent period. Please read the Market Perspective and Portfolio Managers’ Report for more information on the market and the Fund’s performance.

At ING Funds, our mission is to set the standard in helping our clients manage their financial future. We seek to assist you and your financial advisor by offering a range of global investment solutions. We invite you to visit our website at www.inginvestment.com. Here you will find information on our products and services, including current market data and fund statistics on our open-and closed-end funds. You will see that we offer a broad variety of equity, fixed income and multi-asset funds that aim to fulfill a variety of investor needs.

We thank you for trusting ING Funds with your investment assets, and we look forward to serving you in the months and years ahead.

Sincerely,

 

Shaun Mathews

President and Chief Executive Officer

ING Funds

October 5, 2013

 

The views expressed in the President’s Letter reflect those of the President as of the date of the letter. Any such views are subject to change at any time based upon market or other conditions and ING Funds disclaim any responsibility to update such views. These views may not be relied on as investment advice and because investment decisions for an ING Fund are based on numerous factors, may not be relied on as an indication of investment intent on behalf of any ING Fund. Reference to specific company securities should not be construed as recommendations or investment advice. International investing does pose special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic.

For more complete information, or to obtain a prospectus for any ING Fund, please call your Investment Professional or the fund’s Shareholder Service Department at (800) 992-0180 or log on to www.inginvestment.com. The prospectus should be read carefully before investing. Consider the fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this information and other information about the fund. Check with your Investment Professional to determine which funds are available for sale within their firm. Not all funds are available for sale at all firms.

 

(1)

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, capital gain distributions and return of capital distributions/allocations, if any, in accordance with the provisions of the Fund’s dividend reinvestment plan.

 

(2)

Total investment return at market value measures the change in the market value of your investment assuming reinvestment of dividends, capital gain distributions, and return of capital distributions/allocations, if any, in accordance with the provisions of the Fund’s dividend reinvestment plan.

 

1

---

Table of Contents

MARKET PERSPECTIVE:  SIX MONTHS ENDED AUGUST 31, 2013

 

 

 

 

2

---

Table of Contents

BENCHMARK DESCRIPTIONS

 

 

 

Index		Description
Barclays U.S. Aggregate Bond Index		An unmanaged index of publicly issued investment grade U.S. Government, mortgage-backed, asset-backed and corporate debt securities.
Barclays U.S. Corporate Investment Grade Bond Index		An unmanaged index consisting of publicly issued, fixed rate, nonconvertible, investment grade debt securities.
Barclays High Yield Bond — 2% Issuer Constrained Composite Index		An unmanaged index that includes all fixed-income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $150 million, and at least one year to maturity.
Barclays Long Term U.S. Treasury Index		The Index includes all publicly issued, U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value.
MSCI Emerging Markets IndexSM		An unmanaged index that measures the performance of securities listed on exchanges in developing nations throughout the world.
MSCI Europe ex UK® Index		A free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe, excluding the UK.
MSCI Japan® Index		A free float-adjusted market capitalization index that is designed to measure developed market equity performance in Japan.
MSCI UK® Index		A free float-adjusted market capitalization index that is designed to measure developed market equity performance in the UK.
MSCI World IndexSM		An unmanaged index that measures the performance of over 1,400 securities listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East.
S&P 500® Index		An unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets.

 

3

---

Table of Contents

ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND		PORTFOLIO MANAGERS’ REPORT

 

For the purpose of the Fund’s investments, the following countries are considered emerging markets: Argentina, Bahrain, Brazil, Bulgaria, Chile, China, Colombia, Czech Republic, Egypt, Estonia, Hungary, India, Indonesia, Israel, Korea, Jordan, Kuwait, Latvia, Lithuania, Malaysia, Mauritius, Mexico, Morocco, Nigeria, Oman, Pakistan, Peru, Philippines, Poland, Qatar, Romania, Russia, Saudi Arabia, Slovakia, South Africa, Sri Lanka, Taiwan, Thailand, Turkey, United Arab Emirates, and Zimbabwe.

In addition, the Fund may invest up to 20% of its Managed Assets in the equity securities of issuers in countries which are not considered emerging markets.

The Fund’s Options Strategy: The Fund writes (sells) call options on selected ETFs, and/or international, regional or country indicies of equity securities, and/or on equity securities, with the underlying value of such calls generally having 15% to 50% of total value of the Fund’s portfolio. The Fund seeks to generate gains from the call writing strategy over a market cycle to supplement the dividend yield of its underlying portfolio. Call options will be written (sold) usually at-the

money, out-of-the-money or near-the-money and can be written both in exchange-listed option markets and over-the-counter markets with major international banks, broker-dealers and financial institutions.

Performance: Based on net asset value (“NAV”), the Fund had a total return of (9.67)% for the period ended August 31, 2013. This NAV return reflects a decrease in the Fund’s NAV from $14.53 on February 28, 2013 to $12.44 on August 31, 2013. Based on its share price as of August 31, 2013, the Fund provided a total return of (15.97)% for the period. This share price return reflects a decrease in the Fund’s share price from $15.13 on February 28, 2013 to $12.05 on August 31, 2013. The Fund is not benchmarked to an index but uses the MSCI Emerging Markets Index^SM as a reference index, which returned (10.29)% for the reporting period. During the period, the Fund made quarterly distributions totaling $0.72 per share, which were characterized as $0.48 per share return of capital and $0.24 per share of net investment income. As of August 31, 2013, the Fund had 19,539,819 shares outstanding.

Portfolio Specifics: Emerging market stocks struggled during the reporting period. Investor pessimism towards Chinese economic growth, and fears that the U.S. Federal Reserve tapering of quantitative easing would dry up liquidity, were the main factors behind a sell-off of the region’s stocks. Emerging market (“EM”) Latin America (-19.0%) was the

 

Top Ten Holdings

as of August 31, 2013

(as a percentage of net assets)

 

Gazprom OAO ADR			2.8%
Vale SA			2.1%
Severstal			1.4%
CNOOC Ltd.			1.4%
Komercni Banka AS			1.4%
Millicom International Cellular S.A.			1.3%
Mobile Telesystems OJSC ADR			1.3%
Jiangsu Expressway Co. Ltd.			1.3%
Sasol Ltd.			1.3%
Shinhan Financial Group Co., Ltd.			1.3%

Portfolio holdings are subject to change daily.

 

 

4

---

Table of Contents

PORTFOLIO MANAGERS’ REPORT		ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND

 

hardest hit; EM Asia (-7.4%) fared better despite Chinese growth concerns. EM Europe (-10.5%) fell in line with the reference index. Emerging markets underperformed developed markets by more than 15 percentage points.

The period wasn’t completely gloomy as optimism returned towards the end of the period after Chinese export and industrial production growth surprised on the positive side. There was currency turmoil for India (-18.0%), Indonesia (-25.8%), Thailand (-20.0%) and The Philippines (-16.4%), as markets predicted that Fed tapering would put downward pressure on currencies of countries with current account deficits. India partially recovered after the central bank opened a special foreign-currency swap line for India’s state-owned oil companies to source their U.S. dollar requirements, instead of using the spot U.S. dollar market.

In EM Europe, Russian stocks (-9.2%) reacted to news that a bailout deal to save Cyprus’ banking sector would involve a tax on depositors. Lower growth expectations and falling crude oil prices also weighed on Russian equities but the latter became supported toward the end of the period as geopolitical tensions in the Middle East rose. Turkey (-24.5%) was the biggest underperformer as pressure on its currency exchange rate followed an environmental issue that escalated into a large-scale, anti-government protest. Public demonstrations also played a role in Brazil (-21.2%), which suffered from weakening commodity prices — a major headwind for the whole of South America. Mexico (-12.3%) fared better thanks to its proximity to the United States.

Equity Portfolio: The equity portfolio slightly outperformed the reference index during reporting period. The contribution to relative return from country allocation was positive, mainly due to our overweight of Hong Kong and our underweights of Brazil and Turkey, the latter two of which suffered from civil unrest and currency depreciation. Stock selection was negative, especially in India. The power equipment manufacturer Bharat Heavy Electricals Ltd. and the financial company Oriental Bank of Commerce Ltd. were the worst detractors at the stock level. Chinese stock picking also was negative, though Russian gold miner Petropavlosk PLC was the worst overall active position. The top contributors in the portfolio were Powertech Technology Inc., the Taiwanese technology company involved in services related to integrated circuits, and CTC Media, Inc., a Russian television broadcaster. In the portfolio we maintain a regional preference for Central Eastern Europe, the Middle East and Africa (the CEEMEA region) over Asia and Latin America. Utilities and industrials are overweight, while expensive consumer staples and information technology are under-represented.

Option Portfolio: During the period, call options were written against the emerging markets portfolio. The option portfolio consists of a series of short-dated call options on the iShares ETF, with the MSCI Emerging Markets Index Fund as underlying. The MSCI Emerging Markets Index^SM is the reference index for the Fund. The options generally were sold having a maturity in the range of four to five weeks. The overall portfolio coverage was 20%. Options were sold generally at-the-money and implemented in the over-the-counter market to enable the Fund managers to profit from its flexibility, liquidity and opportunities. During the months of March until the end of August, emerging markets declined and implied volatility increased. These two factors enabled us to collect more option premium than needed to be settled at option expiry. As a consequence, the option strategy contributed to the Fund’s relative performance.

Current Strategy and Outlook: Emerging market equities face a number of headwinds, including a gradual slowdown of China’s economic growth trajectory and a less favorable liquidity environment. There has been much debate on the timing of the withdrawal of quantitative easing and the extent of its impact. What is clear already is that there is reduced availability of U.S. dollars in the EM markets, and that quantitative easing (“QE”) tapering will compound this reduction. In recent years emerging market countries have been major beneficiaries of strong global liquidity, which has facilitated significant expansions in credit and consumption. There is little doubt that lower liquidity will be a difficult adjustment for emerging markets, particularly those which have benefited the most, e.g., current-account-deficit countries such as Turkey, Indonesia, India and South Africa.

In our opinion, the slowing of Chinese GDP growth likely will not occur in a straight line over time. After a poor growth trajectory earlier this year the near-term data currently suggest a steadying is taking place. This steadying can be attributed in part to a stronger external, developed world economy and partly to an easing of restrictions on credit and infrastructure spending. After the recent few months of volatility and underperformance in EM assets, the sentiment toward them is depressed. We believe improving global growth and stabilization in China provide reasons for more optimism in the outlook for emerging equities. Nonetheless, ongoing headwinds in the deficit countries lead to a more balanced view.

 

Portfolio holdings and characteristics are subject to change and may not be representative of current holdings and characteristics. The outlook for this Fund is based only on the outlook of its portfolio managers through the end of this period, and may differ from that presented for other ING Funds. Performance data represents past performance and is no guarantee of future results. Past performance is not indicative of future results. The indices do not reflect fees, brokerage commissions, taxes or other expenses of investing. Investors cannot invest directly in an index.

 

5

---

Table of Contents

STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 2013 (UNAUDITED)

 

 

 

ASSETS:
Investments in securities at fair value*		$	239,727,073
Short-term investments at fair value**			2,710,197
Total investments at fair value		$	242,437,270
Cash			19
Foreign currencies at value***			178,231
Receivables:
Investment securities sold			89,071
Dividends			1,168,119
Prepaid expenses			457
Total assets			243,873,167
LIABILITIES:
Payable for investment management fees			240,222
Payable for administrative fees			20,889
Payable for trustee fees			2,492
Other accrued expenses and liabilities			208,979
Written options, at fair value^			240,666
Total liabilities			713,248
NET ASSETS		$	243,159,919
NET ASSETS WERE COMPRISED OF:
Paid-in capital		$	318,609,570
Undistributed net investment income			17,994
Accumulated net realized loss			(35,491,072	)
Net unrealized depreciation			(39,976,573	)
NET ASSETS		$	243,159,919
*      Cost of investments in securities		$	280,533,636
**    Cost of short-term investments		$	2,710,197
*** Cost of foreign currencies		$	184,968
^      Premiums received on written options		$	1,088,228
Net assets		$	243,159,919
Shares authorized			unlimited
Par value		$	0.010
Shares outstanding			19,539,819
Net asset value		$	12.44

 

See Accompanying Notes to Financial Statements

 

6

---

Table of Contents

STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 2013 (UNAUDITED)

 

 

 

INVESTMENT INCOME:
Dividends, net of foreign taxes withheld*		$	6,669,988
Total investment income			6,669,988
EXPENSES:
Investment management fees			1,512,833
Transfer agent fees			8,432
Administrative service fees			131,550
Shareholder reporting expense			21,620
Professional fees			35,673
Custody and accounting expense			137,573
Trustee fees			4,820
Miscellaneous expense			32,554
Total expenses			1,885,055
Net investment income			4,784,933
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (net of Chilean capital gains tax withheld^)			(5,400,430	)
Foreign currency related transactions			(111,632	)
Written options			1,436,522
Payment by affiliate (Note 4)			1,730,621
Net realized loss			(2,344,919	)
Net change in unrealized appreciation (depreciation) on:
Investments			(29,179,127	)
Foreign currency related transactions			(26,647	)
Written options			110,965
Net change in unrealized appreciation (depreciation)			(29,094,809	)
Net realized and unrealized loss			(31,439,728	)
Decrease in net assets resulting from operations		$	(26,654,795	)
*      Foreign taxes withheld		$	705,059
^      Foreign taxes on sale of Chilean investments		$	16,591

 

See Accompanying Notes to Financial Statements

 

7

---

Table of Contents

STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)

 

 

 

		Six Months Ended August 31, 2013				Year Ended February 28, 2013
FROM OPERATIONS:
Net investment income		$	4,784,933			$	5,735,903
Net realized loss and payment by affiliate (Note 4)			(2,344,919	)			(17,944,535	)
Net change in unrealized appreciation (depreciation)			(29,094,809	)			1,839,414
Decrease in net assets resulting from operations			(26,654,795	)			(10,369,218	)
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income			(4,765,281	)			(5,994,073	)
Return of capital			(9,253,811	)			(23,408,633	)
Total distributions			(14,019,092	)			(29,402,706	)
FROM CAPITAL SHARE TRANSACTIONS:
Reinvestment of distributions			1,223,165				2,817,921
Net increase in net assets resulting from capital share transactions			1,223,165				2,817,921
Net decrease in net assets			(39,450,722	)			(36,954,003	)
NET ASSETS:
Beginning of year or period			282,610,641				319,564,644
End of year or period		$	243,159,919			$	282,610,641
Undistributed (distributions in excess of) net investment income at end of year or period		$	17,994			$	(1,658	)

 

See Accompanying Notes to Financial Statements

 

8

---

Table of Contents

 

FINANCIAL HIGHLIGHTS (UNAUDITED)

 

 

 

Selected data for a share of beneficial interest outstanding throughout each year or period.

 

		Per Share Operating Performance																																																Ratios and Supplemental Data
						Income (loss) from investment operations												Less distributions																																Ratios to average net assets																Supplemental Data
		Net asset value, beginning of year or period				Net investment income gain (loss)				Net realized and unrealized gain (loss)				Total from investment operations				From net investment income				From net realized gains				From return of capital				Total distributions				Payment by affiliate				Net asset value, end of year or period				Market value, end of year or period				Total investment return at net asset value(1)				Total investment return at market value(2)				Net assets, end of period (000’s)				Gross expenses prior to expense waiver(3)				Net expenses after expense waiver(3),(4)				Net investment income after expense waiver(3),(4)				Portfolio turnover rate
Year or period ended		($)				($)				($)				($)				($)				($)				($)				($)				($)				($)				($)				(%)				(%)				($000’s)				(%)				(%)				(%)				(%)
08-31-13			14.53				0.25	•			(1.70	)			(1.45	)			0.24				—				0.48				0.72				0.08				12.44				12.05				(9.67	)(a)			(15.97	)			243,160				1.43				1.43				3.64				23
02-28-13			16.60				0.30	•			(0.85	)			(0.55	)			0.31				—				1.21				1.52				—				14.53				15.13				(2.95	)			5.58				282,611				1.44				1.44				2.03				66
04-26-11(5) - 02-29-12			19.06	(6)			0.24	•			(1.50	)			(1.26	)			0.17				—				1.03				1.20				—				16.60				15.89				(5.96	)			(14.21	)			319,565				1.43				1.41				1.77				61

 

(1)

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, capital gain distributions and return of capital distributions/allocations, if any, in accordance with the provisions of the dividend reinvestment plan. Total investment return at net asset value is not annualized for periods less than one year.

(2)

Total investment return at market value measures the change in the market value of your investment assuming reinvestment of dividends, capital gain distributions and return of capital distributions/allocations, if any, in accordance with the provisions of the Fund’s dividend reinvestment plan. Total investment return at market value is not annualized for periods less than one year.

(3)

Annualized for periods less than one year.

(4)

The Investment Adviser has entered into a written expense limitation agreement with the Fund under which it will limit the expenses of the Fund (excluding interest, taxes, leverage expenses and extraordinary expenses) subject to possible recoupment by the Investment Adviser within three years of being incurred.

(5)

Commencement of operations.

(6)

Net asset value at beginning of period reflects the deduction of the sales load of $0.90 per share and offering costs of $0.04 per share paid by the shareholder from the $20.00 offering price.

(a)

Excluding a payment by affiliate in the period ended August 31, 2013, total investment return at net asset have been (10.25)%.

·

Calculated using average number of shares outstanding throughout the period.

 

See Accompanying Notes to Financial Statements

 

9

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED)

 

 

 

NOTE 1 — ORGANIZATION

 

ING Emerging Markets High Dividend Equity Fund (the “Fund”) is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund is organized as a Delaware statutory trust.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies are consistently followed by the Fund in the preparation of its financial statements, and such policies are in conformity with U.S. generally accepted accounting principles (“GAAP”) for investment companies.

A. Security Valuation. All investments in securities are recorded at their estimated fair value, as described below. Investments in equity securities traded on a national securities exchange are valued at the official closing price when available or, for certain markets, the last reported sale price. Securities reported by NASDAQ are valued at the NASDAQ official closing prices. Securities traded on an exchange or NASDAQ for which there has been no sale and equity securities traded in the over-the-counter-market are valued at the mean between the last reported bid and ask prices. All investments quoted in foreign currencies are valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at that time. Debt securities with more than 60 days to maturity are fair valued using matrix pricing methods determined by an independent pricing service which takes into consideration such factors as yields, maturities, liquidity, ratings and traded prices in similar or identical securities. Securities for which valuations are not readily available from an independent pricing service may be valued by brokers which use prices provided by market makers or estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics. Investments in open-end mutual funds are valued at the net asset value. Investments in securities of sufficient credit quality maturing in 60 days or less from date of acquisition are valued at amortized cost which approximates fair value.

Securities and assets for which market quotations are not readily available (which may include certain restricted securities that are subject to limitations as to their sale) are valued at their fair values, as defined by the 1940 Act, and as determined in good faith by or under the supervision of the Fund’s Board of Trustees (“Board”), in accordance with methods that are specifically authorized by the Board. Securities traded

on exchanges, including foreign exchanges, which close earlier than the time that the Fund calculates its net asset value (“NAV”) may also be valued at their fair values, as defined by the 1940 Act, and as determined in good faith by or under the supervision of the Board, in accordance with methods that are specifically authorized by the Board. The value of a foreign security traded on an exchange outside the United States is generally based on its price on the principal foreign exchange where it trades as of the time the Fund determines its NAV or if the foreign exchange closes prior to the time the Fund determines its NAV, the most recent closing price of the foreign security on its principal exchange. Trading in certain non-U.S. securities may not take place on all days on which the NYSE Euronext (“NYSE”) is open. Further, trading takes place in various foreign markets on days on which the NYSE is not open. Consequently, the calculation of the Fund’s NAV may not take place contemporaneously with the determination of the prices of securities held by the Fund in foreign securities markets. Further, the value of the Fund’s assets may be significantly affected by foreign trading on days when a shareholder cannot purchase or redeem shares of the Fund. In calculating the Fund’s NAV, foreign securities denominated in foreign currency are converted to U.S. dollar equivalents. If an event occurs after the time at which the market for foreign securities held by the Fund closes but before the time that the Fund’s NAV is calculated, such event may cause the closing price on the foreign exchange to not represent a readily available reliable market value quotation for such securities at the time the Fund determines its NAV. In such a case, the Fund will use the fair value of such securities as determined under the Fund’s valuation procedures. Events after the close of trading on a foreign market that could require the Fund to fair value some or all of its foreign securities include, among others, securities trading in the U.S. and other markets, corporate announcements, natural and other disasters, and political and other events. Among other elements of analysis in the determination of a security’s fair value, the Board has authorized the use of one or more independent research services to assist with such determinations. An independent research service may use statistical analyses and quantitative models to help determine fair value as of the time the Fund calculates its NAV. There can be no assurance that such models accurately reflect the behavior of the applicable markets or the effect of the behavior of such markets on the fair value of securities, or that such markets will continue to behave in a fashion that is consistent with

 

10

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)

 

such models. Unlike the closing price of a security on an exchange, fair value determinations employ elements of judgment. Consequently, the fair value assigned to a security may not represent the actual value that the Fund could obtain if it were to sell the security at the time of the close of the NYSE. Pursuant to procedures adopted by the Board, the Fund is not obligated to use the fair valuations suggested by any research service, and valuation recommendations provided by such research services may be overridden if other events have occurred or if other fair valuations are determined in good faith to be more accurate. Unless an event is such that it causes the Fund to determine that the closing prices for one or more securities do not represent readily available reliable market value quotations at the time the Fund determines its NAV, events that occur between the time of the close of the foreign market on which they are traded and the close of regular trading on the NYSE will not be reflected in the Fund’s NAV.

Options that are traded over-the-counter will be valued using one of three methods: (1) dealer quotes; (2) industry models with objective inputs; or (3) by using a benchmark arrived at by comparing prior-day dealer quotes with the corresponding change in the underlying security or index. Exchange traded options will be valued using the last reported sale. If no last sale is reported, exchange traded options will be valued using an industry accepted model such as “Black Scholes.” Options on currencies purchased by the Fund are valued using industry models with objective inputs at their last bid price in the case of listed options or at the average of the last bid prices obtained from dealers in the case of over-the-counter options.

Fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Each investment asset or liability of the Fund is assigned a level at measurement date based on the significance and source of the inputs to its valuation. Quoted prices in active markets for identical securities are classified as “Level 1,” inputs other than quoted prices for an asset or liability that are observable are classified as “Level 2” and unobservable inputs, including the sub-adviser’s judgment about the assumptions that a market participant would use in pricing an asset or liability are classified as “Level 3.” The inputs used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Short-term securities of

sufficient credit quality which are valued at amortized cost, which approximates fair value, are generally considered to be Level 2 securities under applicable accounting rules. A table summarizing the Fund’s investments under these levels of classification is included following the Summary Portfolio of Investments.

The Board has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the “Pricing Committee” as established by the Fund’s Administrator. The Pricing Committee considers all facts they deem relevant that are reasonably available, through either public information or information available to the Investment Adviser or sub-adviser, when determining the fair value of the security. In the event that a security or asset cannot be valued pursuant to one of the valuation methods established by the Board, the fair value of the security or asset will be determined in good faith by the Pricing Committee. When the Fund uses these fair valuation methods that use significant unobservable inputs to determine its NAV, securities will be priced by a method that the Pricing Committee believes accurately reflects fair value and are categorized as Level 3 of the fair value hierarchy. The methodologies used for valuing securities are not necessarily an indication of the risks of investing in those securities valued in good faith at fair value nor can it be assured the Fund can obtain the fair value assigned to a security if they were to sell the security.

To assess the continuing appropriateness of security valuations, the Pricing Committee may compare prior day prices, prices on comparable securities, and traded prices to the prior or current day prices and the Pricing Committee challenges those prices exceeding certain tolerance levels with the third party pricing service or broker source. For those securities valued in good faith at fair value, the Pricing Committee reviews and affirms the reasonableness of the valuation on a regular basis after considering all relevant information that is reasonably available.

For fair valuations using significant unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in or out of the Level 3 category during the period. The end of period timing recognition is used for the transfers between Levels of the Fund’s assets and

 

11

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 2 — SIGNIFICANT ACCOUNTING

POLICIES (continued)

 

liabilities. A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments.

For the period ended August 31, 2013, there have been no significant changes to the fair valuation methodologies.

B. Security Transactions and Revenue Recognition. Security transactions are recorded on the trade date. Realized gains or losses on sales of investments are calculated on the identified cost basis. Interest income is recorded on the accrual basis. Premium amortization and discount accretion are determined using the effective yield method. Dividend income is recorded on the ex-dividend date, or in the case of some foreign dividends, when the information becomes available to the Fund.

C. Foreign Currency Translation. The books and records of the Fund are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)

Market value of investment securities, other assets and liabilities — at the exchange rates prevailing at the end of the day.

 

(2)

Purchases and sales of investment securities, income and expenses — at the rates of exchange prevailing on the respective dates of such transactions.

Although the net assets and the market values are presented at the foreign exchange rates at the end of the day, the Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments. For securities, which are subject to foreign withholding tax upon disposition, liabilities are recorded on the Statement of Assets and Liabilities for the estimated tax withholding based on the securities current market value. Upon disposition, realized gains or losses on such securities are recorded net of foreign withholding tax. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s

books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at period end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, revaluation of currencies and future adverse political and economic developments which could cause securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and U.S. government securities.

D. Distributions to Shareholders. The Fund intends to make quarterly distributions from its cash available for distribution, which consists of the Fund’s dividends and interest income after payment of Fund expenses, net option premiums and net realized and unrealized gains on investments. Such quarterly distributions may also consist of return of capital. At least annually, the Fund intends to distribute all or substantially all of its net realized capital gains. Distributions are recorded on the ex-dividend date. Distributions are determined annually in accordance with federal tax principles, which may differ from U.S. generally accepted accounting principles for investment companies.

The tax treatment and characterization of the Fund’s distributions may vary significantly from time to time depending on whether the Fund has gains or losses on the call options written on its portfolio versus gains or losses on the equity securities in the portfolio. Each quarter, the Fund will provide disclosures with distribution payments made that estimate the percentages of that distribution that represent net investment income, other income or capital gains, and return of capital, if any. The final composition of the tax characteristics of the distributions cannot be determined with certainty until after the end of the Fund’s tax year, and will be reported to shareholders at that time. A significant portion of the Fund’s distributions may constitute a return of capital. The amount of quarterly distributions will vary, depending on a number of factors. As portfolio and market conditions change, the rate of dividends on the common shares will change. There can be no assurance that the Fund will be able to declare a dividend in each period.

E. Federal Income Taxes. It is the policy of the Fund to comply with the requirements of subchapter M of the

 

12

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of its net investment income and any net realized capital gains to its shareholders. Therefore, a federal income tax or excise tax provision is not required. Management has considered the sustainability of the Fund’s tax positions taken on federal income tax returns for all open tax years in making this determination. No capital gain distributions shall be made until the capital loss carryforwards have been fully utilized or expire.

F. Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

G. Risk Exposures and the use of Derivative Instruments. The Fund’s investment strategies permit the Fund to enter into various types of derivatives contracts, including, but not limited to, forward foreign currency exchange contracts and purchased and written options. In doing so, the Fund will employ strategies in differing combinations to permit it to increase or decrease the level of risk, or change the level or types of exposure to market risk factors. This may allow the Fund to pursue its objectives more quickly, and efficiently than if it were to make direct purchases or sales of securities capable of affecting a similar response to market factors.

Market Risk Factors. In pursuit of its investment objectives, the Fund may seek to use derivatives to increase or decrease its exposure to the following market risk factors:

Credit Risk. Credit risk relates to the ability of the issuer to meet interest and principal payments, or both, as they come due. In general, lower-grade, higher-yield bonds are subject to credit risk to a greater extent than lower-yield, higher-quality bonds.

Equity Risk. Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market.

Foreign Exchange Rate Risk. Foreign exchange rate risk relates to the change in U.S. dollar value of a security held that is denominated in a foreign currency. The U.S. dollar value of a foreign currency denominated security will decrease as the dollar appreciates against the currency, while the U.S. dollar value will increase as the dollar depreciates against the currency.

Interest Rate Risk. Interest rate risk refers to the fluctuations in value of fixed-income securities resulting from the inverse relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value of already issued fixed-income investments, and a decline in general interest rates will tend to increase their value. In addition, debt securities with longer durations, which tend to have higher yields, are subject to potentially greater fluctuations in value from changes in interest rates than obligations with shorter durations. The Fund may lose money if short-term or long-term interest rates rise sharply or otherwise change in a manner not anticipated by the sub-adviser. As of the date of this report, interest rates in the United States are at, or near, historic lows, which may increase the Fund’s exposure to risks associated with rising interest rates.

Risks of Investing in Derivatives. The Fund’s use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Fund is using derivatives to decrease, or hedge, exposures to market risk factors for securities held by the Fund, there are also risks that those derivatives may not perform as expected resulting in losses for the combined or hedged positions.

The use of these strategies involves certain special risks, including a possible imperfect correlation, or even no correlation, between price movements of derivative instruments and price movements of related investments. While some strategies involving derivative instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in related investments or otherwise, due to the possible inability of the Fund to purchase or sell a portfolio security at a time that otherwise would be favorable or the possible need to sell a portfolio security at a disadvantageous time because the Fund is required to maintain asset coverage or offsetting positions in connection with transactions in derivative instruments. Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Fund.

 

13

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Associated risks are not the risks that the Fund is attempting to increase or decrease exposure to, per its investment objectives, but are the additional risks from investing in derivatives. Examples of these associated risks are liquidity risk, which is the risk that the Fund will not be able to sell the derivative in the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Fund. Associated risks can be different for each type of derivative and are discussed by each derivative type in the following notes.

Counterparty Credit Risk and Credit Related Contingent Features. Certain derivative positions are subject to counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Fund. The Fund’s derivative counterparties are financial institutions who are subject to market conditions that may weaken their financial position. The Fund intends to enter into financial transactions with counterparties that it believes to be creditworthy at the time of the transaction. To reduce this risk, the Fund generally enters into master netting arrangements, established within the Fund’s International Swap and Derivatives Association, Inc. (“ISDA”) Master Agreements (“Master Agreements”). These agreements are with select counterparties and they govern transactions, including certain over-the-counter (“OTC”) derivative and forward foreign currency contracts, entered into by the Fund and the counterparty. The Master Agreements maintain provisions for general obligations, representations, agreements, collateral, and events of default or termination. The occurrence of a specified event of termination may give a counterparty the right to terminate all of its contracts and affect settlement of all outstanding transactions under the applicable Master Agreement.

The Fund may also enter into collateral agreements with certain counterparties to further mitigate credit risk associated with OTC derivative and forward foreign currency contracts. Subject to established minimum levels, collateral is generally determined based on the net aggregate unrealized gain or loss on contracts with a certain counterparty. Collateral pledged to the Fund is held in a segregated account by a third-party agent and can be in the form of cash or debt securities issued by the U.S. government or related agencies.

The Fund’s maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate

unrealized gain in excess of any collateral pledged by the counterparty to the Fund. For purchased OTC options, the Fund bears the risk of loss in the amount of the premiums paid and the change in market value of the options should the counterparty not perform under the contracts. The Fund did not enter into any purchased OTC options during the period ended August 31, 2013. There were no credit events during the period ended August 31, 2013 that triggered any credit related contingent features.

The Fund’s master agreements with derivative counterparties have credit related contingent features that if triggered would allow its derivatives counterparties to close out and demand payment or additional collateral to cover their exposure from the Fund. Credit related contingent features are established between the Fund and its derivatives counterparties to reduce the risk that the Fund will not fulfill its payment obligations to its counterparties. These triggering features include, but are not limited to, a percentage decrease in the Fund’s net assets and or a percentage decrease in the Fund’s NAV, which could cause the Fund to accelerate payment of any net liability owed to the counterparty. The contingent features are established within the Fund’s Master Agreements.

Written options by the Fund do not give rise to counterparty credit risk, as written options obligate the Fund to perform and not the counterparty. As of August 31, 2013, the total value of written OTC call options subject to Master Agreements in a net liability position was $240,666. If a contingent feature had been triggered, the Fund could have been required to pay this amount in cash to its counterparties. The Fund did not hold or post collateral for its open written OTC call options at period end. There were no credit events during the period ended August 31, 2013 that triggered any credit related contingent features.

H. Options Contracts. The Fund may purchase put and call options and may write (sell) put options and covered call options. The premium received by the Fund upon the writing of a put or call option is included in the Statement of Assets and Liabilities as a liability which is subsequently marked-to-market until it is exercised or closed, or it expires. The Fund will realize a gain or loss upon the expiration or closing of the option contract. When an option is exercised, the proceeds on sales of the underlying security for a written call option or purchased put option or the purchase cost of the security for a written put option or a purchased call option is adjusted by the amount of premium received or paid. The risk in writing a call

 

14

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)

 

option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. Risks may also arise from an illiquid secondary market or from the inability of counterparties to meet the terms of the contract.

The Fund seeks to generate gains from the OTC call options writing strategy over a market cycle to supplement the dividend yield of its underlying portfolio of high dividend yield equity securities. Please refer to Note 8 for the volume of written OTC call option activity during the period ended August 31, 2013.

I. Indemnifications. In the normal course of business, the Fund may enter into contracts that provide certain indemnifications. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, management considers the risk of loss from such claims remote.

NOTE 3 — INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES

ING Investments, LLC (“ING Investments” or the “Investment Adviser”), an Arizona limited liability company, is the Investment Adviser of the Fund. The Fund pays the Investment Adviser for its services under the investment management agreement (“Management Agreement”), a fee, payable monthly, based on an annual rate of 1.15% of the Fund’s average daily managed assets. Managed assets are defined as the Fund’s average daily gross asset value, minus the sum of the Fund’s accrued and unpaid dividends on any outstanding preferred shares and accrued liabilities (other than liabilities for the principal amount of any borrowings incurred, commercial paper or notes issued by the Fund and the liquidation preference of any outstanding preferred shares). As of August 31, 2013, there were no preferred shares outstanding.

The Investment Adviser entered into a sub-advisory agreement (a “Sub-Advisory Agreement”) with ING Investment Management Advisors B.V. (“IIMA”) a subsidiary of ING Groep, domiciled in The Hague, The Netherlands. Subject to policies as the Board or the

Investment Adviser might determine, IIMA manages the Fund’s assets in accordance with the Fund’s investment objectives, policies and limitations.

Effective July 5, 2013, the Investment Adviser entered into a sub-advisory agreement (“Sub-Advisory Agreement”) with ING Investment Management Co. LLC (“ING IM”), a Delaware limited liability company. Subject to policies as the Board or the Investment Adviser might determine, ING IM manages the Fund’s assets in accordance with the Fund’s investment objectives, policies and limitations.

The Investment Adviser has also retained ING Investment Management Co. LLC (“ING IM” or “Consultant”), a Delaware limited liability company, to provide certain consulting services for the Investment Adviser. These services include, among other things, furnishing statistical and other factual information; providing advice with respect to potential investment strategies that may be employed for the Fund, including, but not limited to, potential options strategies; developing economic models of the anticipated investment performance and yield for the Fund; and providing advice to the Investment Adviser and/or sub-adviser with respect to the Fund’s level and/or managed distribution policy. For its services, the Consultant will receive a consultancy fee from the Investment Adviser. No fee will be paid by the Fund directly to the Consultant.

ING Funds Services, LLC (the “Administrator”), a Delaware limited liability company, serves as Administrator to the Fund. The Fund pays the Administrator for its services a fee based on an annual rate of 0.10% of the Fund’s average daily managed assets.

NOTE 4 — OTHER TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

The Fund has adopted a Deferred Compensation Plan (the “Plan”), which allows eligible non-affiliated trustees as described in the Plan to defer the receipt of all or a portion of the trustees fees payable. Amounts deferred are treated as though invested in various “notional” funds advised by ING Investments until distribution in accordance with the Plan.

On April 23, 2013, IIMA made a payment of $1,730,621 to reimburse the Fund for the foregone investment opportunities attributable to available cash amounts not properly reported on IIMA’s portfolio management reporting system.

 

15

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 5 — PURCHASES AND SALES OF INVESTMENT SECURITIES

 

The cost of purchases and proceeds from sales of investments for the period ended August 31, 2013, excluding short-term securities, were $85,588,726 and $58,625,459, respectively.

NOTE 6 — OTHER ACCRUED EXPENSES AND LIABILITIES

At August 31, 2013, the Fund had the following payable included in Other Accrued Expenses and Liabilities on the Statement of Assets and Liabilities that exceeded 5% of total liabilities:

 

Accrued Expense		Amount
Custody		$	110,970

NOTE 7 — EXPENSE LIMITATION

The Investment Adviser has entered into a written expense limitation agreement (“Expense Limitation Agreement”) with the Fund under which it will limit the expenses of the Fund, excluding interest, taxes, leverage expenses, and extraordinary expenses (and acquired fund fees and expenses) to 1.50% of average daily managed assets. The Investment Adviser may at a later date recoup from the Fund fees waived and other expenses assumed by the Investment Adviser during the previous 36 months, but only if, after such reimbursement, the Fund’s expense ratio does not exceed the percentage described above. The Expense Limitation Agreement is contractual through March 1, 2014 and shall renew automatically for one-year terms unless; (i) ING Investments provides 90 days written notice of its termination; and (ii) such termination is approved by the Board; or (iii) the Investment Management Agreement has been terminated.

Waived and reimbursed fees and any recoupment by the Investment Adviser of such waived and reimbursed fees are reflected on the accompanying Statement of Operations for the Fund.

As of August 31, 2013, there are no amounts of waived and reimbursed fees that are subject to possible recoupment by the Investment Adviser.

NOTE 8 — TRANSACTIONS IN WRITTEN OPTIONS

Transactions in written OTC call options on indices were as follows:

		Number of Contracts				Premiums Received
Balance at 02/28/13			1,297,300			$	835,422
Options Written			7,660,600				6,604,462
Options Expired			(5,142,500	)			(4,104,906	)
Options Exercised			—				—
Options Terminated in Closing Purchase Transactions			(2,568,800	)			(2,246,750	)
Balance at 08/31/13			1,246,600			$	1,088,228

NOTE 9 — CONCENTRATION OF INVESTMENT RISKS

All mutual funds involve risk — some more than others — and there is always the chance that you could lose money or not earn as much as you hope. The Fund’s risk profile is largely a factor of the principal securities in which it invests and investment techniques that it uses. For more information regarding the types of securities and investment techniques that may be used by the Fund and its corresponding risks, see the Fund’s Prospectus and/or the Statement of Additional Information.

Foreign Securities and Emerging Markets. The Fund makes significant investments in foreign securities and securities issued by companies located in countries with emerging markets. Investments in foreign securities may entail risks not present in domestic investments. Since investments in securities are denominated in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, as well as from movements in currency, security value and interest rate, all of which could affect the market and/or credit risk of the investments. The risks of investing in foreign securities can be intensified in the case of investments in issuers located in countries with emerging markets.

Leverage. Although the Fund has no current intention to do so, the Fund is authorized to utilize leverage through the issuance of preferred shares and/or borrowings, including the issuance of debt securities. In the event that the Fund determines in the future to utilize investment leverage, there can be no assurance that such a leveraging strategy will be successful during any period in which it is employed.

 

16

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 10 — CAPITAL SHARES

 

Transactions in capital shares and dollars were as follows:

 

		Shares sold				Reinvestment of distributions				Net increase (decrease) in shares outstanding				Shares sold				Reinvestment of distributions				Net increase (decrease)
Year or period ended		#				#				#				($)				($)				($)
8/31/2013			—				92,287				92,287				—				1,223,165				1,223,165
2/28/2013			—				192,532				192,532				—				2,817,921				2,817,921

NOTE 11 — FEDERAL INCOME TAXES

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 U.S. generally accepted accounting principles for investment companies. These book/tax differences may be either temporary or permanent. Permanent differences are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences are not reclassified. Key differences include the treatment of short-term capital gains, foreign currency transactions, income from passive foreign investment companies (PFICs) and wash sale deferrals. Distributions in excess of net investment income and/or net realized capital gains for tax purposes are reported as return of capital.

Dividends paid by the Fund from net investment income and distributions of net realized short-term capital gains are, for federal income tax purposes, taxable as ordinary income to shareholders.

The tax composition of dividends and distributions in the current period will not be determined until after the Fund’s tax year-end of December 31, 2013. The tax composition of dividends and distributions as of the Fund’s most recent tax year-end was as follows:

 

Tax Year Ended December 31, 2012
Ordinary Income		Return of Capital
$5,994,073		$23,408,633

The tax-basis components of distributable earnings and the capital loss carryforwards which may be used to offset future realized capital gains for federal income tax purposes as of December 31, 2012 are detailed below. The Regulated Investment Company Modernization Act of 2010 (the “Act”) provides an unlimited carryforward period for newly generated capital losses. Under the Act, there may be a greater

likelihood that all or a portion of the Fund’s pre-enactment capital loss carryforwards may expire without being utilized due to the fact that post-enactment capital losses are required to be utilized before pre-enactment capital loss carryforwards.

 

Late Year Ordinary Losses Deferred		Post-October Capital Losses Deferred				Unrealized Appreciation/ (Depreciation)				Capital Loss Carryforwards
										Amount				Character				Expiration
$(75,644)		$	(1,067,539	)		$	(14,342,779	)		$	(11,859,322	)			Short-term				None
											(15,614,184	)			Long-term				None
										$	(27,473,506	)

The Fund’s major tax jurisdictions are U.S. federal and Arizona. The earliest tax year that remains subject to examination by these jurisdictions is the Fund’s initial tax year of 2011.

As of August 31, 2013, no provision for income tax is required in the Fund’s financial statements as a result of tax positions taken on federal and state income tax returns for open tax years. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue.

NOTE 12 — RESTRUCTURING PLAN

The Investment Adviser, ING IM, and the Administrator, are indirect, wholly-owned subsidiaries of ING U.S., Inc. (“ING U.S.”). ING U.S. is a U.S.-based financial institution whose subsidiaries operate in the retirement, investment, and insurance industries. ING U.S. is a majority-owned subsidiary of ING Groep N.V. (“ING Groep”), which is a global financial institution of Dutch origin, with operations in more than 40 countries.

In October 2009, ING Groep submitted a restructuring plan (the “Restructuring Plan”) to the European Commission in order to receive approval for state aid granted to ING Groep by the Kingdom of the Netherlands in November 2008 and March 2009. To receive approval for this state aid, ING Groep was required to divest its insurance and investment management businesses, including ING U.S., before the end of 2013. In November 2012, the Restructuring Plan was amended to permit ING Groep additional time to complete the divestment. Pursuant to the amended Restructuring Plan, ING Groep must divest at least 25% of ING U.S. by the end of 2013, more than 50% by the end of 2014, and the remaining interest by the end of 2016 (such divestment, the “Separation Plan”).

 

17

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 12 — RESTRUCTURING PLAN (continued)

 

In May 2013, ING U.S. conducted an initial public offering of ING U.S. common stock (the “IPO”).

On September 13, 2013, ING U.S. filed a new Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (the “SEC”) in connection with another potential public offering of ING U.S. common stock held by ING Groep. ING U.S. will not issue or sell common stock in the offering. On October 23, 2013, ING U.S. announced the pricing of 33 million shares of its common stock being offered by ING Groep in this offering. Closing of the offering is expected to occur on October 29, 2013. ING Groep also granted the underwriters in the offering an option exercisable within 30 days, to acquire up to approximately an additional 5 million shares from ING Groep. This option was exercised in full. ING U.S. will not receive any proceeds from the offering.

ING Groep continues to own a majority of the common stock of ING U.S. ING Groep has stated that it intends to sell its remaining controlling ownership interest in ING U.S. over time. While the base case for the remainder of the Separation Plan is the divestment of ING Groep’s remaining interest in one or more broadly distributed offerings, all options remain open and it is possible that ING Groep’s divestment of its remaining interest in ING U.S. may take place by means of a sale to a single buyer or group of buyers.

It is anticipated that one or more of the transactions contemplated by the Separation Plan would result in the automatic termination of the existing advisory and sub-advisory agreements under which the Adviser and sub-adviser provide services to the Fund. In order to ensure that the existing investment advisory and sub-advisory services can continue uninterrupted, the Board approved new advisory and sub-advisory agreements for the Fund in connection with the IPO. In addition, shareholders of the Fund were asked to approve new investment advisory and sub-advisory agreements prompted by the IPO, as well as any future advisory and sub-advisory agreements prompted by the Separation Plan that are approved by the Board and whose terms are not be materially different from the current agreements. Shareholders of the Fund approved a new advisory and sub-advisory agreement on July 5, 2013. This means that shareholders may not have another opportunity to vote on a new agreement with the Adviser or an affiliated sub-adviser even if they undergo a change of control, as long as no single

person or group of persons acting together gains “control” (as defined in the 1940 Act) of ING U.S.

The Separation Plan, whether implemented through public offerings or other means, may be disruptive to the businesses of ING U.S. and its subsidiaries, including the Adviser and affiliated entities that provide services to the Fund, and may cause, among other things, interruption of business operations or services, diversion of management’s attention from day-to-day operations, reduced access to capital, and loss of key employees or customers. The completion of the Separation Plan is expected to result in the Adviser’s and affiliated entities’ loss of access to the resources of ING Groep, which could adversely affect its business. It is anticipated that ING U.S., as a stand-alone entity, may be a publicly held U.S. company subject to the reporting requirements of the Securities Exchange Act of 1934 as well as other U.S. government and state regulations, and subject to the risk of changing regulation.

The Separation Plan may be implemented in phases. During the time that ING Groep retains a majority interest in ING U.S., circumstances affecting ING Groep, including restrictions or requirements imposed on ING Groep by European and other authorities, may also affect ING U.S. A failure to complete the Separation Plan could create uncertainty about the nature of the relationship between ING U.S. and ING Groep, and could adversely affect ING U.S. and the Adviser and its affiliates. Currently, the Adviser and its affiliates do not anticipate that the Separation Plan will have a material adverse impact on their operations or the Fund and its operation.

Shareholder Proxy Proposals

At a meeting of the Board on January 10, 2013, the Board nominated to Class II of the Board five individuals (collectively, the “Nominees”) for election as Trustees of the Trust. The Nominees include John V. Boyer, Patricia W. Chadwick, and Sheryl K. Pressler, each of whom was a current member of the Board. In addition, the Board nominated to Class II of the Board Albert E. DePrince Jr. and Martin J. Gavin and appointed to Class I of the Board Joseph E. Obermeyer and Russell H. Jones, each of whom was not a member of the Board at the time, but who served as a director or trustee to other investment companies in the ING Funds complex. The Nominees were approved by shareholders on May 6, 2013. The election of the Nominees was effective on May 21, 2013. The appointment of Messrs. Obermeyer and Jones was

 

18

---

Table of Contents

NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 12 — RESTRUCTURING PLAN (continued)

 

effective May 21, 2013. These nominations and appointments were, in part, the result of an effort on the part of the Board, another board in the ING Funds complex, and the Investment Adviser to the Fund to consolidate the membership of the boards so that the same members serve on each board in the ING Funds complex. The result is that all ING Funds are now governed by Boards that are compromised of the same individuals.

NOTE 13 — SUBSEQUENT EVENTS

Dividends: Subsequent to August 31, 2013, the Fund made a distribution of:

 

Per Share Amount

Declaration Date

Payable Date

Record Date

$

0.2880

9/16/2013

10/15/2013

10/3/2013

Each quarter, the Fund will provide disclosures with distribution payments made that estimate the percentages of that distribution that represent net

investment income, capital gains, and return of capital, if any. A significant portion of the quarterly distribution payments made by the Fund may constitute a return of capital.

The Fund was granted exemptive relief by the SEC (the “Order”), which under the 1940 Act, would permit the Fund, subject to Board approval, to include realized long-term capital gains as a part of its regular distributions to Common Shareholders more frequently than would otherwise be permitted by the 1940 Act (generally once per taxable year) (“Managed Distribution Policy”). The Fund may in the future adopt a Managed Distribution Policy.

Effective close of business September 12, 2013, Mr. Gavin resigned as Trustee.

The Fund has evaluated events occurring after the Statement of Assets and Liabilities date (subsequent events) to determine whether any subsequent events necessitated adjustment to or disclosure in the financial statements. Other than the above, no such subsequent events were identified.

 

19

---

Table of Contents

ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2013 (UNAUDITED)

 

 

See Accompanying Notes to Financial Statements

 

20

---

Table of Contents

ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

 

See Accompanying Notes to Financial Statements

 

21

---

Table of Contents

ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

Fair Value Measurements^

The following is a summary of the fair valuations according to the inputs used as of August 31, 2013 in valuing the assets and liabilities:⁽¹⁾

 

		Quoted Prices in Active Markets for Identical Investments (Level 1)				Significant Other Observable Inputs # (Level 2)				Significant Unobservable Inputs (Level 3)				Fair Value at 8/31/2013
Asset Table
Investments, at fair value
Common Stock
Australia		$	—			$	1,029,886			$	—			$	1,029,886
Belgium			—				2,664,713				—				2,664,713
Brazil			22,434,468				—				—				22,434,468
Chile			2,683,658				—				—				2,683,658
China			6,051,926				37,594,747				—				43,646,673
Colombia			2,246,753				—				—				2,246,753
Czech Republic			—				5,707,916				—				5,707,916
Egypt			—				2,869,020				—				2,869,020
Hong Kong			—				4,712,316				—				4,712,316
Hungary			2,644,419				2,769,524				—				5,413,943
India			2,906,935				9,675,795				—				12,582,730
Indonesia			—				4,363,890				—				4,363,890
Macau			—				2,924,718				—				2,924,718
Malaysia			2,423,173				5,280,655				—				7,703,828
Mexico			2,635,243				—				—				2,635,243
Panama			2,108,854				—				—				2,108,854
Poland			—				8,376,550				—				8,376,550
Qatar			2,534,201				2,727,379				—				5,261,580
Russia			14,336,545				6,158,925				—				20,495,470

 

See Accompanying Notes to Financial Statements

 

22

---

Table of Contents

ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

		Quoted Prices in Active Markets for Identical Investments (Level 1)				Significant Other Observable Inputs # (Level 2)				Significant Unobservable Inputs (Level 3)				Fair Value at 8/31/2013
Singapore		$	—			$	2,721,055			$	—			$	2,721,055
South Africa			—				11,374,727				—				11,374,727
South Korea			—				29,987,844				—				29,987,844
Sweden			—				3,216,854				—				3,216,854
Taiwan			—				22,182,253				—				22,182,253
Thailand			—				2,626,370				—				2,626,370
United Kingdom			—				4,342,945				—				4,342,945
Total Common Stock		$	63,006,175			$	173,308,082			$	—			$	236,314,257
Preferred Stock			—				3,412,816				—				3,412,816
Short-Term Investments			2,710,197				—				—				2,710,197
Total Investments, at fair value		$	65,716,372			$	176,720,898			$	—			$	242,437,270
Liabilities Table
Other Financial Instruments+
Written Options		$	—			$	(240,666	)		$	—			$	(240,666	)
Total Liabilities		$	—			$	(240,666	)		$	—			$	(240,666	)

 

(1)

For the period ended August 31, 2013, as a result of the fair value pricing procedures for international equities utilized by the Fund, certain securities have transferred in and out of Level 1 and Level 2 measurements during the period. The Fund’s policy is to recognize transfers between levels at the end of the reporting period. At August 31, 2013, securities valued at $8,875,646 and $8,789,678 were transferred from Level 1 to Level 2 and Level 2 to Level 1, respectively, within the fair value hierarchy.

^	See Note 2, “Significant Accounting Policies” in the Notes to Financial Statements for additional information.

+

Other Financial Instruments are derivatives not reflected in the Portfolio of Investments and may include open forward foreign currency contracts, equity forwards, futures, swaps, and written options. Forward foreign currency contracts, equity forwards and futures are valued at the unrealized gain (loss) on the instrument. Swaps and written options are valued at the fair value of the instrument.

#

The earlier close of the foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. Accordingly, a portion of the Fund’s investments are categorized as Level 2 investments.

ING Emerging Markets High Dividend Equity Fund Written OTC Options on August 31, 2013:

 

Number of Contracts				Counterparty		Description		Exercise Price								Expiration Date				Premiums Received				Fair Value
	Options on Indices
	619,600			BNP Paribas Bank		Call on iShares MSCI Emerging Markets Index Fund			39.770				USD				09/06/13			$	519,163			$	(27,146	)
	627,000			Morgan Stanley		Call on iShares MSCI Emerging Markets Index Fund			39.353				USD				09/20/13				569,065				(213,520	)
						Total Written OTC Options														$	1,088,228			$	(240,666	)

A summary of derivative instruments by primary risk exposure is outlined in the following tables.

The fair value of derivative instruments as of August 31, 2013 was as follows:

 

Derivatives not accounted for as hedging instruments		Location on Statement of Assets and Liabilities		Fair Value
Liability Derivatives
Equity contracts		Written options, at fair value		$	240,666
Total Liability Derivatives				$	240,666

 

See Accompanying Notes to Financial Statements

 

23

---

Table of Contents

ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2013 (UNAUDITED) (CONTINUED)

 

The effect of derivative instruments on the Fund’s Statement of Operations for the period ended August 31, 2013 was as follows:

 

Derivatives not accounted for as hedging instruments		Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
		Written options
Equity contracts		$	1,436,522
Total		$	1,436,522

 

Derivatives not accounted for as hedging instruments		Change in Unrealized Appreciation or Depreciation on Derivatives Recognized in Income
		Written options
Equity contracts		$	110,965
Total		$	110,965

The following is a summary by counterparty of the fair value of OTC derivative instruments subject to Master Netting Agreements and collateral pledged (received), if any, at August 31, 2013:

 

		BNP Paribas Bank				Morgan Stanley				Totals
Liabilities:
Written options		$	27,146			$	213,520			$	240,666
Total Liabilities		$	27,146			$	213,520			$	240,666
Net OTC derivative instruments by counterparty, at fair value		$	(27,146	)		$	(213,520	)			(240,666	)
Total collateral pledged by Fund/(Received from counterparty)		$	—			$	—			$	—
Net Exposure(1)		$	(27,146	)		$	(213,520	)		$	(240,666	)

 

(1)	Positive net exposure represents amounts due from each respective counterparty. Negative exposure represents amounts due from the Fund. Please refer to Note 2 for additional details regarding counterparty credit risk and credit related contingent features.

Supplemental Option Information (Unaudited)

 

Supplemental Call Option Statistics as of August 31, 2013:
% of Total Net Assets against which calls written			19.89	%
Average Days to Expiration at time written			35 days
Average Call Moneyness* at time written			ATM
Premiums received for calls		$	1,088,228
Value of calls		$	(240,666	)

 

*

“Moneyness” is the term used to describe the relationship between the price of the underlying asset and the option’s exercise or strike price. For example, a call (buy) option is considered “in-the-money” when the value of the underlying asset exceeds the strike price. Conversely, a put (sell) option is considered “in-the-money” when its strike price exceeds the value of the underlying asset. Options are characterized for the purpose of Moneyness as, “in-the-money” (“ITM”), “out-of-the-money” (“OTM”) or “at-the-money” (“ATM”), where the underlying asset value equals the strike price.

 

See Accompanying Notes to Financial Statements

 

24

---

Table of Contents

SHAREHOLDER MEETING INFORMATION (UNAUDITED)

 

 

 

An annual shareholder meeting of the ING Emerging Markets High Dividend Equity Fund Registrant was held May 6, 2013, at the offices of ING Funds, 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, AZ 85258.

Proposals:

 

1

To approve a new investment advisory agreement for the Funds with ING Investments prompted by the IPO, and to approve, under certain circumstances, any future advisory agreements prompted by Change of Control Events that occur as part of the Separation Plan.

 

3

To approve a new investment sub-advisory agreement between ING Investments and ING Investment Management Advisors, V.B. (“IIMA”) with respect to certain Funds prompted by the IPO, and to approve, under certain circumstances, any future sub-advisory agreements prompted by Change of Control Events that occur as part of the Separation Plan.

 

5

To elect five nominees to the Boards of Trustees of certain Funds.

 

7

To approve a new investment sub-advisory agreement between ING Investments and ING IM with respect to certain Funds.

 

		Proposal				Shares voted for				Shares voted against or withheld				Shares abstained				Broker non-vote				Total Shares Voted
ING Emerging Markets High Dividend Equity Fund			1	*			8,129,331.720				250,252.414				285,292.053				7,349,809.360				16,014,685.547
			3	*			8,099,789.377				250,707.161				314,379.649				7,349,809.360				16,014,685.547
		Proposal				For All				Withhold All				For all Except				Broker non-vote				Total Shares Voted
John V. Boyer			5	**			15,637,271.197				377,414.350				0.000				0.000				16,014,685.547
Patricia W. Chadwick			5	**			15,635,583.997				379,101.550				0.000				0.000				16,014,685.547
Albert E. DePrince, Jr.			5	**			15,617,282.190				397,403.357				0.000				0.000				16,014,685.547
Martin J. Gavin			5	**			15,630,301.123				384,384.424				0.000				0.000				16,014,685.547
Sheryl K. Pressler			5	**			15,634,608.768				380,076.779				0.000				0.000				16,014,685.547
		Proposal				Shares voted for				Shares voted against or withheld				Shares abstained				Broker non-vote				Total Shares Voted
			7	*			8,162,762.819				206,543.423				295,569.945				7,349,809.360				16,014,685.547

 

*	Proposals deferred; adjourned to July 5, 2013

**	Proposal Passed

An annual shareholder meeting of the ING Emerging Markets High Dividend Equity Fund Registrant was held July 5, 2013, at the offices of ING Funds, 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, AZ 85258.

 

		Proposal				Shares voted for				Shares voted against or withheld				Shares abstained				Broker non-vote				Total Shares Voted
ING Emerging Markets High Dividend Equity Fund			1	*			9,426,001.761				327,072.837				342,185.053				3,761,017.403				13,856,277.054
			3	*			9,396,682.514				333,444.988				365,131.899				3,761,017.653				13,856,277.054
			7	*			9,451,602.207				277,058.499				366,598.445				3,761,017.903				13,856,277.054

 

*

Proposals Passed

 

25

---

Table of Contents

ADDITIONAL INFORMATION (UNAUDITED)

 

 

 

 

26

---

Table of Contents

ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)

 

 

 

 

27

---

Table of Contents

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 (800) 992-0180

 

		SAR-UIHD		(0813-102513)

 

 

---

Table of Contents

Item 2. Code of Ethics.

Not required for semi-annual filing.

Item 3. Audit Committee Financial Expert.

Not required for semi-annual filing.

Item 4. Principal Accountant Fees and Services.

Not required for semi-annual filing.

Item 5. Audit Committee Of Listed Registrants.

Not required for semi-annual filing.

Item 6. Schedule of Investments.

---

Table of Contents

ING EMERGING MARKETS HIGH		PORTFOLIO OF INVESTMENTS
DIVIDEND EQUITY FUND		AS OF AUGUST 31, 2013 (UNAUDITED)

 

 

See Accompanying Notes to Financial Statements

---

Table of Contents

ING EMERGING MARKETS HIGH		PORTFOLIO OF INVESTMENTS
DIVIDEND EQUITY FUND		AS OF AUGUST 31, 2013 (UNAUDITED)  (CONTINUED)

 

 

See Accompanying Notes to Financial Statements

---

Table of Contents

ING EMERGING MARKETS HIGH		PORTFOLIO OF INVESTMENTS
DIVIDEND EQUITY FUND		AS OF AUGUST 31, 2013 (UNAUDITED)  (CONTINUED)

 

 

Fair Value Measurements^

The following is a summary of the fair valuations according to the inputs used as of August 31, 2013 in valuing the assets and liabilities:⁽¹⁾

 

		Quoted Prices in Active Markets for Identical Investments (Level 1)				Significant Other Observable Inputs # (Level 2)				Significant Unobservable Inputs (Level 3)				Fair Value at August 31, 2013
Asset Table
Investments, at fair value
Common Stock
Australia		$	—			$	1,029,886			$	—			$	1,029,886
Belgium			—				2,664,713				—				2,664,713
Brazil			22,434,468				—				—				22,434,468
Chile			2,683,658				—				—				2,683,658
China			6,051,927				37,594,746				—				43,646,673
Colombia			2,246,753				—				—				2,246,753
Czech Republic			—				5,707,916				—				5,707,916
Egypt			—				2,869,020				—				2,869,020
Hong Kong			—				4,712,316				—				4,712,316
Hungary			2,644,419				2,769,524				—				5,413,943
India			2,906,935				9,675,795				—				12,582,730
Indonesia			—				4,363,890				—				4,363,890
Macau			—				2,924,718				—				2,924,718
Malaysia			2,423,173				5,280,655				—				7,703,828
Mexico			2,635,243				—				—				2,635,243
Panama			2,108,854				—				—				2,108,854
Poland			—				8,376,550				—				8,376,550
Qatar			2,534,201				2,727,379				—				5,261,580
Russia			14,336,545				6,158,925				—				20,495,470
Singapore			—				2,721,055				—				2,721,055
South Africa			—				11,374,727				—				11,374,727
South Korea			—				29,987,844				—				29,987,844
Sweden			—				3,216,854				—				3,216,854
Taiwan			—				22,182,253				—				22,182,253
Thailand			—				2,626,370				—				2,626,370
United Kingdom			—				4,342,945				—				4,342,945
Total Common Stock			63,006,176				173,308,081				—				236,314,257
Preferred Stock			—				3,412,816				—				3,412,816
Short-Term Investments			2,710,197				—				—				2,710,197
Total Investments, at fair value		$	65,716,373			$	176,720,897			$	—			$	242,437,270
Liabilities Table
Other Financial Instruments+
Written Options		$	—			$	(240,666	)		$	—			$	(240,666	)
Total Liabilities		$	—			$	(240,666	)		$	—			$	(240,666	)

 

(1)

For the period ended August 31, 2013, as a result of the fair value pricing procedures for international equities utilized by the Fund, certain securities have transferred in and out of Level 1 and Level 2 measurements during the period. The Fund’s policy is to recognize transfers between levels at the end of the reporting period. At August 31, 2013, securities valued at $8,875,646 and $8,789,678 were transferred from Level 1 to Level 2 and Level 2 to Level 1, respectively, within the fair value hierarchy.

^	See Note 2, “Significant Accounting Policies” in the Notes to Financial Statements for additional information.

+

Other Financial Instruments are derivatives not reflected in the Portfolio of Investments and may include open forward foreign currency contracts, equity forwards, futures, swaps, and written options. Forward foreign currency contracts, equity forwards and futures are valued at the unrealized gain (loss) on the instrument. Swaps and written options are valued at the fair value of the instrument.

#

The earlier close of the foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. Accordingly, a portion of the Fund’s investments are categorized as Level 2 investments.

 

See Accompanying Notes to Financial Statements

---

Table of Contents

ING EMERGING MARKETS HIGH		PORTFOLIO OF INVESTMENTS
DIVIDEND EQUITY FUND		AS OF AUGUST 31, 2013 (UNAUDITED)  (CONTINUED)

 

ING Emerging Markets High Dividend Equity Fund Written OTC Options on August 31, 2013:

 

Number of Contracts				Counterparty		Description		Exercise Price				Expiration Date				Premiums Received				Fair Value
	Options on Indices
	619,600			BNP Paribas Bank		Call on iShares MSCI Emerging Markets Index Fund			39.770 USD				09/06/13			$	519,163			$	(27,146	)
	627,000			Morgan Stanley		Call on iShares MSCI Emerging Markets Index Fund			39.353 USD				09/20/13				569,065				(213,520	)
									Total Written OTC Options							$	1,088,228			$	(240,666	)

 

See Accompanying Notes to Financial Statements

---

Table of Contents

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-end Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-end Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-end Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

The Board has a Nominating Committee for the purpose of considering and presenting to the Board candidates it proposes for nomination to fill Independent Trustee vacancies on the Board. The Committee currently consists of all Independent Trustees of the Board. (6 individuals). The Nominating Committee operates pursuant to a Charter approved by the Board. The primary purpose of the Nominating Committee is to consider and present to the Board the candidates it proposes for nomination to fill vacancies on the Board. In evaluating candidates, the Nominating Committee may consider a variety of factors, but it has not at this time set any specific minimum qualifications that must be met. Specific qualifications of candidates for Board membership will be based on the needs of the Board at the time of nomination.

The Nominating Committee is willing to consider nominations received from shareholders and shall assess shareholder nominees in the same manner as it reviews its own nominees. A shareholder nominee for director should be submitted in writing to the Fund’s Secretary. Any such shareholder nomination should include at a minimum the following information as to each individual proposed for nomination as trustee: such individual’s written consent to be named in the proxy statement as a nominee (if nominated) and to serve as a trustee (if elected), and all information relating to such individual that is required to be disclosed in the solicitation of proxies for election of trustees, or is otherwise required, in each case under applicable federal securities laws, rules and regulations.

---

Table of Contents

The secretary shall submit all nominations received in a timely manner to the Nominating Committee. To be timely, any such submission must be delivered to the Fund’s Secretary not earlier than the 90th day prior to such meeting and not later than the close of business on the later of the 60th day prior to such meeting or the 10th day following the day on which public announcement of the date of the meeting is first made, by either disclosure in a press release or in a document publicly filed by the Fund with the Securities and Exchange Commission.

---

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant): ING Emerging Markets High Dividend Equity Fund

By		/s/ Shaun P. Mathews
		Shaun P. Mathews President and Chief Executive Officer

Date: November 5, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By		/s/ Shaun P. Mathews
		Shaun P. Mathews President and Chief Executive Officer

Date: November 5, 2013

By		/s/ Todd Modic
		Todd Modic Senior Vice President and Chief Financial Officer

Date: November 5, 2013