SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ING PRIME RATE TRUST
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
ING PRIME RATE TRUST
7337 EAST DOUBLETREE RANCH ROAD
SCOTTSDALE, ARIZONA 85258-2034
(800) 992-0180
July 14, 2003
Dear Shareholder:
On behalf of the Board of Trustees of ING Prime Rate Trust (the
"Trust"), we are pleased to invite you to the annual meeting of shareholders
(the "Annual Meeting"), to be held at 10:00 a.m. Local time, on August 19, 2003
at 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258-2034. Formal
notice of the Annual Meeting appears on the next page, followed by the Proxy
Statement. Please take the time to read the Proxy Statement and cast your vote,
since it covers matters that are important to the Trust and to you as a
shareholder.
At the Annual Meeting, you will be asked to consider and vote on the following
matters:
1. To elect nine members of the Board of Trustees to represent
the interests of the holders of Common Shares of the Trust
until the election and qualification of their successors.
2. To elect two members of the Board of Trustees to represent the
interests of the holders of Auction Rate Cumulative Preferred
Shares - Series M, T, W, TH and F of the Trust - until the
election and qualification of their successors.
3. Ratification of the selection of KPMG LLP as the current
independent auditor of the Trust.
4. To approve a Sub-Advisory Agreement between ING Investments,
LLC and Aeltus Investment Management, Inc., with no change in
the Adviser, the portfolio managers, or the overall management
fee paid by the Trust.
5. To transact such other business as may properly come before
the Annual Meeting or any adjournment(s) or postponement(s)
thereof.
Each proposal is discussed in detail in the enclosed Proxy Statement,
which you should read carefully. The Board of Trustees has concluded that the
proposals are in the best interests of the Trust and its shareholders and
recommend
that you vote "FOR" each of the proposals. We are asking you to consider them
carefully and express your vote on the enclosed Proxy Ballot or at the Annual
Meeting.
The Trust is using Georgeson Shareholder Communications, Inc., a professional
proxy solicitation firm, to assist shareholders in the voting process. As the
date of the Annual Meeting approaches, if we have not already heard from you,
you may receive a telephone call from Georgeson Shareholder Communications, Inc.
reminding you to exercise your right to vote.
We look forward to your attendance at the Annual Meeting or to
receiving your Proxy Ballot so that your shares may be voted at the Annual
Meeting. If you have any questions, please do not hesitate to call us at
1-800-992-0180.
Sincerely,
James M. Hennessy
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
ING PRIME RATE TRUST
To Shareholders:
PLEASE TAKE NOTE THAT the annual meeting of shareholders (the "Annual Meeting")
of ING Prime Rate Trust (the "Trust") will be held at 10:00 a.m. Local time, on
August 19, 2003, at 7337 East Doubletree Ranch Road, Scottsdale, Arizona
85258-2034, for the purpose of considering and voting upon the following
matters:
1. To elect nine members of the Board of Trustees to represent
the interests of the holders of Common Shares of the Trust
until the election and qualification of their successors.
2. To elect two members of the Board of Trustees to represent the
interests of the holders of Auction Rate Cumulative Preferred
Shares - Series M, T, W, TH and F of the Trust - until the
election and qualification of their successors.
3. Ratification of the selection of KPMG LLP as the current
independent auditor of the Trust.
4. To approve a Sub-Advisory Agreement between ING Investments,
LLC and Aeltus Investment Management, Inc., with no change in
the Adviser, the portfolio managers, or the overall management
fee paid by the Trust.
5. To transact such other business as may properly come before
the Annual Meeting or any adjournment(s) or postponement(s)
thereof.
Please read the enclosed Proxy Statement carefully for information concerning
the proposals to be placed before the Annual Meeting.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT
YOU VOTE IN FAVOR OF THE PROPOSALS.
Shareholders of record as of the close of business on June 9, 2003 are entitled
to notice of, and to vote at, the Annual Meeting or any adjournment(s) or
postponement(s) thereof.
By Order of the Board of Trustees,
Kimberly A. Anderson
Vice President and Secretary
July 14, 2003
YOUR VOTE IS IMPORTANT REGARDLESS OF
THE NUMBER OF SHARES YOU OWN.
PLEASE VOTE BY RETURNING YOUR
PROXY BALLOT TODAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY
ALSO VOTE IN PERSON AT THE ANNUAL MEETING.
PROXY STATEMENT
ING PRIME RATE TRUST
JULY 14, 2003
TOLL-FREE: (800) 992-0180
7337 EAST DOUBLETREE RANCH ROAD
SCOTTSDALE, AZ 85258-2034
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 19, 2003
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WHO IS ASKING FOR MY VOTE?
The Board of Trustees (the "Board") of ING Prime Rate Trust (the
"Trust") is sending this Proxy Statement, the attached Notice of Annual Meeting,
and the enclosed Proxy Ballot on or about July 14, 2003 to you and all other
shareholders. The Board is soliciting your vote for the annual meeting of
shareholders of the Trust (the "Annual Meeting").
WHAT ARE THE PROPOSALS AND WHO CAN VOTE ON EACH PROPOSAL?
The following table gives a brief description of each Proposal and indicates
which class of shares is being solicited with respect to each Proposal to be
considered at the Annual Meeting.
HOLDERS OF HOLDERS OF
PROPOSAL COMMON SHARES PREFERRED SHARES
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1. To elect nine members of the Board to represent Yes No
the interests of the holders of Common Shares of
the Trust until the election and qualification
of their successors.
HOLDERS OF HOLDERS OF
PROPOSAL COMMON SHARES PREFERRED SHARES
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2. To elect two members of the Board to represent No Yes
the interests of the holders of the Auction Rate
Cumulative Preferred Shares - Series M, T, W, TH
and F of the Trust - until the election and
qualification of their successors.
3. Ratification of the selection of KPMG LLP as the Yes Yes
current independent auditor of the Trust.
4. To approve a Sub-Advisory Agreement between ING Yes Yes
Investments, LLC and Aeltus Investment
Management, Inc., with no change in the Adviser,
the portfolio managers, or the overall
management fee paid by the Trust.
5. To transact such other business as may properly Yes Yes
come before the Annual Meeting or any
adjournment(s) or postponement(s).
If the Proposal regarding the approval of the proposed Sub-Advisory
Agreement ("Proposed Sub-Advisory Agreement") is approved by shareholders,
Aeltus Investment Management, Inc. ("ING Aeltus" or "Proposed Sub-Adviser") will
become the sub-adviser to the Trust under the Proposed Sub-Advisory Agreement.
Please keep the following in mind when considering the changes:
THE PEOPLE MANAGING THE TRUST WILL NOT CHANGE. This Proposal will
generally not result in a change in the actual portfolio management
personnel who manage the Trust. While ING Aeltus will become the
sub-adviser to the Trust, ING Investments, LLC ("ING Investments" or
the "Adviser"), the investment adviser to the Trust, would be
responsible for monitoring the investment program and performance of
ING Aeltus.
2
THE INVESTMENT OBJECTIVES OF THE TRUST WILL NOT CHANGE. While ING
Aeltus will become the sub-adviser of the Trust, the investment
objectives will remain the same.
THE ADVISORY FEE PAID BY THE TRUST WILL NOT INCREASE. The fee payable
to ING Aeltus will be paid by the Adviser, and not by the Trust. The
overall management fee of the Trust will not increase.
WHY DID YOU SEND ME THIS BOOKLET?
This booklet is a Proxy Statement. It provides you with information you
should review before voting on the matters listed above and in the Notice of
Annual Meeting for the Trust. You are receiving these proxy materials -- a
booklet that includes the Proxy Statement and one Proxy Ballot -- because you
have the right to vote on the important Proposals concerning your investment in
the Trust.
WHO IS ELIGIBLE TO VOTE?
Shareholders who owned shares in the Trust at the close of business on
June 9, 2003 (the "Record Date") are eligible to vote. As of the Record Date,
the Trust had 155,817,454.318 Common Shares outstanding. As of the Record Date,
the Trust had the following Auction Rate Cumulative Preferred Shares ("Preferred
Shares") outstanding: 3,600 shares of Series M; 3,600 shares of Series T; 3,600
shares of Series W; 3,600 shares of Series Th and 3,600 shares of Series F. To
the best of the Trust's knowledge, as of June 17, 2003, no person owned
beneficially more than 5% of any class of the Trust. The word "you" is used in
this Proxy Statement to refer to the person or entity who owns the shares and
who accordingly has voting rights in connection with the shares.
HOW DO I VOTE?
Shareholders should sign and mail the Proxy Ballot received with the
Proxy Statement or attend the Annual Meeting in person.
Georgeson Shareholder Communications, Inc. (the "Solicitor") has been
engaged to assist in the solicitation of proxies, at an estimated cost of
$2,700. As the date of the Annual Meeting approaches, certain Trust shareholders
may receive a telephone call from a representative of the Solicitor if their
votes have not yet been received. Authorization to permit the Solicitor to
execute proxies may be obtained by telephonic instructions from shareholders of
the Trust. Proxies that are obtained telephonically will be recorded in
accordance with certain procedures, as explained further below. The Board
believes that these procedures are reasonably designed to ensure that both the
identity of the shareholder casting the vote and the voting instructions of the
shareholder are accurately determined.
3
In situations where a telephonic proxy is solicited, the Solicitor's
representative is required to ask for each shareholder's full name, address,
social security or employer identification number, title (if the shareholder is
authorized to act on behalf of an entity, such as a corporation), the number of
shares owned, and to confirm that the shareholder has received the proxy
materials in the mail. If the information solicited agrees with the information
provided to the Solicitor, then the Solicitor's representative has the
responsibility to explain the process, read the Proposal on the Proxy Ballot(s),
and ask for the shareholder's instructions on the Proposal. Although the
Solicitor's representative is permitted to answer questions about the process,
he or she is not permitted to recommend to the shareholder how to vote, other
than to read any recommendation set forth in the Proxy Statement. The
Solicitor's representative will record the shareholder's instructions on the
ballot. Within 72 hours, the shareholder will be sent a letter or mailgram to
confirm his or her vote and asking the shareholder to call the Solicitor
immediately if his or her instructions are not correctly reflected in the
confirmation.
In addition to solicitation by mail, certain officers and
representatives of the Trust, officers and employees of ING Investments, the
investment adviser to the Trust, or its affiliates and certain financial
services firms and their representatives, who will receive no extra compensation
for their services, may solicit proxies by telephone, telegram, facsimile, or
oral communication. Shareholders of the Trust whose shares are held by nominees,
such as brokers, can vote their proxies by contacting their respective nominee.
If a shareholder wishes to participate in the Annual Meeting, but does
not wish to give a proxy by telephone, the shareholder may still submit the
Proxy Ballot(s) originally sent with the Proxy Statement or attend in person.
Should shareholders require additional information regarding the proxy or
require replacement Proxy Ballot(s), they may contact the Solicitor toll-free at
1-866-821-1463.
WHEN AND WHERE WILL THE ANNUAL MEETING BE HELD?
The Annual Meeting will be held at 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034, on August 19, 2003, at 10:00 a.m., Local time,
and, if the Annual Meeting is adjourned or postponed, at any adjournment or
postponement of that Meeting. If you expect to attend the Annual Meeting in
person, please notify the Trust by calling 1-800-992-0180.
CAN I REVOKE MY PROXY AFTER I VOTE IT?
A shareholder may revoke the accompanying proxy at any time prior to
its use by filing with the Trust a written revocation or duly executed Proxy
Ballot bearing a later date. In addition, any shareholder who attends the Annual
Meeting in person may vote by ballot at the Annual Meeting, thereby canceling
any proxy previously given. The persons named in the accompanying proxy will
vote as
4
directed by the proxy, but in the absence of voting directions in any proxy that
is signed and returned, they intend to vote "FOR" each of the Proposals and may
vote in their discretion with respect to other matters not now known to the
Board that may be presented at the Annual Meeting.
WHO PAYS FOR THIS PROXY SOLICITATION?
The Trust will pay the expenses incurred in connection with the Notice
of Annual Meeting, Proxy Statement and the Annual Meeting, including printing,
mailing, solicitation and vote tabulation expenses, legal fees, and out of
pocket expenses associated with Proposals 1, 2, 3 and 5. ING Aeltus will pay the
expenses incurred in connection with the printing, mailing, solicitation, vote
tabulation, legal fees and out of pocket expenses associated with Proposal 4 and
will pay for the solicitation services of the Solicitor described above.
HOW CAN I OBTAIN MORE INFORMATION ABOUT THE TRUST?
Copies of the Trust's Annual Report for the fiscal year ended February
28, 2003 and the Trust's Semi-Annual Report for the period ended August 31, 2002
have previously been mailed to shareholders. This Proxy Statement should be read
in conjunction with the Annual and Semi-Annual Reports. You can obtain copies of
those Reports, without charge, by writing to The ING Funds, 7337 East Doubletree
Ranch Road, Scottsdale, Arizona, 85258-2034, Attention: Literature Fulfillment,
or by calling 1-800-992-0180.
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
The Board recommends that shareholders vote "FOR" each of the Proposals
described in this Proxy Statement.
5
PROPOSAL 1
ELECTION OF TRUSTEES -- COMMON SHARES
WHAT IS THE PROPOSAL?
The Board has nominated nine individuals for election to the Board as
Trustees of the Common Shares (the "Common Nominees"). Holders of Common Shares
are asked to elect the Common Nominees to serve as Trustees, each to serve until
his or her successor is duly elected and qualified. Information about each
Common Nominee is set forth below. All of the Common Nominees are currently
Trustees of the Trust and each has consented to continue to serve as a Trustee
if reelected by holders of Common Shares.
WHAT FACTORS DID THE BOARD CONSIDER IN SELECTING THE COMMON NOMINEES?
The Board nominated all of the individuals who currently serve as Trustees
of the Common Shares of the Trust. The Board met to discuss Board candidates
and, after due consideration, recommend to shareholders the Common Nominees
indicated below. In making such recommendation, the Board took into
consideration the knowledge, background, and experience of the Common Nominees.
WHAT IS THE REQUIRED VOTE?
The affirmative vote of a plurality of the Common Shares of the Trust
present in person or by proxy at the Annual Meeting is required to approve the
election of each Common Nominee to the Board.
WHO ARE THE COMMON NOMINEES?
For election of Trustees at the Annual Meeting, the Board has approved the
nomination of:
Paul S. Doherty
J. Michael Earley
R. Barbara Gitenstein
Thomas J. McInerney
David W.C. Putnam
Blaine E. Rieke
John G. Turner
Roger B. Vincent
Richard A. Wedemeyer
The persons named as proxies will vote for election of each of these
Common Nominees unless you withhold authority to vote for any or all of them on
the enclosed Proxy Ballot. If any or all of the Common Nominees should become
6
unavailable for election due to events not now known or anticipated, the persons
named as proxies will vote for such other nominee or nominees as the current
Trustees may recommend or the Board may reduce the number of Trustees as
provided for in the Trust's Agreement and Declaration of Trust dated December 2,
1987, as amended (the "Declaration").
No Common Nominee is a party adverse to the Trust or any of its affiliates
in any material pending legal proceeding, nor does any Common Nominee have an
interest materially adverse to the Trust.
The following table sets forth information concerning the Common Nominees.
The address for each Common Nominee is 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034.
TERM OF NUMBER OF
OFFICE PORTFOLIOS
AND PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION(S) COMPLEX OTHER
NAME AND HELD WITH OF TIME DURING THE PAST OVERSEEN DIRECTORSHIPS
DATE OF BIRTH TRUST SERVED(1) 5 YEARS BY TRUSTEE HELD BY TRUSTEE
------------- ----------- --------- --------------- ----------- ---------------
INDEPENDENT TRUSTEES
--------------------
PAUL S. Trustee October President and 106 Director/Trustee
DOHERTY 1999 - Partner, of each of the
Present Doherty, other Funds in
Date of Wallace, the ING Funds
Birth: Pillsbury and complex.
04/28/1934 Murphy, P.C.,
Attorneys (1996
- Present);
Director,
Tambrands, Inc.
(1993 - 1998);
and Trustee of
each of the
funds managed
by Northstar
Investment
Management
Corporation
(1993 - 1999).
J. MICHAEL Trustee February President and 106 Director/Trustee
EARLEY 2002 - Chief Executive of each of the
7
TERM OF NUMBER OF
OFFICE PORTFOLIOS
AND PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION(S) COMPLEX OTHER
NAME AND HELD WITH OF TIME DURING THE PAST OVERSEEN DIRECTORSHIPS
DATE OF BIRTH TRUST SERVED(1) 5 YEARS BY TRUSTEE HELD BY TRUSTEE
------------- ----------- --------- --------------- ----------- ---------------
Present Officer, other Funds in
Date of Bankers Trust the ING Funds
Birth: Company, N.A. complex.
05/02/1945 (1992 -
Present).
R. BARBARA Trustee February President, 106 Director/Trustee
GITENSTEIN 2002 - College of New of each of the
Present Jersey (1999 - other Funds in
Date of Present); and the ING Funds
Birth: Executive Vice complex.
02/18/1948 President and
Provost, Drake
University
(1992 - 1998).
DAVID W.C. Trustee October President and 106 Director/Trustee
PUTNAM 1999 - Director, F.L. of each of the
Present Putnam other Funds in
Date of Securities the ING Funds
Birth: Company, Inc. complex; Anchor
10/08/1939 and its International
affiliates; Bond Trust; F.L.
President, Putnam
Secretary and Foundation;
Trustee, The Progressive
Principled Capital
Equity Market Accumulation
Fund (1999 - Trust;
Present); Principled
Trustee, Trust Equity Market
Realty Corp.; Fund; Mercy
Anchor Endowment
Investment Foundation;
Trust; Bow F.L.
Ridge Mining Putnam
Company and Investment
each of the Management
funds managed Company; Asian
American Bank
and Trust
8
TERM OF NUMBER OF
OFFICE PORTFOLIOS
AND PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION(S) COMPLEX OTHER
NAME AND HELD WITH OF TIME DURING THE PAST OVERSEEN DIRECTORSHIPS
DATE OF BIRTH TRUST SERVED(1) 5 YEARS BY TRUSTEE HELD BY TRUSTEE
------------- ----------- --------- --------------- ----------- ---------------
by Northstar Company;
Investment Notre Dame
Management Health Care
Corporation Center; F.L.
(1994 - 1999). Putnam
Securities
Company, Inc.;
and an Honorary
Trustee, Mercy
Hospital.
BLAINE E. Trustee February General 106 Director/Trustee
RIEKE 2001 - Partner, of each of the
Present Huntington other Funds in
Date of Partners the ING Funds
Birth: (January 1997 - complex; and
09/10/1933 Present); and Trustee, Morgan
Chairman of the Chase Trust Co.
Board and
Trustee of each
of the funds
managed by ING
Investment
Management Co.
LLC (November
1998 - February
2001).
ROGER B. Trustee February President, 106 Director/Trustee
VINCENT 2002 - Springwell of each of the
Present Corporation other Funds in
Date of (1989 - the ING Funds
Birth: Present); and complex; and
08/26/1945 Director, Director,
Tatham AmeriGas
Offshore, Inc. Propane, Inc.
(1996 - 2000).
RICHARD A. Trustee February Retired. 106 Director/Trustee
WEDEMEYER 2001 - Vice of each of the
Present President - other Funds in
Date of the ING Funds
Birth:
9
TERM OF NUMBER OF
OFFICE PORTFOLIOS
AND PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION(S) COMPLEX OTHER
NAME AND HELD WITH OF TIME DURING THE PAST OVERSEEN DIRECTORSHIPS
DATE OF BIRTH TRUST SERVED(1) 5 YEARS BY TRUSTEE HELD BY TRUSTEE
------------- ----------- --------- --------------- ----------- ---------------
03/23/1936 Finance and complex; and
Administration, Trustee,
Channel Touchstone
Corporation Consulting Group.
(June 1996 -
April 2002);
Vice
President,
Operations and
Administration,
Jim Henson
Productions
(1979 - 1997);
Trustee, First
Choice Funds
(1997 - 2001);
and of each of
the funds
managed by ING
Investment
Management Co.
LLC (1998 -
2001).
TRUSTEES WHO ARE "INTERESTED PERSONS"
THOMAS J. Trustee February Chief Executive 161 Director/Trustee
MCINERNEY(2) 2001 - Officer, ING of each of the
Present U.S. Financial other Funds in
Date of Services the ING Funds
Birth: (September 2001 complex;
05/05/1956 - Present); and Hemisphere,
General Manager Inc.;
and Chief Director/Trustee
Executive Equitable Life
Officer, ING Insurance Co.;
U.S. Worksite Golden American
Financial Life Insurance
Services Co.; Life
(December 2000 Insurance
- Present); Company of
Georgia;
Midwestern
10
TERM OF NUMBER OF
OFFICE PORTFOLIOS
AND PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION(S) COMPLEX OTHER
NAME AND HELD WITH OF TIME DURING THE PAST OVERSEEN DIRECTORSHIPS
DATE OF BIRTH TRUST SERVED(1) 5 YEARS BY TRUSTEE HELD BY TRUSTEE
------------- ----------- --------- --------------- ----------- ---------------
Member, ING United Life
Americas Insurance Co.;
Executive ReliaStar Life
Committee (2001 Insurance Co.;
- Present); Security Life of
President, Denver; Security
Chief Executive Connecticut Life
Officer and Insurance Co.;
Director of Southland Life
Northern Life Insurance Co.;
Insurance USG Annuity and
Company (March Life Company;
2001 - October and United Life
2002); ING and Annuity
Aeltus Holding Insurance Co.
Company, Inc. Inc.;
(2000 - Ameribest Life
Present); ING Insurance Co.;
Retail Holding First
Company (1998 - Columbine Life
Present); ING Insurance Co.;
Life Insurance Member of the
and Annuity Board, National
Company Commission on
(September 1997 Retirement
- November Policy,
2002); ING Governor's
Retirement Council on
Holdings, Inc. Economic
(1997 - Competitiveness
Present); and Technology
General Manager of Connecticut;
and Chief Connecticut
Executive Business and
Officer, ING Industry
Worksite Association;
Division Bushnell;
(December Connecticut
Forum; Metro
Hartford Chamber
of Commerce; and
is Chairman,
Concerned
11
TERM OF NUMBER OF
OFFICE PORTFOLIOS
AND PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION(S) COMPLEX OTHER
NAME AND HELD WITH OF TIME DURING THE PAST OVERSEEN DIRECTORSHIPS
DATE OF BIRTH TRUST SERVED(1) 5 YEARS BY TRUSTEE HELD BY TRUSTEE
------------- ----------- --------- --------------- ----------- ---------------
2000 Citizens for
- October Effective
2001); Government.
President,
ING-SCI, Inc.
(August 1997 -
December 2000); and
President,
Aetna Financial
Services
(August 1997 -
December 2000).
JOHN G. Trustee October Chairman, 106 Director/Trustee
TURNER(3) 1999 - Hillcrest of each of the
Present Capital other Funds in
Date of Partners (May the ING Funds
Birth: 2002-Present); complex; Hormel
10/03/1939 President, Foods
Turner Corporation;
Investment Shopko Stores,
Company Inc.; and M.A.
(January 2002 - Mortenson
Present); Company.
Vice
Chairman of ING
Americas (2000
- 2002);
Chairman and
Chief Executive
Officer of
ReliaStar
Financial Corp.
and ReliaStar
Life Insurance
Company (1993 -
2000); Chairman
of ReliaStar
United Services
12
TERM OF NUMBER OF
OFFICE PORTFOLIOS
AND PRINCIPAL IN FUND
POSITION(S) LENGTH OCCUPATION(S) COMPLEX OTHER
NAME AND HELD WITH OF TIME DURING THE PAST OVERSEEN DIRECTORSHIPS
DATE OF BIRTH TRUST SERVED(1) 5 YEARS BY TRUSTEE HELD BY TRUSTEE
------------- ----------- --------- --------------- ----------- ---------------
Life Insurance
Company (1995 -
1998); Chairman
of ReliaStar
Life Insurance
Company of New
York (1995 -
2001); Chairman
of Northern
Life Insurance
Company (1992 -
2001);
Chairman and
Trustee of the
Northstar
affiliated
investment
companies (1993
- 2001); and
Director,
Northstar
Investment
Management
Corporation and
its affiliates
(1993 - 1999).
(1) Trustees serve until their successors are duly elected and qualified,
subject to the Board's retirement policy, discussed below.
(2) Mr. McInerney is an "interested person," as defined by the 1940 Act,
because of his affiliation with ING U.S. Worksite Financial Services, an
affiliate of ING Investments, LLC.
(3) Mr. Turner is an "interested person," as defined by the 1940 Act, because
of his former affiliation with ING Americas, an affiliate of ING
Investments, LLC.
Please read the section "Further Information About the Trustees and Officers"
starting on page 19 of this Proxy Statement before voting on this Proposal 1.
13
WHAT IS THE BOARD'S RECOMMENDATION ON PROPOSAL 1?
The Board recommends that shareholders vote FOR the election of each of
the Common Nominees to the Board subject to their terms commencing and
continuing as described above. If any of the Common Nominees are not elected by
shareholders, the current Trustees may consider other courses of action.
14
PROPOSAL 2
ELECTION OF TRUSTEES -- PREFERRED SHARES
WHAT IS THE PROPOSAL?
The Board has nominated two individuals for election to the Board as
Trustees of the holders of Preferred Shares ("Preferred Nominees"). Holders of
Preferred Shares are asked to elect the Preferred Nominees to serve as Trustees,
each to serve until his or her successor is duly elected and qualified.
Information about each Preferred Nominee is set forth below. Both Preferred
Nominees are currently Trustees of the Trust and both have consented to continue
to serve as a Trustee if reelected by holders of Preferred Shares.
WHAT FACTORS DID THE BOARD CONSIDER IN SELECTING THE PREFERRED NOMINEES?
The Board nominated both of the individuals who currently serve as
Trustees of the Preferred Shares of the Trust. The Board met to discuss Board
candidates and, after due consideration, recommend to shareholders the Preferred
Nominees indicated below. In making such recommendation, the Board took into
consideration the knowledge, background, and experience of the Preferred
Nominees.
WHAT IS THE REQUIRED VOTE?
The affirmative vote of a plurality of the Preferred Shares of the
Trust present in person or by proxy at the Annual Meeting is required to approve
the election of each Preferred Nominee to the Board.
WHO ARE THE PREFERRED NOMINEES?
For election of Trustees at the Annual Meeting, the Board has approved
the nomination of:
Walter H. May
Jock Patton
The persons named as proxies will vote for election of each of these
Preferred Nominees unless you withhold authority to vote for either or both of
them on the enclosed Proxy Ballot. If any or either of the Preferred Nominees
should become unavailable for election due to events not now known or
anticipated, the persons named as proxies will vote for such other nominee or
nominees as the current Trustees may recommend or the Board may reduce the
number of Trustees as provided for in the Declaration.
15
Neither Preferred Nominee is a party adverse to the Trust or any
of its affiliates in any material pending legal proceeding, nor does either
Preferred Nominee have an interest materially adverse to the Trust
16
The following table sets forth information concerning the Preferred Nominees.
The address for each Preferred Nominee is 7337 E. Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034.
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX OTHER
NAME AND POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)- OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH WITH TRUST TIME SERVED* DURING THE PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
------------- ------------- ------------ ----------------------- ------------- ---------------
INDEPENDENT
TRUSTEES
WALTER H. MAY Trustee October 1999 - Retired. Formerly, Managing 106 Director/Trustee of each
Present Director and Director of of the other Funds in
Date of Birth: Marketing, Piper Jaffray, the ING Funds complex
12/21/1936 Inc.; Trustee of each of the and Best Prep Charity.
funds managed by Northstar
Investment Management
Corporation (1996 - 1999).
JOCK PATTON Trustee August 1995 - Private Investor (June 1997 - 106 Director/Trustee of each
Present Present). Formerly, Director of the other Funds in
Date of Birth: and Chief Executive Officer, the ING Funds complex ;
12/11/1945 Rainbow Multimedia Group, Inc. Director, Hypercom,
(January 1999 - December Inc.; JDA Software
2001); Director of Stuart Group, Inc.; Buick of
Entertainment, Inc.; Director Scottsdale, Inc.;
of Artisoft, Inc. (1994 - National Airlines, Inc.;
1998). BG Associates, Inc.; BK
Entertainment, Inc.; and
Arizona Rotorcraft, Inc.
* Trustees serve until their successors are duly elected and qualified, subject
to the Board's retirement policy, discussed below.
17
Please read the section "Further Information About the Trustees and Officers"
starting on page 19 of this Proxy Statement before voting on this Proposal 2.
WHAT IS THE BOARD'S RECOMMENDATION ON PROPOSAL 2?
The Board recommends that shareholders vote FOR the election of each of
the Preferred Nominees to the Board subject to their terms commencing and
continuing as described above. If shareholders do not elect either of the
Preferred Nominees, the current Trustees may consider other courses of action.
18
FURTHER INFORMATION ABOUT THE TRUSTEES AND OFFICERS
HOW LONG WILL THE TRUSTEES SERVE ON THE BOARD?
Trustees generally hold office until their successors are elected and
qualified. A Trustee may, at any time, resign or be removed by a vote of the
holders of a majority of the outstanding shares of the applicable class of the
Trust. In addition, pursuant to a retirement policy adopted by the Board, each
duly elected or appointed Trustee who is not an "interested person" of the
Trust, as defined in the 1940 Act ("Independent Trustees"), shall retire from
service as a Trustee at the first regularly scheduled quarterly meeting of the
Board that is held after the Trustee reaches the age of 70. A unanimous vote of
the Board may extend the retirement date of a Trustee for up to one year. An
extension may be permitted if the retirement would trigger a requirement to hold
a meeting of shareholders of the Trust under applicable law, whether for
purposes of appointing a successor to the Trustee or if otherwise necessary
under applicable law, in which event the extension would apply until such time
as the shareholder meeting can be held or is no longer needed.
DO THE TRUSTEES OWN SHARES OF THE TRUST OR CERTAIN AFFILIATED ENTITIES?
To the best of the Trust's knowledge, as of June 17, 2003 no Trustee
owned 1% or more of the outstanding shares of any class of the Trust, and the
Trustees owned, as a group, less than 1% of the shares of each class of the
Trust.
The following table sets forth information regarding the dollar range
of equity securities of the Trust and other investment companies within the ING
family of investment companies beneficially owned by each Trustee as of May 31,
2003.
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY TRUSTEE
NAME OF TRUSTEE SECURITIES IN THE TRUST IN FAMILY OF INVESTMENT COMPANIES
INDEPENDENT TRUSTEES
Paul S. Doherty $0 Over $100,000
J. Michael Earley $0 $10,001 - $50,000
R. Barbara Gitenstein $0 $50,001 - $100,000
Walter H. May $0 Over $100,000
Jock Patton $10,001 - $50,000 $50,001 - $100,000
David W. C. Putnam Over $100,000 Over $100,000
Blaine E. Rieke $0 $50,001 - $100,000
19
Roger B. Vincent $0 Over $100,000
Richard A. Wedemeyer $0 $10,001 - $50,000
TRUSTEES WHO ARE "INTERESTED PERSONS"
Thomas J. McInerney $0 $50,000 - $100,000
John G. Turner Over $100,000 Over $100,000
20
The following table sets forth information regarding each Independent
Trustee's (and his or her immediate family members') share ownership in
securities of the Trust's investment adviser or principal underwriter, and the
ownership of securities in an entity controlling, controlled by or under common
control with the investment adviser or principal underwriter of the Trust (not
including registered investment companies) as of May 31, 2003.
NAME OF
OWNERS AND
RELATIONSHIP TITLE OF VALUE OF PERCENTAGE
NAME OF TRUSTEE TO TRUSTEE COMPANY CLASS SECURITIES OF CLASS
--------------- ------------ ------- -------- ---------- ----------
Paul S. Doherty N/A N/A N/A $0 N/A
J. Michael Earley N/A N/A N/A $0 N/A
R. Barbara Gitenstein N/A N/A N/A $0 N/A
Walter H. May N/A N/A N/A $0 N/A
Jock Patton N/A N/A N/A $0 N/A
David W. C. Putnam N/A N/A N/A $0 N/A
Blaine E. Rieke N/A N/A N/A $0 N/A
Roger B. Vincent N/A N/A N/A $0 N/A
Richard A. Wedemeyer N/A N/A N/A $0 N/A
WHAT ARE THE COMMITTEES OF THE BOARD?
AUDIT COMMITTEE. The Board has an Audit Committee. The Committee's
functions include, among other things, meeting with the independent auditor of
the Trust to review the scope of the Trust's audit, the Trust's financial
statements and interim accounting controls, and meeting with management
concerning these matters. The Committee currently consists of four Independent
Trustees: Messrs. Earley, Putnam, Rieke, and Vincent. Mr. Earley serves as
Chairman of the Committee. During the fiscal year ended February 28, 2003, the
Committee held four meetings.
The Audit Committee operates pursuant to a charter approved by the
Board, a copy of which is attached as APPENDIX 1. The charter sets forth the
responsibilities of the Audit Committee.
21
AUDIT COMMITTEE REPORT: As part of its oversight of the Trust's
financial statements, the Audit Committee reviewed and discussed with ING
Investments and KPMG LLP ("KPMG"), the independent auditor for the Trust, the
Trust's financial statements for the fiscal year ended February 28, 2003. The
Audit Committee also discussed with KPMG the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit Committees, as
amended, by the Auditing Standards Board of the American Institute of Certified
Public Accountants. The Audit Committee received and reviewed the written
disclosures and the letter from KPMG required by Independence Standards' Board
Standard No. 1, Independence Discussions with Audit Committees, as amended, by
the Independence Standards Board, and have discussed KPMG's independence with
KPMG. Based on the reviews and discussions referred to above, the Audit
Committee recommended that the Board ratify the inclusion of the financial
statements as of and for the fiscal year ended February 28, 2003, in the Trust's
Annual Report to shareholders.
2003 Audit Committee
J. Michael Earley
David W.C. Putnam
Blaine E. Rieke
Roger B. Vincent
VALUATION AND PROXY VOTING COMMITTEE. The Board has a Valuation
and Proxy Voting Committee whose functions include, among others, reviewing the
determination of the value of securities held by the Trust for which market
value quotations are not readily available and, beginning in July 2003,
overseeing management's administration of proxy voting. The Committee currently
consists of five Independent Trustees: Messrs. May, Doherty, Patton, and
Wedemeyer and Dr. Gitenstein. Mr. Patton serves as Chairman of the Committee.
During the fiscal year ended February 28, 2003, the Committee held four
meetings.
EXECUTIVE COMMITTEE. The Board has an Executive Committee whose
function is to act for the full Board if necessary in the event that Board
action is needed between regularly scheduled Board meetings. The Committee
currently consists of two Independent Trustees and two Trustees who are
"interested persons," as defined in the 1940 Act: Messrs. May, McInerney, Patton
and Turner. Mr. Turner serves as Chairman of the Committee. During the fiscal
year ended February 28, 2003, the Committee held five meetings.
NOMINATING COMMITTEE. 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 four Independent Trustees: Messrs. Doherty, May and
Wedemeyer and Dr. Gitenstein. Mr. May serves as Chairman of the Committee. The
Committee does not currently have a policy regarding whether it will consider
22
nominees recommended by shareholders. During the fiscal year ended February 28,
2003, the Committee did not hold a meeting.
INVESTMENT REVIEW COMMITTEE. The Board has an Investment Review
Committee whose function is to monitor the investment performance of the Trust
and to make recommendations to the Board with respect to the Trust. The
Committee currently consists of five Independent Trustees and one Trustee who is
an "interested person," as defined in the 1940 Act: Messrs. Doherty, May,
McInerney, Patton, and Wedemeyer and Dr. Gitenstein. Mr. Wedemeyer serves as
Chairman of the Committee. During the fiscal year ended February 28, 2003, the
Committee held four meetings.
HOW OFTEN DOES THE BOARD MEET?
The Board currently conducts regular meetings five times a year. The
Audit, Valuation and Proxy Voting, and Investment Review Committees also meet
regularly four times per year and the remaining Committees meet as needed. In
addition, the Board or the Committees may hold special meetings by telephone or
in person to discuss specific matters that may require action prior to the next
regular meeting. During the fiscal year ended February 28, 2003, the Board held
nine meetings, including regularly scheduled and special meetings.
WHAT ARE THE TRUSTEES PAID FOR THEIR SERVICES?
Each Independent Trustee receives a fee, allocated among the ING Funds
for which he or she serves as a Director/Trustee, which consists of an annual
retainer component and a per meeting fee component. Each Independent Trustee is
reimbursed for expenses incurred in connection with each meeting of the Board or
any Committee meeting attended.
The Trust currently pays each Independent Trustee a pro rata share, as
described below, of: (i) an annual retainer of $40,000 (Messrs. May and Patton,
as lead trustees, receive an annual retainer of $55,000); (ii) $7,000 for each
in person meeting of the Board; (iii) $2,000 for attendance at any Committee
meeting; (iv) $1,000 for meeting attendance as a chairperson; (v) $2,000 per
telephonic meeting; and (vi) out-of-pocket expenses. The pro rata share paid by
the Trust is based on the Trust's average net assets as a percentage of the
average daily net assets of all the funds managed by ING Investments for which
the Trustees serve in common as Directors/Trustees.
The Trustees who are "interested persons" of the Trust receive no
compensation from the Trust.
The following table has been provided to the Trust by ING Investments
and sets forth information regarding the compensation paid to the Trustees for
the
23
Trust's fiscal year ended February 28, 2003 for service on the Boards of the ING
Funds complex.
PENSION OR
RETIREMENT ESTIMATED TOTAL
BENEFITS ANNUAL COMPENSATION
AGGREGATE ACCRUED AS BENEFITS FROM TRUST
COMPENSATION PART OF TRUST UPON AND FUND COMPLEX
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT(4) PAID TO TRUSTEES(5)
Paul S. Doherty $5,252 N/A N/A $76,532
J. Michael Earley $5,157 N/A N/A $48,304
R. Barbara Gitenstein $4,754 N/A N/A $50,658
R. Glenn Hilliard(1) $ 0 N/A N/A $ 0
Walter H. May $5,913 N/A N/A $88,288
Thomas J. McInerney(2) $ 0 N/A N/A $ 0
Jock Patton $5,913 N/A N/A $88,759
David W.C. Putnam $4,961 N/A N/A $76,855
Blaine E. Rieke $4,823 N/A N/A $74,771
John G. Turner(3) $ 0 N/A N/A $ 0
Roger B. Vincent $4,893 N/A N/A $76,011
Richard A. Wedemeyer $4,961 N/A N/A $70,133
(1) An "interested person," as defined in the 1940 Act, because of his
relationship with ING Americas, an affiliate of ING Investments, LLC.
Mr. Hilliard resigned as of April 30, 2003.
(2) An "interested person," as defined in the 1940 Act, because of his
affiliation with ING U.S. Financial Services, an affiliate of ING
Investments, LLC.
(3) An "interested person," as defined in the 1940 Act, because of his
former affiliation with ING Americas, an affiliate of ING Investments,
LLC.
(4) The ING Funds have adopted a retirement policy under which a
director/trustee who has served as an Independent Director/Trustee for
five years or more will be paid by the ING Funds at the time of his or
her retirement an amount equal to twice the compensation normally paid
to the Independent Director/Trustee for one year of service.
(5) Represents compensation from 103 funds as of the Trust's fiscal year
ended February 28, 2003.
24
WHO ARE THE OFFICERS OF THE TRUST?
The Trust's officers are elected annually by the Board and hold
office until they resign, are removed or are otherwise disqualified to serve.
The chart below lists the officers of the Trust. The address for the officers of
the Trust is 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258-2034.
NAME AND POSITIONS HELD WITH TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH THE TRUST LENGTH OF TIME SERVED * DURING THE LAST FIVE YEARS
-------------------------- ------------------ ------------------------ -----------------------------------------
JAMES M. HENNESSY President, Chief February 2001 - Present President and Chief Executive Officer, ING
Executive Officer Capital Corporation, LLC, ING Funds
Date of Birth: 04/09/1949 and Chief Operating Services, LLC, ING Advisors, Inc., and ING
Officer Investments, LLC, (December 2001 - Present);
Executive Vice President and Chief Operating
Senior Executive June 2000 - February 2001 Officer, ING Funds Distributor, LLC (June
Vice President and 2000 - Present). President, Chief Executive
Chief Operating Officer and Chief Operating Officer of each
Officer of the other funds in the ING family of
funds. Has served as a senior executive
officer of ING Investments, LLC and its
affiliates for more than the last 5 years.
MICHAEL J. ROLAND Executive Vice March 2002 - Present Executive Vice President, Chief Financial
President, Assistant Officer and Treasurer, ING Funds Services,
Date of Birth: 05/30/1958 Secretary and Chief LLC, ING Funds Distributor, LLC, ING
Financial Officer Advisors, Inc., and ING Investments, LLC,
(December 2001 - Present). Executive
Senior Vice June 1998 - March 2002 Vice President, Assistant Secretary and
President and Chief Chief Financial Officer of each of the funds
Financial Officer in the ING family of funds. Has served as a
senior executive officer of ING Investments,
LLC and its affiliates for more than the last
5 years.
25
NAME AND POSITIONS HELD WITH TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH THE TRUST LENGTH OF TIME SERVED * DURING THE LAST FIVE YEARS
-------------------------- ------------------ ------------------------ -----------------------------------------
ROBERT S. NAKA Senior November 1999 - Present Senior Vice President and Assistant
Vice Secretary, ING Funds Services, LLC, ING
Date of Birth: 06/17/1963 President Funds Distributor, LLC, ING Advisors, Inc.,
and Assistant ING Capital Corporation, LLC, ING
Secretary Investments, LLC and (October 2001 - Present)
Assistant Secretary July 1996 - November 1999 Vice President, ING Investments, LLC (April
1997 - October 1999), ING Funds Services, LLC
(February 1997 - August 1999) and Assistant
Vice President, ING Funds Services, LLC
(August 1995 - February 1997).
DANIEL NORMAN Senior Vice April 1995 - Present Senior Vice President, ING Investments, LLC
President (December 1994 - Present); and ING Funds
Date of Birth: 12/29/1957 Distributor, LLC (December 1995 - Present);
has served as an officer of other
Treasurer June 1997 - Present affiliates of ING Investments, LLC since
February 1992.
JEFFREY A. BAKALAR Senior Vice President November 1999 - Present Senior Vice President, ING Investments, LLC
(November 1999- Present). Formerly, Vice
Date of Birth: President and Assistant Portfolio Manager,
12/15/1959 ING Investments, LLC (February 1998 -
November 1999); Vice President of The
Communications Positions of First National
Bank of Chicago (July 1994 - January 1998).
26
NAME AND POSITIONS HELD WITH TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH THE TRUST LENGTH OF TIME SERVED * DURING THE LAST FIVE YEARS
-------------------------- ------------------ ------------------------ -----------------------------------------
ELLIOT ROSEN Senior Vice President May 2002 - Present Senior Vice President, ING Investments, LLC
(February 1999 - Present). Formerly,
Date of Birth: 05/07/1953 Senior Vice President IPS-Sendero (May 1997
- February 1999) and President of Sendero,
which merged into IPS (August 1993 - May
1997).
WILLIAM H. RIVOIR III Senior Vice February 2001 - Present Senior Vice President and Secretary of ING
President and Capital Corporation, LLC and ING Funds
Date of Birth: 01/19/1951 Assistant Secretary Services, LLC (February 2001 - Present),
ING Funds Distributor, LLC, ING Advisors,
Inc. and ING Investments, LLC. (October
2001 - Present), Senior Vice President and
Secretary, ING Quantitative Management,
Inc. (October 2001 - September 2002),
Lexington Funds Distributor, Inc., ING
Pilgrim Funding, Inc., Pilgrim America
Financial, Inc., Express America TC, Inc.
and EAMC Liquidation Corp. (December 2001 -
Present). Has served as a senior executive
officer of ING Investment, LLC and its
affiliates for more than the last 5 years.
27
NAME AND POSITIONS HELD WITH TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
DATE OF BIRTH THE TRUST LENGTH OF TIME SERVED * DURING THE LAST FIVE YEARS
-------------------------- ------------------ ------------------------ -----------------------------------------
CURTIS F. LEE Senior Vice January 2001 - Present Senior Vice President and Chief Credit
President and Chief Officer - Senior Loans of ING Investments,
Date of Birth: 06/05/1954 Credit Officer LLC (August 1999 - Present). Formerly, held
a series of positions with Standard
Chartered Bank in the credit approval and
problem loan management functions (August
1992 - June 1999).
KIMBERLY A. ANDERSON Vice President and February 2001 - Present Vice President and Secretary, ING Funds
Secretary Services, LLC, ING Funds Distributor, LLC,
Date of Birth: 07/25/1964 ING Advisors, Inc., ING Investments, LLC
(October 2001 - Present) and Lexington
Funds Distributor, Inc. (December 2001 -
Present). Formerly, Vice President, ING
Quantitative Management, Inc. (October
2001 - September 2002); Assistant Vice
President, ING Funds Services, LLC
(November 1999 - January 2001) and has
held various other positions with ING
Funds Services, LLC for more than the last
five years.
ROBYN L. ICHILOV Vice President November 1997 - Present Vice President, ING Funds Services, LLC
(October 2001 - Present) and ING
Date of Birth: 09/25/1967 Investments, LLC (August 1997 - Present);
Accounting Manager, ING Investments, LLC
(November 1995 - Present).
* The officers hold office until the next annual meeting of the Trustees
and until their successors shall have been elected and qualified.
28
WHAT ARE OFFICERS PAID FOR THEIR SERVICES?
The Trust does not pay its officers for the services they provide to
the Trust. Instead, the officers, who are also officers or employees of the
investment adviser or its affiliates, are compensated by the investment adviser
or its affiliates.
WHO ARE THE TRUST'S INVESTMENT ADVISER, DISTRIBUTOR, AND ADMINISTRATOR?
ING Investments, ING Funds Distributor, LLC and ING Funds Services, LLC serve as
the Trust's investment adviser, distributor and administrator, respectively.
Their address is 7337 East Doubletree Ranch Road, Scottsdale, Arizona
85258-2034.
29
PROPOSAL 3
RATIFICATION OF INDEPENDENT AUDITOR
WHAT IS THE PROPOSAL?
The accounting firm of KPMG LLP ("KPMG") currently serves as the
independent auditor for the Trust. Shareholders of the Trust are asked to ratify
the selection of KPMG as the independent auditor of the Trust.
The following table shows fees paid to KPMG for professional
audit services during the Trust's most recent fiscal years ended February 28,
2003 and February 28, 2002, as well as, fees billed for other services rendered
by KPMG to the Trust. Fee information is also presented for all other ING funds
within the investment company complex for the corresponding fiscal years.
2003 2002
------------------------ ------------------------
All Other All Other
Entities Entities
within the within the
Trust Complex Trust Complex
-------- ---------- -------- ----------
Audit Fees $108,100 $1,460,400 $110,750 $1,544,750
Audit Related Fees (1) $ 33,500 -- $ 45,000 --
Tax Fees (2) $ 12,898 $ 661,102 $ 9,642 $ 547,358
All Other Fees (3) $ 5,000 $ 371,000 $ 7,500 $ 469,500
(1) Audit related fees consist principally of fees for performing agreed
upon procedures engagements relating to the credit rating agency
requirements.
(2) Tax fees consist of fees for the preparation of tax returns, as well
as, tax advice pertaining to complying with Subchapter M of the
Internal Revenue Code.
(3) All other fees related to the review and issuance of consents on
various SEC filings, AIMR verification services, and SAS 70 reviews.
The Audit Committee of the Board will periodically consider whether
KPMG's receipt of non-audit fees from the Trust, ING Investments and all
entities controlling, controlled by, or under common control with ING
Investments that provide services to the Trust is compatible with maintaining
KPMG's independence.
KPMG has advised the Trust that neither KPMG nor any of its partners
has any direct or material indirect financial interest in the Trust.
Representatives of KPMG are not expected to be at the Annual Meeting but have
been given the opportunity to make a statement if they wish, and will be
available telephonically should any matter arise requiring their participation.
30
WHAT IS THE REQUIRED VOTE?
The affirmative vote of a majority of all of the shares of the Trust
present in person or by proxy at the Annual Meeting is required to ratify KPMG
as the independent auditor to the Trust.
WHAT IS THE BOARD'S RECOMMENDATION ON PROPOSAL 3?
The Board recommends that you vote FOR the ratification of KPMG as the
independent auditor to examine and report on the financial statements of the
Trust for the fiscal year ending February 28, 2004.
31
PROPOSAL 4
APPROVAL OF THE PROPOSED SUB-ADVISORY AGREEMENT
WHAT IS THE PROPOSAL?
The Trust and ING Investments, Adviser to the Trust, wish to retain the
services of ING Aeltus as the Sub-Adviser to the Trust. ING Aeltus would serve
the Trust under the Proposed Sub-Advisory Agreement between ING Investments and
ING Aeltus, a copy of which is included as APPENDIX 2. The description of the
Proposed Sub-Advisory Agreement that follows is qualified in its entirety by
reference to APPENDIX 2.
WHO IS THE ADVISER?
ING Investments, whose principal office is located at 7337 East
Doubletree Ranch Road, Scottsdale, Arizona 85258-2034, is an Arizona limited
liability company, which serves as the investment adviser to the Trust. See
APPENDIX 3 for a listing of the names, addresses, and the principal occupations
of the principal executive officers of ING Investments. ING Investments is
registered with the SEC as an investment adviser. ING Investments is an indirect
wholly-owned subsidiary of ING Groep N.V. ("ING Group"). ING Group is a global
financial institution active in the fields of insurance, banking and asset
management in more than 65 countries, with more than 100,000 employees. As of
May 31, 2003, ING Investments managed over $34.6 billion in assets. The last
date upon which shareholders approved the advisory agreement is set out in
APPENDIX 4. APPENDIX 4 also sets out the aggregate investment advisory fees paid
by the Trust for its last fiscal year.
WHO IS THE PROPOSED SUB-ADVISER?
ING has undertaken a reorganization plan that will, among other things,
integrate its portfolio management professionals across the U.S. under a common
management structure known as ING Investment Management Americas, which includes
ING Aeltus. One of the primary purposes of the integration plan is to use the
resources of several ING Group companies to promote consistently high levels of
performance in terms of investment standards, research, policies and procedures
and infrastructure support provided to the Trust. As a result of this
integration plan the operational and supervisory functions will be separated
from the portfolio management functions related to the Trust, with the former
continuing to be provided by ING Investments and the latter provided by ING
Aeltus. The portfolio management personnel currently employed by ING Investments
will become employees of ING Aeltus, which will assume primary responsibility
for all portfolio management issues, including the purchase, retention, or sale
of portfolio securities. Each current portfolio manager will continue to manage
the Trust
32
utilizing the same investment philosophy, but will do so as an employee of ING
Aeltus, not ING Investments.
ING Aeltus, whose principal office is located at 10 State House Square,
Hartford, CT 06103, is an indirect, wholly-owned subsidiary of ING Group and an
affiliate of ING Investments. ING Aeltus, a registered investment adviser, has
been managing client assets for more than a quarter of a century. As of May 31,
2003, ING Aeltus managed over $41 billion in assets. See APPENDIX 3 for a
listing of the names, addresses, and the principal occupations of the principal
executive officers of ING Aeltus. As of May 31, 2003, the only Trustee or
officer of the Trust who was an officer, director, employee, general partner or
shareholder of ING Aeltus was Tom McInerney, who serves as President, Chief
Executive Officer and Director.
There are no other investment companies, with investment objectives
similar to the Trust, for which ING Aeltus acts as an investment adviser or
sub-adviser, as of December 31, 2002.
HOW WILL THIS AFFECT THE MANAGEMENT OF THE TRUST?
Currently, the Trust is managed by ING Investments. If the proposed
Sub-Advisory Agreement is approved, ING Aeltus would provide day-to-day
management of the Trust's portfolio. ING Investments would be responsible for
monitoring the investment program and performance of ING Aeltus.
WHAT ARE THE TERMS OF THE CURRENT INVESTMENT MANAGEMENT AGREEMENT?
The Trust's current Investment Management Agreement requires the
Adviser to oversee the provision of all investment advisory and portfolio
management services for the Trust. The Investment Management Agreement requires
the Adviser to provide, subject to the supervision of the Board, investment
advice and investment services to the Trust and to furnish advice and
recommendations with respect to the investment of the Trust's assets and the
purchase or sale of its portfolio securities. The Investment Management
Agreement also permits the Adviser to delegate certain management
responsibilities, pursuant to a sub-advisory agreement, to other investment
advisers. ING Investments, as Adviser, is required to oversee the investment
management services of any sub-adviser.
The current Investment Management Agreement provides that the Adviser
is not subject to liability to the Trust for any act or omission in the course
of, or connected with, rendering services under the Agreement, except by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties under the Agreement. After the initial term, the current
Investment Management Agreement continues in effect from year to year so long as
such continuance is specifically approved at least annually by (a) the Board or
(b)
33
the vote of a "majority" (as defined in the 1940 Act) of the Trust's outstanding
shares voting as a single class; provided, that in either event the continuance
is also approved by at least a majority of the Board who are not "interested
persons" (as defined in the 1940 Act) of the Adviser by vote cast in person at a
meeting called for the purpose of voting on such approval.
The Investment Management Agreement provides that ING Investments is
paid an advisory fee at a specified annual rate of the Trust's "Managed Assets"
(see APPENDIX 5). The Proposed Sub-Advisory Agreement will not result in a
change in the overall management fee for the Trust. ING Investments, not the
Trust, will pay sub-advisory fees under the Proposed Sub-Advisory Agreement.
WHAT ARE THE TERMS OF THE PROPOSED SUB-ADVISORY AGREEMENT?
The Proposed Sub-Advisory Agreement requires ING Aeltus to provide,
subject to the supervision of the Board and ING Investments, a continuous
investment program for the Trust and to determine the composition of the assets
of the Trust, including determination of the purchase, retention or sale of the
securities, cash and other investments for the Trust, in accordance with the
Trust's investment objectives, policies and restrictions and applicable laws and
regulations. The Proposed Sub-Advisory Agreement also requires ING Aeltus to use
reasonable compliance techniques as the Adviser or the Board may reasonably
adopt, including any written compliance procedures.
The fee payable to ING Aeltus, which will be paid by ING Investments
and not by the Trust, will not increase the overall management fee of the Trust
(see APPENDIX 5). The fee to be paid to ING Aeltus by the Adviser will equal
..36% of the average daily "Managed Assets" of the Trust, which represents 45%
(gross) of the fee paid by the Trust to the Adviser. Managed Assets for purposes
of computing this fee includes the Trust's borrowings for investment purposes
and proceeds from sales of Preferred Shares issued by the Trust.
The Proposed Sub-Advisory Agreement provides that ING Aeltus is not
subject to liability for any damages, expenses, or losses to the Trust connected
with or arising out of any investment advisory services rendered under the
agreement, except by reason of willful misfeasance, bad faith, or negligence in
the performance of its duties, or by reason of reckless disregard of obligations
and duties under the Sub-Advisory Agreement.
The Proposed Sub-Advisory Agreement provides, in part, that under
certain circumstances, the Adviser will indemnify and hold harmless the Proposed
Sub-Adviser to the agreement against any and all losses (including legal and
other expenses), based on (1) the Adviser's negligence, willful misfeasance, or
bad faith, in the performance of its duties, (which could include a negligent
action or a negligent omission to act), or by reason of the Adviser's reckless
disregard of its obligations under the agreement, or (2) any untrue statement or
alleged untrue
34
statement of a material fact contained in the registration statement or
prospectus of the Trust, unless such statement was made in reliance upon
information furnished to the Adviser or the Trust by ING Aeltus. The Proposed
Sub-Advisory Agreement also provides, in part, that under certain circumstances,
the Proposed Sub-Adviser will indemnify and hold harmless the Adviser to the
agreement against any and all losses (including legal and other expenses), based
on (1) the Proposed Sub-Adviser's negligence, willful misfeasance, or bad faith,
in the performance of its duties, (which could include a negligent action or a
negligent omission to act), or by reason of the Adviser's reckless disregard of
its obligations under the agreement, or (2) any untrue statement or alleged
untrue statement of a material fact contained in the registration statement or
prospectus of the Trust, such statement was made in reliance upon information
furnished to the Adviser or the Trust by ING Aeltus.
The Proposed Sub-Advisory Agreement may be terminated at any time by
the Trust by a vote of the majority of the Board of the Trust or by a vote of a
majority of the outstanding voting securities. The Proposed Sub-Advisory
Agreement also may be terminated by: (i) the Adviser upon sixty (60) days'
written notice to the Trust and the Sub-Adviser; (ii) at any time, without
payment of a penalty by the Trust, by the Trust's Board or a majority of the
outstanding voting securities of the Trust upon sixty (60) days' written notice
to the Adviser and the Sub-Adviser; or (iii) by the Sub-Adviser upon three (3)
months' written notice unless the Trust or the Adviser requests additional time
to find a replacement for the Sub-Adviser, in which case, the Sub-Adviser shall
allow additional time, not to exceed three (3) additional months beyond the
initial three (3) month period; provided, however, that the Sub-Adviser can
terminate the contract at any time, if the Sub-Adviser or the Adviser is legally
incapable of providing services under the contract or ceases to be a registered
investment company. The Proposed Sub-Advisory Agreement will terminate
automatically in the event of its "assignment" (as defined in the 1940 Act).
The Proposed Sub-Advisory Agreement was approved by the Trustees of the
Trust, including a majority of the Trustees who are not "interested persons" of
the Adviser or the Trust, on April 9, 2003.
WHO ARE THE OTHER SERVICE PROVIDERS TO THE TRUST?
ING Funds Services, LLC ("ING Funds Services"), an affiliate of the
Adviser and ING Aeltus, serves as the Administrator to the Trust. ING Funds
Distributor, LLC ("ING Funds Distributor"), also an affiliate of the Adviser and
ING Aeltus, serves as Principal Underwriter to the Trust. ING Funds Services and
ING Funds Distributor have their principal offices located at 7337 East
Doubletree Ranch Road, Scottsdale, Arizona 85258-2034. See APPENDIX 3 for a
listing of the names, addresses, and the principal occupations of their
principal executive officers.
35
There were no commissions paid to affiliated brokers by the Trust for
the fiscal year ended February 28, 2003.
WHAT IS THE REQUIRED VOTE?
Shareholders of the Trust must approve the Proposed Sub-Advisory
Agreement. Approval of the Proposed Sub-Advisory Agreement requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Trust ("1940 Act Majority"), which, for this purpose, means the affirmative vote
of the lesser of (i) more than 50% of the outstanding shares of the Trust, or
(ii) 67% or more of the shares of the Trust present at the meeting, if more than
50% of the outstanding shares of the Trust are represented at the meeting in
person or by proxy.
WHAT HAPPENS IF SHAREHOLDERS DO NOT APPROVE THE PROPOSAL?
If shareholders of the Trust do not approve the Proposed Sub-Advisory
Agreement, the Trust will continue to be managed under the current Investment
Management Agreement and the Board will determine what action, if any, should be
taken.
WHAT ARE THE FACTORS THAT WERE CONSIDERED BY THE BOARD?
On August 20, 2002 and November 22, 2002, the Board and ING Investments
held preliminary discussions regarding the possibility of a reorganization of
certain of ING's U.S. based asset management groups. On February 25, 2003 the
Board and ING Investments discussed, among other matters, the process for
integrating these asset management groups and the benefits and challenges
presented by this process.
The Proposed Sub-Advisory Agreement for the Trust, the draft proxy
solicitation materials to be sent to the Trust's shareholders seeking approval
of the Proposed Sub-Advisory Agreement, and ING Investments recommendation to
seek the necessary shareholder approvals were considered by the Board, including
the Independent Board Members, at a meeting of the Board held on May 29, 2003.
During the Meeting, the Independent Trustees met in executive session with their
independent counsel to discuss the legal standards applicable to the proposed
transaction. They considered the advantages of a manager-of-managers format and
the ongoing duty that ING Investments would have to monitor and oversee the
Proposed Sub-Adviser.
In determining whether or not it was appropriate to approve the
Proposed Sub-Advisory Agreement and to recommend approval to shareholders, the
Board, including a majority of the Independent Trustees, considered several
factors. Foremost among them was the fact that the proposed new arrangement will
not
36
affect the fees charged to the Trust, nor the provision of portfolio management
services to the Trust. In their approval of the proposed arrangement, the Board
considered several factors including, but not limited to, the following: (1) the
centralization of asset managers will allow ING to access and leverage the
capabilities of its portfolio management personnel among all subsidiaries, (2)
the reorganization will facilitate more effective use of research and trading
facilities and capabilities for greater efficiency, (3) the consolidation of
portfolio management within one entity will permit certain future changes in
portfolio management personnel without the potential expense of shareholder
proxy solicitations, (4) the reorganization can help ING Aeltus to build a
larger, more coherent management structure and to retain and attract highly
qualified portfolio managers. The Board noted that ING Aeltus had taken steps to
ameliorate any disadvantages, which might result from the reorganization. In
addition, the Board considered: (1) the current portfolio managers will remain
and continue to provide services under the direction of the Proposed
Sub-Adviser, (2) the nature and quality of the services provided to the other
mutual funds advised by the Proposed Sub-Adviser, (3) the fairness of the
compensation under the Sub-Advisory Agreement, in light of the services being
provided, (4) the personnel, operations, financial condition, and investment
management capabilities and methodologies of ING Aeltus after the
reorganization,(5) the expectation of management that the reorganization will
enable the Proposed Sub-Adviser to attract additional highly qualified personnel
and to leverage its portfolio management resources and trading and research
capabilities, and (6) compensation and the fact that the cost of the Proposed
Sub-Adviser will be paid by the Adviser and not directly by the Trust. The Board
also considered the advisory fee to be retained by ING Investments for its
oversight and monitoring services that will be provided to the sub-advised
Trust. After considering ING Investments' recommendation and these other
factors, the Board concluded that engaging ING Aeltus as Sub-Adviser would be in
the best interest of the Trust and its shareholders.
WHAT IS THE RECOMMENDATION OF THE BOARD?
Based upon its review, the Board has determined that facilitating the
reorganization of the ING investment advisory functions by permitting ING Aeltus
to become the sub-adviser to the Trust is in the best interest of the Trust and
its shareholders. Accordingly, after consideration of the above factors, and
such factors and information it considered relevant, the Board, including all of
the Independent Trustees present at the meeting, unanimously approved the
proposed Sub-Advisory Agreements and voted to recommend their approval.
37
GENERAL INFORMATION
WHAT HAPPENS TO MY PROXY ONCE I VOTE IT?
The Board has named Kimberly A. Anderson, Jeffrey A. Bakalar and
Michael J. Roland, as proxies of the Trust. If you follow the instructions when
you vote, your proxies will vote your shares as you have directed. If you submit
your Proxy Ballot but do not vote on any Proposal, your proxies will vote on
that Proposal as recommended by the Board.
WHAT IF A PROPOSAL THAT IS NOT IN THE PROXY STATEMENT COMES UP AT THE ANNUAL
MEETING?
If any other matter is properly presented, your proxies will vote in
accordance with their best judgment. At the time this Proxy Statement was
printed, the Board knew of no matter that needed to be acted on at the Annual
Meeting other than those discussed in this Proxy Statement.
I WANT TO ATTEND THE ANNUAL MEETING AND VOTE IN PERSON. HOW DO I DO THIS?
The Annual Meeting will be held at 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258-2034. If you attend the Annual Meeting and wish to
vote in person, you will be given a ballot at the meeting. However, if your
shares are held in the name of your broker, bank or other nominee, you must
bring a letter from the nominee indicating that you are the beneficial owner of
the shares on the Record Date and authorizing you to vote. If you expect to
attend the Annual Meeting in person, please notify the Trust by calling
1-800-992-0180.
WHAT ARE MY VOTING RIGHTS AND THE QUORUM REQUIREMENTS?
Each share of each class of the Trust is entitled to one vote.
Shareholders of the Trust at the close of business on the Record Date will be
entitled to be present and to give voting instructions for the Trust at the
Annual Meeting and any adjournments thereof with respect to their shares owned
as of the Record Date. A majority of the outstanding shares of the Trust on the
Record Date entitled to vote for each Proposal, present in person or represented
by proxy, must be present to constitute a quorum.
If a quorum is not present at the Annual Meeting, or if a quorum is
present but sufficient votes to approve any or all of the Proposals are not
received, the persons named as proxies may propose one or more adjournments of
the Annual Meeting to permit further solicitation of proxies. A shareholder vote
may be taken on one or more of the Proposals in this Proxy Statement prior to
any adjournment if sufficient votes have been received with respect to a
Proposal. Any adjournment will require the affirmative vote of a majority of
those shares represented at the Annual Meeting in person or by proxy. The
persons named as proxies will vote in
38
favor of such adjournment those proxies which they are entitled to vote in favor
of any Proposal that has not been adopted, will vote against any adjournments
those proxies required to be voted against any Proposal that has not been
adopted, and will not vote any proxies that direct them to abstain from voting
on such Proposals.
The Trust expects that, before the Annual Meeting, broker-dealer firms
holding shares of the Trust in "street name" for their customers will request
voting instructions from their customers and beneficial owners. If these
instructions are not received by the date specified in the broker-dealer firms'
proxy solicitation materials, the Trust understands that the broker-dealers that
are members of the New York Stock Exchange may vote on the items to be
considered at the Annual Meeting on behalf of their customers and beneficial
owners under the rules of the New York Stock Exchange.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
then the shares represented by such abstention or non-vote will be considered to
be present at the Annual Meeting for purposes of determining the existence of a
quorum. A plurality of the votes duly cast is required for the election of a
Trustee (i.e., the nominee receiving the greatest number of votes will be
elected). Abstentions and broker "non-votes" therefore will not have an effect
on the election of a Trustee. Approval of the Proposed Sub-Advisory Agreement
requires the affirmative vote of a 1940 Act Majority of the total shares of the
Trust outstanding. As abstentions and broker-non-votes will be disregarded in
determining the "votes cast" on an issue, they will have the effect of a vote
against the proposal to approve the Proposed Sub-Advisory Agreement.
EXPLAIN THE REQUIREMENTS OF SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
Section 30(h) of the 1940 Act, as applied to the Trust, require the Trust's
officers, Trustees, investment adviser, affiliates of the investment adviser,
and persons who beneficially own more than 10% of a registered class of the
Trust's outstanding securities ("Reporting Persons"), to file reports of
ownership of the Trust's securities and changes in such ownership with the SEC
and the New York Stock Exchange. Such persons are required by SEC regulations to
furnish the Trust with copies of all such filings.
Based solely on its review of the copies of such forms received by it
and written representations from certain Reporting Persons that no year-end
reports were required for those persons, the Trust believes that during the
fiscal year ended February 28, 2003, its Reporting Persons complied with all
applicable filing requirements; however, Messrs. J. Michael Earley and Roger
Vincent, and Dr. R. Barbara Gitenstein each filed a Form 3 subsequent to the
required date. Mr. Richard Wedemeyer filed a Form 4 reporting one transaction
and a Form 5
39
reporting two transactions subsequent to the required dates. Mr. David Putnam
filed one transaction on a Form 4 and Mr. Jeff Bakalar filed a transaction on a
Form 5 subsequent to the required dates. Mr. Michael Roland filed one Form 5
reporting one transaction subsequent to the required date. ING Funds Services,
LLC filed a Form 3 subsequent to the required date and filed six Form 4's and
reported ten transactions subsequent to the required dates. ING Capital
Corporation, LLC filed a Form 3 and seven Form 4's reporting twelve transactions
subsequent to the required dates.
WHAT IS THE DEADLINE FOR SUBMITTING A SHAREHOLDER PROPOSAL FOR THE TRUST'S 2004
ANNUAL MEETING?
Any proposals of shareholders that are intended to be presented at the
Trust's next annual meeting must be in writing and received at the Trust's
principal executive offices, no later than March 6, 2004, in order for the
proposal to be considered for inclusion in the Trust's proxy statement for that
meeting. The submission of a proposal does not guarantee its inclusion in the
Trust's proxy statement or presentation at the meeting.
In addition, under Rule 14a-4 of the SEC's proxy rules a company may
use discretionary voting authority to vote on matters coming before an annual
meeting of shareholders if the company does not have notice of the matter at
least 45 days before the date corresponding to the date on which the company
first mailed its proxy materials for the prior year's annual meeting of
stockholders or the date specified by an overriding advance notice provision in
the company's bylaws. As the Trust's bylaws do not contain such an advance
notice provision, the Trust may use discretionary voting authority to vote on
matters coming before the Trust's 2004 Annual Meeting of shareholders, if the
Trust does not have written notice of a shareholder proposal on or before May
30, 2004.
PLEASE VOTE BY RETURNING YOUR PROXY BALLOT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Kimberly A. Anderson
Vice President and Secretary
July 14, 2003
40
APPENDIX 1
CHARTER
OF THE
ING FUNDS
AUDIT COMMITTEE
A. ESTABLISHMENT OF THE COMMITTEE
The Audit Committees (collectively, the "Committee") of each of the Boards
of Directors/Trustees(1) (collectively, the "Board") of the ING Funds (each a
"Fund," collectively, the "Funds"(2)) set out on Exhibit A hereto, as such
exhibit may be amended from time to time, shall be governed in accordance with
this ING Funds Audit Committee Charter (this "Charter").
B. PURPOSE
The purpose of the Committee is to (1) oversee each Fund's accounting and
financial reporting processes and its internal controls; (2) oversee the quality
and objectivity of the Fund's financial statements and the independent audit of
those financial statements; and (3) act as a liaison between the Fund's
independent auditors and the full Board.
The function of the Committee is oversight. Management of the Funds is
responsible for the preparation, presentation and integrity of the Funds'
financial statements. Management also is responsible for maintaining appropriate
accounting and financial reporting principles and policies and internal controls
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. The independent auditors are responsible for
planning and carrying out proper audits and reviews of the Funds' financial
statements.
In fulfilling their responsibilities under this Charter, it is recognized
that members of the Committee are not employees of the Funds and are not, and do
not represent themselves to be, accountants or auditors by profession or experts
in the fields of accounting or auditing including in respect of auditor
independence. As such, it is not the duty or responsibility of the Committee or
its
----------
1 These include: the Boards of Directors or Trustees of each of
the Funds listed under Paragraph I on Exhibit A (the "Unified Board"); the
Boards of Directors or Trustees of each of the Funds listed under
Paragraph II on Exhibit A (the "ING Funds (former Aetna) Board"); and the
Board of Directors of ING Partners, Inc. (the "IPI Board").
2 Reference in this Charter to one or more Funds shall, as applicable, mean
those Funds that are under the jurisdiction of the particular Committee at
issue. No provision in this Charter is intended to impose any duty upon a
particular Fund's Committee with respect to any other Funds.
41
members to conduct "field work" or other types of auditing or accounting reviews
or procedures or to set auditor independence standards, and the Committee and
its members are not providing any expert or special assurance as to the Funds'
financial statements or any professional certification as to the independent
auditors' work. Absent actual knowledge to the contrary, each member of the
Committee will be entitled to rely upon (1) the integrity of those persons and
organizations within and outside the Funds from whom the Committee receives
information; (2) the accuracy of the financial and other information provided to
the Committee by such persons or organizations; and (3) representations made by
management as to any information technology, internal audit and other non-audit
services provided by the auditors to the Funds.
The Committee will have access, as deemed necessary or appropriate by the
Committee, to the applicable Funds' trustees or directors, their independent
auditors and Fund counsel and the executive and financial management of the
Funds. The Committee may also seek to meet with internal audit staff of the
Funds' investment adviser, administrator or accounting agent. The Committee may
meet with any such persons without the participation of any other
representatives of Fund management.
C. MEETINGS
The Committee will meet, in person or by telephone, at least twice each
fiscal year of a Fund, and the chair of the Committee or a majority of the
members may call telephonic or in-person special meetings of the Committee as
circumstances require. In order to foster open communication, the Committee may
meet privately in separate executive sessions with management and the
independent auditors and as a committee to discuss any matters that the
Committee, management or the independent auditors believe should be discussed
separately.
A majority of the Committee's members will constitute a quorum. At any
meeting of the Committee, the decision of a majority of the members present and
voting will determine any matter submitted to a vote. The Committee will keep
minutes of its meetings, which will be available to the Board for its review.
D. COMMITTEE MEMBERS; AUDIT COMMITTEE FINANCIAL EXPERT
1. Members. The members of the Committee are identified on Exhibit B to
this Charter, as such Exhibit may be amended from time to time to reflect
changes in Committee membership. The Board will review and consider Committee
membership annually. No "interested person" of the Funds as defined in Section
2(a)(19) of the Investment Company Act of 1940 (the "1940 Act") may be a member
of the Committee. The Committee members may appoint a chairperson from its
members.
2. Audit Committee Financial Expert. Unless the Board determines that no
member of the Committee qualifies as an audit committee financial expert,
42
the Board will identify one (or in the Board's discretion, more than one) member
of the Committee as an audit committee financial expert in accordance with the
criteria set out below. The Committee is not required to have an audit committee
financial expert.
To be identified as an audit committee financial expert, the Committee member
must have the following attributes: (a) an understanding of generally accepted
accounting principles ("GAAP") and financial statements; (b) the ability to
assess the general application of GAAP in connection with the accounting for
estimates, accruals and reserves; (c) experience preparing, auditing, analyzing
or evaluating financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by the Funds'
financial statements, or experience actively supervising one or more persons
engaged in such activities; (d) an understanding of internal controls and
procedures for financial reporting; and (e) an understanding of audit committee
functions.
A Committee member may acquire the attributes required of an audit committee
financial expert through any combination of the following: (a) education and
experience as a public accountant or auditor, or a principal financial officer,
controller, principal accounting officer of a company, or experience in one or
more positions that involve the performance of similar functions; (b) experience
actively supervising a principal financial officer, principal accounting
officer, controller, public accountant, auditor or person performing similar
functions, (c) experience overseeing or assessing the performance of companies
or public accountants in the preparation, audit or evaluation of financial
statements; or (d) other experience determined by the Board as relevant to the
inquiry of whether the Committee member qualifies as an audit committee
financial expert.
The attributes and experience required for identification as an audit committee
financial expert under this Charter will be identical to, and are qualified in
their entirety by, those set out in the rules of the Securities and Exchange
Commission ("SEC") in Form N-CSR. The identification of a Committee member as an
audit committee financial expert does not impose on the member any duties,
obligations, or liability that are greater than the duties, obligations, and
liability imposed on Committee members in general.
E. PRE-APPROVAL OF SERVICES
1. Pre-Approval of Audit Services. The Committee must approve prior to
retention all audit, review or attest engagements required under the securities
laws that are provided to a Fund by its independent auditors. The Committee will
not grant such approval to any auditors that are proposed to perform an audit
for a Fund if a chief executive officer, controller, chief financial officer,
chief accounting officer or any person serving in an equivalent position for the
Fund or any other entity within the ING investment company complex that is
responsible for the financial reporting or operations of the Fund was employed
by those auditors and participated in any capacity in an audit of the Fund
during the 1-
43
year period (or such other period acceptable under the SEC rules) preceding the
date of initiation of such audit.
2. Pre-Approval of Non-Audit Services. The Committee must pre-approve any
non-audit services to be provided to a Fund by its independent auditors (except
those within applicable de minimis statutory or regulatory exceptions(3))
provided that a Fund's auditors will not provide the following non-audit
services to a Fund: (a) bookkeeping or other services related to the accounting
records or financial statements of the Fund; (b) financial information systems
design and implementation; (c) appraisal or valuation services, fairness
opinions, or contribution-in-kind reports; (d) actuarial services; (e) internal
audit outsourcing services; (f) management functions or human resources; (g)
broker-dealer, investment adviser, or investment banking services; (h) legal
services; (i) expert services unrelated to the audit; and (j) any other service
that the Public Company Accounting Oversight Board determines, by regulation, is
impermissible.(4)
3. Pre-approval with respect to Non-Fund Entities. The Committee must
pre-approve any non-audit services that relate directly to the operations and
financial reporting of a Fund (except those within applicable de minimis
statutory or regulatory exceptions(5)) to be provided by the Fund's auditors to
(a) the Fund's investment adviser; and (b) any entity controlling, controlled
by, or under common
----------
3 No pre-approval is required as to non-audit services provided to a Fund
if: (a) the aggregate amount of all non-audit services provided to the
Fund constitute not more than 5% of the total amount of revenues paid by
the Fund to the independent auditors during the fiscal year in which the
services are provided; (B) THESE SERVICES WERE NOT RECOGNIZED BY THE FUND
AT THE TIME OF THE ENGAGEMENT TO BE NON-AUDIT SERVICES; and (c) the
services are promptly brought to the attention of the Committee and
approved by the Committee prior to the completion of the audit.
4 With respect to the prohibitions on (a) bookkeeping; (b) financial
information systems design and implementation; (c) appraisal, valuation,
fairness opinions, or contribution-in-kind reports; (d) actuarial; and (e)
internal audit outsourcing, such services are permitted to be provided if
it is reasonable to conclude that the results of these services will not
be subject to audit procedures during an audit of the audit client's
financial statements.
5 For non-audit services provided to the adviser and entities in a control
relationship with the adviser, no pre-approval is required if: (a) the
aggregate amount of all non-audit services provided constitute not more
than 5% of the total amount of revenues paid to the independent auditors
during the fiscal year in which the services are provided to the Fund, the
Fund's investment adviser, and any entity controlling, controlled by, or
under common control with the investment adviser if that entity provides
ongoing services to a Fund; (B) THESE SERVICES WERE NOT RECOGNIZED BY THE
FUND AT THE TIME OF THE ENGAGEMENT TO BE NON-AUDIT SERVICES; and (c) the
services are promptly brought to the attention of the Committee and
approved by the Committee prior to the completion of the audit.
44
control with the investment adviser if that entity provides ongoing services to
a Fund.(6) The Committee may approve audit and non-audit services on a
case-by-case basis or adopt pre-approval policies and procedures that are
detailed as to a particular service, provided that the Committee is informed
promptly of each service, or use a combination of these approaches.
4. Delegation. The Committee may delegate pre-approval authority to one or
more of the Committee's members. Any member or members to whom such pre-approval
authority is delegated must report any pre-approval decisions to the Committee
at its next scheduled meeting.
F. RELATIONSHIP WITH AUDITORS AND MANAGEMENT
1. Auditor Qualifications. The Committee will, at least annually, review
the qualifications of the Funds' independent auditors.
The Committee will inquire as to whether the auditors are independent. This
inquiry will take into consideration whether the auditors provide any consulting
or other non-audit services to the Fund, its adviser and other entities in the
ING investment company complex and their potential effect on the issue of
independence. The Committee will secure from Fund auditors an annual
representation of the auditors' independence under applicable standards of
independence established from time to time by the SEC and other regulatory and
professional authorities.
The Committee will review the fees charged by the auditors for audit and
non-audit services and may make recommendations to the Board or the independent
members of the Board with respect to the approval of audit and non-audit service
fee estimates. As part of its review, the Committee will annually obtain from
the independent auditors a summary of any non-audit services provided to the
Fund and the ING investment company complex and the fees billed for non-audit
services to the Fund and other entities in the ING investment company complex.
2. Rotation of Audit Partners. The Committee will seek assurances that any
of the auditors' personnel who serve as lead and concurring audit partners(7) to
a
----------
6 No pre-approval is required by the Committee as to non-audit services
provided to: (a) the Fund's sub-adviser that primarily provides portfolio
management services and is under the direction of another investment
adviser and is not affiliated with the Fund's primary investment adviser;
(b) another Fund in the ING investment company complex (unless otherwise
required to pre-approve services to such other Fund in accordance with
this Charter), or (c) other entities within the ING investment company
complex that do not provide services to that Fund.
7 "Audit Partner" means a member of a Fund's audit engagement team who has
decision-making responsibility for significant auditing, accounting and
reporting matters that affect the Fund's financial statements or who
maintains regular contact with the Fund's management and the Committee.
The term includes lead and concurring partners and partners who provide
more than 10 hours of audit, review or attest services in connection with
the Fund's financial statements.
45
Fund are rotated every five years, followed by a five-year "time out" period,
and that those who serve as audit partners (other than lead or concurring audit
partners) are subject to a seven-year rotation period, with a two-year "time
out" period.(8) Audit partners may not serve other Funds in the ING investment
company complex during their "time out" periods.
3. Meetings with Auditors. The Committee will meet with the Funds'
independent auditors for the purposes set out below. The Committee may determine
to conduct these meetings outside the presence of Fund management.
Prior to an audit, the Committee will review with auditors the arrangements for
and scope of the annual audit and any special audits.
At the conclusion of each audit, the Committee will review the audit with the
independent auditors, including the auditors' comments or recommendations and
the form of opinion the auditors propose to render or have rendered to the Board
and Fund shareholders. The Committee also will discuss with the auditors any
matters of concern relating to the Funds' financial statements, including
adjustments to such statements recommended by the auditors or other results of
the audit.
The Committee will receive from the auditors, at least annually and prior to
filing each Fund's annual report, the auditors' report as to: (a) all critical
accounting policies and practices to be used in preparing the annual report; (b)
all alternative treatments within GAAP for policies and practices that have been
discussed with Fund management, including ramifications of the use of such
alternative disclosures and treatments and the treatments preferred by the
independent auditors; and (c) written communications between the auditors and
Fund management that are material to the financial statements, such as any
management letter or schedule of unadjusted differences; (d) a description of
all non-audit services provided, including fees associated with the services, to
the ING investment
----------
8 The rotational periods will be phased in as follows: (1) lead partners
must rotate upon reaching 5 years of service, and service for fiscal years
beginning before May 6, 2003 counts; (2) concurring partners must rotate
upon reaching 5 years of service, and service for fiscal years beginning
before May 6, 2004 counts; (3) all other partners will receive a "fresh
start" for audits for years beginning after May 6, 2003, so that fiscal
years ending in 2004 constitute the first year of a seven-year rotation
period. For investment companies, the SEC accepts an extended "year," to
encompass the fiscal year ends of all funds in a fund complex.
46
company complex since the last annual report or update that were not subject to
the pre-approval requirements as discussed above; and (e) any other matters of
concern relating to a Fund's financial statements, including any uncorrected
misstatements (or audit differences) whose effects management believes are
immaterial, both individually and in aggregate, to the financial statements
taken as a whole. If these communications are not made within 90 days prior to
the Funds' annual filing, the Committee will receive from the independent
auditors any reported updates to the information within 90 days prior to the
Funds' annual filing. The Committee may discuss these matters with management.
The Committee from time to time will discuss with auditors the adequacy and
effectiveness of internal controls and procedures for each Fund and the quality
of staff implementing those controls and procedures. The Committee will consider
the auditors' comments with respect to the Funds' financial policies, procedures
and internal accounting controls and management's compliance with these policies
and controls and will make recommendations to the Board with respect to any
further actions necessary or desirable in response to such auditor comments.
The Committee will meet with Fund auditors for such other purposes as the
Committee may deem necessary or appropriate.
4. Discussions with Management. The Committee may, as deemed necessary or
appropriate by the Committee, discuss with management the following: (1) unusual
accounting issues; (2) the nature of any unusual or significant commitments or
contingent liabilities; (3) any significant difference in format or disclosure
from that adopted by other investment companies; (4) the procedures and controls
of management, including the adequacy and effectiveness of internal controls and
procedures and the quality of staff implementing those controls and procedures;
(5) if the Fund's investment adviser has internal audit staff, the staff's
objectives and resources; and (6) such other matters as the Committee deems
appropriate.
5. Changes in Accounting Principles or Practices. The Committee will
consider the effect upon the Funds of any changes in accounting principles or
practices proposed by management or the independent auditors. The Committee may
consider whether proposed changes will have a significant effect on the amounts
reported for a current year or may have an effect in the future, management's
and the independent auditors' concurrence with the change and management's or
the auditors' underlying rationale for the change. The Committee will discuss
with management and the independent auditors the significance and potential
effect of any changes in accounting policies proposed by the independent
auditors or by management.
6. Illegal Acts and Other Matters. As necessary the Committee will review
with the independent auditors and management any "illegal act," as defined
47
in Section 10A of the 1934 Act and required by that statute to be reported to
the Committee and any other significant issues reported to the Committee that
could have a material effect on a Fund's financial statements. The Committee
will seek assurances from management that appropriate remedial actions are taken
with respect to any such illegal act identified by the independent auditors. The
Committee also may review with management and the independent auditors any
compliance matter and any comments or criticisms that the staff of the SEC
brought to the attention of the Committee or management, and may develop a
recommendation to management.(9) The Committee will report all such matters to
the full Board no later than the next regular meeting of the Board. The
Committee shall have the authority to retain special counsel and other experts
or consultants at the expense of the appropriate Funds.
7. Receive Certifying Officers' Reports. The Committee will receive, in
accordance with regulations adopted by the SEC, reports from each Fund's
principal executive officer and principal financial officer, based on their
periodic evaluations, regarding: (a) significant deficiencies in the design or
operation of internal controls that could adversely affect the Fund's ability to
record, process, summarize, and report financial data; (b) material weaknesses
in internal controls; and (c) fraud, whether or not material, that involves
management or other employees who have a significant role in the Fund's internal
controls.
G. OTHER
1. Review Charter. The Committee will review this Charter (including any
addendum to the Charter, if applicable) at least annually and will make
recommendations with respect to any amendment or supplement to the Charter it
determines to be necessary or desirable.
2. Counsel Reports. If the Board has not established a qualified legal
compliance committee, the Committee will receive and investigate reports of
counsel required to be submitted to it by the rules of the SEC that establish
standards of professional conduct for attorneys practicing before the SEC.
3. Amendments. If the Audit Committee is composed of all of the members of
the Board who are not "interested persons" of the Funds as defined in Section
2(a)(19) of the 1940 Act, the Committee may amend this Charter by vote of
----------
9 The Committee may make recommendations to management with respect to any
illegal act, significant matter or compliance matter, and its
recommendations are not limited to matters related only to accounting and
financial reporting.
48
a majority of the Committee members. If the Committee is composed of fewer
than all of the members of the Board who are not "interested persons," the
Committee will recommend any amendment to the full Board, and the Board may
amend this Charter by a vote of a majority of its members who are not
"interested persons."
4. Board Communications. At least annually, the Committee will report to
the Board a summary of its activities, conclusions and recommendations, unless
the Committee is comprised of all of the independent directors/trustees of the
Board.
5. Records. A copy of this Charter will be maintained by the Funds in an
easily accessible place.
Adopted by the Unified Board on May 29, 2003.
49
ADDENDUM
TO THE
AUDIT COMMITTEE CHARTER
WITH RESPECT TO
ING PRIME RATE TRUST
As an issuer listed on the New York Stock Exchange ("NYSE"), ING Prime
Rate Trust ("PPR") must comply with the rules and regulations of the NYSE, which
include, among other things, standards for audit committees of listed issuers.
Therefore, the Board of Trustees of PPR (the "Board") has adopted this Addendum
("Addendum") to the ING Funds Audit Committee Charter (the "Charter"). This
Addendum sets forth additional requirements for the Audit Committee (the
"Committee") of PPR. The terms and provisions of the Charter remain applicable
to PPR, as modified or supplemented by this Addendum.
A. PURPOSE OF THE COMMITTEE
In addition to the purpose of the Committee set out in paragraph B of the
Charter, the Committee will serve the following purposes: (1) to assist Board
oversight of (a) the integrity of PPR's financial statements; (b) PPR's
compliance with legal and regulatory requirements; (c) the independent auditors'
qualifications and independence; and (d) the performance of any internal audit
staff and the independent auditors; and (2) to prepare the report that SEC rules
require be included in PPR's annual proxy statement.
The Committee will have the authority to engage, on PPR's behalf, outside
independent counsel and other advisers as it deems necessary to carry out its
duties. The Committee will determine the appropriate levels of funding for
payment of (a) compensation of the independent auditors; (b) compensation of any
advisors employed by the Committee under the Charter; and (c) ordinary
administrative expenses of the Committee necessary or appropriate in carrying
out its duties under the Charter.
B. INDEPENDENCE OF COMMITTEE MEMBERS
1. Independence. The Committee will have at least three members. The Board
will affirmatively determine that each Committee member is independent. In order
to be considered independent, a member of the Committee may not, other than in
his or her capacity as a member of the Committee, the Board or any other Board
committee, (a) be an "interested person" of PPR as defined in Section 2(a)(19)
of the Investment Company Act of 1940 (the "1940 Act"); or (b) accept directly
or indirectly any consulting, advisory or other compensatory fee from PPR.
50
2. Former Affiliations. Former employees of PPR or its investment adviser
and natural persons affiliated with or employed by current and former auditors
to PPR will not be deemed to be independent until five years after the
employment, affiliation or the auditing relationship has ended.
3. Compensation. The only compensation a Committee member may receive from
PPR is directors' or trustees' fees, provided that a Committee member who is a
former employee of PPR or its investment adviser may receive deferred
compensation if the deferred compensation is not contingent on continued
service.
C. RELATIONSHIP WITH INDEPENDENT AUDITORS
1. Selection and Termination of Independent Auditors. The Committee will
be responsible for the oversight of the work of the independent auditors
(including resolution of disagreements between management and the auditors
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work, and each independent auditor will report directly to the
Committee. The Committee has the ultimate authority and responsibility to
appoint and, when appropriate, replace the independent auditors, and, if
applicable, to nominate the independent auditors to be proposed for shareholder
ratification in any proxy statement. The Committee will set clear hiring
policies for employees or former employees of the independent auditors. The
Committee will also be responsible for determining auditor compensation. The
Committee will recommend the selection of the independent auditors for
ratification by the vote of a majority of all of PPR's independent trustees in
accordance with Section 32(a) of the 1940 Act.
2. Significant Non-audit Relationships. The Committee will have sole
authority to approve any significant non-audit relationships with PPR's
independent auditors.
3. Rotation of Auditors. In addition to assuring that the lead, concurring
and other audit partners are rotated in accordance with paragraph F(2) of the
Charter and as required by law, the Committee will consider whether there should
be a regular rotation of PPR's independent auditing firm.
4. Annual Auditors' Report. At least annually, the Committee will obtain
and review a report by the independent auditors describing: (a) the auditors'
internal quality-control procedures; (b) any material issues raised by the most
recent internal quality-control review, or peer review, of the auditors, or by
any inquiry or investigation by governmental or professional authorities, within
the preceding five years, with respect to one or more independent audits of any
issuer carried out by the auditors, and any steps taken to deal with any such
issues; and (c) all relationships between the independent auditors and the
Funds, for purposes of assessing the auditors' independence. The Committee also
will consider any reports or communications (and management's responses to such
reports or
51
communications) submitted by the independent auditors required by or referred to
in SAS 61 (as codified by AU Section 380), as may be modified or supplemented.
D. DISCUSSIONS WITH AUDITORS AND MANAGEMENT
1. Annual Financial Statements. The Committee will discuss the annual
audited financial statements with management and the independent auditors,
including the Funds' disclosures under "Management's Discussion of Fund
Performance."
2. Press Releases and Other Information. The Committee will discuss with
management earnings press releases, as well as financial information and
earnings guidance provided to analysts and rating agencies.
3. Risk Management. The Committee will discuss with management and the
independent auditors policies with respect to risk assessment and risk
management. The Committee will report any material risks of a type not
previously approved by the Board identified during such discussions to the
Board.
4. Ongoing Dialogue. The Committee periodically will meet with management,
with any internal audit staff of PPR and with the independent auditors. The
Committee will review with the independent auditor any audit problems or
difficulties and management's response.
E. OTHER
1. Establishment of Procedures. The Committee will establish procedures
for: (a) the receipt, retention, and treatment of complaints received by PPR
regarding accounting, internal accounting controls, or auditing matters; and (b)
the confidential, anonymous submission by employees of PPR of concerns regarding
questionable accounting, internal control or auditing matters.
2. Self-Evaluation. The Committee, on an annual basis, must evaluate its
performance with respect to its duties and responsibilities.
3. Written Affirmation. The Board shall establish procedures for PPR's
providing a "Written Affirmation" to the NYSE at the time of any changes in the
composition of the Committee, and on an annual basis within one month of the
Fund's annual shareholder meeting regarding: (a) any determination that the
Board has made regarding the independence of [directors/trustees] in accordance
with Rule 303.01(B)(3) of the NYSE Listed Company Manual; (b) the financial
literacy of Committee members; (c) the determination that at least one Committee
member has accounting or related financial management expertise; and (d) the
annual review and reassessment of the adequacy of the Charter and this Addendum.
52
4. Reporting. The Committee will approve the content of any report the
substance of which is required by the rules of the SEC to be included in the
proxy statement for the Fund.
5. Board Communications. The Committee will periodically report to the
Board.
[Exhibits A and B omitted]
53
APPENDIX 2
FORM OF SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT
ING PRIME RATE TRUST
AGREEMENT made this ____ day of ________, 2003 between ING
Investments, LLC, a Delaware limited liability company (the "Manager"), and
Aeltus Investment Management, Inc., a Connecticut corporation (the
"Sub-Adviser").
WHEREAS, ING Prime Rate Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end,
management investment company; and
WHEREAS, pursuant to an Investment Management Agreement, dated
September 1, 2000 (the "Management Agreement"), a copy of which has been
provided to the Sub-Adviser, the Fund has retained the Manager to render
advisory and management services to the Fund; and
WHEREAS, pursuant to authority granted to the Manager in the
Management Agreement, the Manager wishes to retain the Sub-Adviser to furnish
investment advisory services to the Fund, and the Sub-Adviser is willing to
furnish such services to the Fund and the Manager.
NOW, THEREFORE, in consideration of the premises and the promises
and mutual covenants herein contained, it is agreed between the Manager and the
Sub-Adviser as follows:
1. Appointment. The Manager hereby appoints the Sub-Adviser to
act as the investment adviser and manager to the Fund for the period and on
the terms set forth in this Agreement. The Sub-Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
2. Sub-Adviser Duties. Subject to the supervision of the Fund's
Board of Trustees and the Manager, the Sub-Adviser will provide a continuous
investment program for the Fund's portfolio and determine in its discretion the
composition of the assets of the Fund's portfolio, including determination of
the purchase, retention, or sale of the securities, cash, and other investments
contained in the portfolio. The Sub-Adviser will provide investment research and
conduct a continuous program of evaluation, investment, sales, and reinvestment
of the Fund's assets by determining the securities and other investments that
shall be purchased, entered into, sold, closed, or exchanged for the Fund, when
these
54
transactions should be executed, and what portion of the assets of the Fund
should be held in the various securities and other investments in which it may
invest. To the extent permitted by the investment policies of the Fund, the
Sub-Adviser shall make decisions for the Fund as to foreign currency matters and
make determinations as to and execute and perform foreign currency exchange
contracts on behalf of the Fund. The Sub-Adviser will provide the services under
this Agreement in accordance with the Fund's investment objective or objectives,
policies, and restrictions as stated in the Fund's Registration Statement filed
with the Securities and Exchange Commission ("SEC"), as amended, copies of which
shall be sent to the Sub-Adviser by the Manager prior to the commencement of
this Agreement and promptly following any such amendment. The Sub-Adviser
further agrees as follows:
(a) The Sub-Adviser will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Trustees of which the Sub-Adviser has been sent a copy, and the provisions of
the Registration Statement of the Fund filed under the Securities Act of 1933
(the "1933 Act") and the 1940 Act, as supplemented or amended, of which the
Sub-Adviser has received a copy, and with the Manager's portfolio manager
operating policies and procedures as in effect on the date hereof, as such
policies and procedures may be revised or amended by the Manager and agreed to
by the Sub-Adviser. In carrying out its duties under the Sub-Adviser Agreement,
the Sub-Adviser will comply with the following policies and procedures:
(i) The Sub-Adviser will manage the Fund so that it meets the income
and asset diversification requirements of Section 851 of the Internal Revenue
Code.
(ii) The Sub-Adviser will have no duty to vote any proxy solicited
by or with respect to the issuers of securities in which assets of the Series
are invested unless the Manager gives the Sub-Adviser written instructions to
the contrary. The Sub-Adviser will immediately forward any proxy solicited by or
with respect to the issuers of securities in which assets of the Series are
invested to the Manager.
The Sub-Adviser will make appropriate personnel available for
consultation for the purpose of reviewing with representatives of the Manager
and/or the Board any proxy solicited by or with respect to the issuers of
securities in which assets of the Series are invested. Upon request, the
Sub-Adviser will submit a written voting recommendation to the Manager for such
proxies. In making such recommendations, the Sub-Adviser shall use its good
faith judgment to act in the best interests of the Series. The Sub-Adviser shall
disclose to the best of its knowledge any conflict of interest with the issuers
of securities that are the subject of such recommendation including whether such
issuers are clients or are being solicited as clients of the Sub-Adviser or of
its affiliates.
(iii) In connection with the purchase and sale of securities for the
Fund, the Sub-Adviser will arrange for the transmission to the custodian and
portfolio accounting agent for the Fund on a daily basis, such confirmation,
trade tickets, and other documents and information, including, but not limited
to, Cusip, Cedel, or other numbers that identify securities to be purchased or
sold on behalf of the Fund, as may be reasonably necessary to enable the
custodian and portfolio accounting agent to perform its administrative and
record keeping responsibilities with respect to the Fund. With respect to
portfolio securities to be settled through
55
the Depository Trust Company, the Sub-Adviser will arrange for the prompt
transmission of the confirmation of such trades to the Fund's custodian and
portfolio accounting agent.
(iv) The Sub-Adviser will assist the custodian and portfolio
accounting agent for the Fund in determining or confirming, consistent with the
procedures and policies stated in the Registration Statement for the Fund or
adopted by the Board of Trustees, the value of any portfolio securities or other
assets of the Fund for which the custodian and portfolio accounting agent seeks
assistance from or identifies for review by the Sub-Adviser. The parties
acknowledge that the Sub-Adviser is not a custodian of the Fund's assets and
will not take possession or custody of such assets.
(v) The Sub-Adviser will provide the Manager, no later than the 10th
business day following the end of the Fund's semi-annual period and fiscal year,
a letter to shareholders (to be subject to review and editing by the Manager)
containing a discussion of those factors referred to in Item 5(a) of 1940 Act
Form N-1A in respect of both the prior quarter and the fiscal year to date.
(vi) The Sub-Adviser will complete and deliver to the Manager a
written compliance checklist in a form provided by the Manager for each month by
the 10th business day of the following month.
(b) The Sub-Adviser will complete and deliver to the Manager by the
10th business day of each month a written report regarding the Fund that
contains the following information as of the immediately previous month's end:
(i) A performance comparison to the Fund's benchmark listed in
the prospectus as well as a comparison to other mutual funds as listed in the
rankings prepared by Lipper Analytical Services, Inc., Morningstar, Inc., or
similar independent services that monitor the performance of mutual funds or
with other appropriate indexes of investment securities;
(ii) Composition of the assets of the Fund's portfolio and the
impact of key portfolio holdings and sector concentrations on the Fund; and
(iii) Confirmation of the Fund's current investment objective and
Sub-Adviser's projected plan to realize the Fund's investment objectives.
(c) The Sub-Adviser will contact Morningstar to clarify any style
box conflicts with the Fund's style and the anticipated timeframe in which
Morningstar will remedy such conflicts, if any.
(d) The Sub-Adviser will make available to the Fund and the Manager,
promptly upon request, any of the Fund's investment records and
56
ledgers maintained by the Sub-Adviser (which shall not include the records and
ledgers maintained by the custodian or portfolio accounting agent for the Fund)
as are necessary to assist the Fund and the Manager to comply with requirements
of the 1940 Act and the Investment Advisers Act of 1940 (the "Advisers Act"), as
well as other applicable laws. The Sub-Adviser will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with such services in respect to the Fund which may be requested in
order to ascertain whether the operations of the Fund are being conducted in a
manner consistent with applicable laws and regulations.
(e) The Sub-Adviser will provide reports to the Fund's Board of
Trustees for consideration at meetings of the Board of Trustees on the
investment program for the Fund and the issuers and securities represented in
the Fund's portfolio, and will furnish the Fund's Board of Trustees with respect
to the Fund such periodic and special reports as the Trustees and the Manager
may reasonably request.
3. Broker-Dealer Selection. The Sub-Adviser is authorized to make
decisions to buy and sell securities and other investments for the Fund's
portfolio, broker-dealer selection, and negotiation of brokerage commission
rates in effecting a security transaction. The Sub-Adviser's primary
consideration in effecting a security transaction will be to obtain the best
execution for the Fund, taking into account the factors specified in the
prospectus and/or statement of additional information for the Fund, and
determined in consultation with the Manager, which include price (including the
applicable brokerage commission or dollar spread), the size of the order, the
nature of the market for the security, the timing of the transaction, the
reputation, the experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of execution, and the
execution capabilities and operational facilities of the firm involved, and the
firm's risk in positioning a block of securities. Accordingly, the price to the
Fund in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified, in the judgment of the
Sub-Adviser in the exercise of its fiduciary obligations to the Fund, by other
aspects of the portfolio execution services offered. Subject to such policies as
the Fund's Board of Trustees or Manager may determine and consistent with
Section 28(e) of the Securities Exchange Act of 1934, the Sub-Adviser shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker-dealer for effecting a portfolio investment transaction in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction, if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer, viewed in terms of either that
particular transaction or the Sub-Adviser's or the Manager's overall
responsibilities with respect to the Fund and to their respective other clients
as to which they exercise investment discretion. The Sub-Adviser will consult
with the Manager to the end that portfolio transactions on
57
behalf of a Fund are directed to broker-dealers on the basis of criteria
reasonably considered appropriate by the Manager. To the extent consistent with
these standards, the Sub-Adviser is further authorized to allocate the orders
placed by it on behalf of the Fund to the Sub-Adviser if it is registered as a
broker-dealer with the SEC, to an affiliated broker-dealer, or to such brokers
and dealers who also provide research or statistical material, or other services
to the Fund, the Sub-Adviser, or an affiliate of the Sub-Adviser. Such
allocation shall be in such amounts and proportions as the Sub-Adviser shall
determine consistent with the above standards, and the Sub-Adviser will report
on said allocation regularly to the Fund's Board of Trustees indicating the
broker-dealers to which such allocations have been made and the basis therefore.
4. Disclosure about Sub-Adviser. The Sub-Adviser has reviewed the
most recent Post-Effective Amendment to the Registration Statement for the Fund
filed with the SEC that contains disclosure about the Sub-Adviser, and
represents and warrants that, with respect to the disclosure about the
Sub-Adviser or information relating, directly or indirectly, to the Sub-Adviser,
such Registration Statement contains, as of the date hereof, no untrue statement
of any material fact and does not omit any statement of a material fact which
was required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. The Sub-Adviser further represents and warrants that it is a duly
registered investment adviser under the Advisers Act and will maintain such
registration so long as this Agreement remains in effect. The Sub-Adviser will
provide the Manager with a copy of the Sub-Adviser's Form ADV, Part II at the
time the Form ADV is filed with the SEC.
5. Expenses. During the term of this Agreement, the Sub-Adviser
will pay all expenses incurred by it and its staff and for their activities
in connection with its portfolio management duties under this Agreement. The
Manager or the Fund shall be responsible for all the expenses of the Fund's
operations.
6. Compensation. For the services provided to the Fund, the Manager
will pay the Sub-Adviser an annual fee equal to the amount specified for the
Fund in Schedule A hereto, payable monthly in arrears. The fee will be
appropriately prorated to reflect any portion of a calendar month that this
Agreement is not in effect among the parties. In accordance with the provisions
of the Management Agreement, the Manager is solely responsible for the payment
of fees to the Sub-Adviser, and the Sub-Adviser agrees to seek payment of its
fees solely from the Manager; provided, however, that if the Fund fails to pay
the Manager all or a portion of the management fee under said Management
Agreement when due, and the amount that was paid is insufficient to cover the
Sub-Adviser's fee under this Agreement for the period in question, then the
Sub-Adviser may enforce against the Fund any rights it may have as a third-party
beneficiary under the Management Agreement and the Manager will take all steps
appropriate under the circumstances to collect the amount due from the Fund.
58
7. Marketing Materials.
(a) During the term of this Agreement, the Sub-Adviser agrees to
furnish the Manager at its principal office for prior review and approval by the
Manager all written and/or printed materials, including but not limited to,
PowerPoint(R) or slide presentations, news releases, advertisements, brochures,
fact sheets and other promotional, informational or marketing materials (the
"Marketing Materials") for internal use or public dissemination, that are
produced or are for use or reference by the Sub-Adviser, its affiliates or other
designees, broker-dealers or the public in connection with the Fund, and
Sub-Adviser shall not use any such materials if the Manager reasonably objects
in writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. Marketing Materials may be furnished to the
Manager by first class or overnight mail, facsimile transmission equipment,
electronic delivery or hand delivery.
(b) During the term of this Agreement, the Manager agrees to furnish
the Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, or Marketing Materials prepared for distribution to
shareholders of the Fund, or the public that refer to the Sub-Adviser in any
way, prior to the use thereof, and the Manager shall not use any such materials
if the Sub-Adviser reasonably objects in writing within five business days (or
such other period as may be mutually agreed) after receipt thereof. The
Sub-Adviser's right to object to such materials is limited to the portions of
such materials that expressly relate to the Sub-Adviser, its services and its
clients. The Manager agrees to use its reasonable best efforts to ensure that
materials prepared by its employees or agents or its affiliates that refer to
the Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence of
this paragraph. Marketing Materials may be furnished to the Sub-Adviser by first
class or overnight mail, facsimile transmission equipment, electronic delivery
or hand delivery.
8. Compliance.
(a) The Sub-Adviser agrees to use reasonable compliance techniques
as the Manager or the Board of Trustees may adopt, including any written
compliance procedures.
(b) The Sub-Adviser agrees that it shall promptly notify the
Manager and the Fund (1) in the event that the SEC has censured the Sub-Adviser;
placed limitations upon its activities, functions or operations; suspended or
revoked its registration as an investment adviser; or has commenced proceedings
or an investigation that may result in any of these actions, or (2) upon having
a reasonable basis for believing that the Fund has ceased to qualify or might
not qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code. The Sub-Adviser further agrees to notify the Manager and the Fund
promptly of any material fact known to the Sub-Adviser respecting or relating to
59
the Sub-Adviser that is not contained in the Registration Statement or
prospectus for the Fund, or any amendment or supplement thereto, or if any
statement contained therein that becomes untrue in any material respect.
(c) The Manager agrees that it shall promptly notify the Sub-Adviser
(1) in the event that the SEC has censured the Manager or the Fund; placed
limitations upon either of their activities, functions, or operations; suspended
or revoked the Manager's registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions, or (2)
upon having a reasonable basis for believing that the Fund has ceased to qualify
or might not qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code.
9. Books and Records. The Sub-Adviser hereby agrees that all records
which it maintains for the Fund are the property of the Fund and further agrees
to surrender promptly to the Fund any of such records upon the Fund's or the
Manager's request in compliance with the requirements of Rule 31a-3 under the
1940 Act, although the Sub-Adviser may, at its own expense, make and retain a
copy of such records. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-l under the 1940 Act.
10. Cooperation; Confidentiality. Each party to this Agreement
agrees to cooperate with the other party and with all appropriate governmental
authorities having the requisite jurisdiction (including, but not limited to,
the SEC) in connection with any investigation or inquiry relating to this
Agreement or the Fund. Subject to the foregoing, the Sub-Adviser shall treat as
confidential all information pertaining to the Fund and actions of the Fund, the
Manager and the Sub-Adviser, and the Manager shall treat as confidential and use
only in connection with the Fund all information furnished to the Fund or the
Manager by the Sub-Adviser, in connection with its duties under the agreement
except that the aforesaid information need not be treated as confidential if
required to be disclosed under applicable law, if generally available to the
public through means other than by disclosure by the Sub-Adviser or the Manager,
or if available from a source other than the Manager, Sub-Adviser or this Fund.
11. Representations Respecting Sub-Adviser. The Manager agrees that
neither the Manager, nor affiliated persons of the Manager, shall give any
information or make any representations or statements in connection with the
sale of shares of the Fund concerning the Sub-Adviser or the Fund other than the
information or representations contained in the Registration Statement,
prospectus, or statement of additional information for the Fund's shares, as
they may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved in advance by the Sub-Adviser, except with the prior permission of the
Sub-Adviser.
60
12. Control. Notwithstanding any other provision of the Agreement,
it is understood and agreed that the Fund shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and has reserved the right to reasonably direct any action hereunder
taken on its behalf by the Sub-Adviser.
13. Liability. Except as may otherwise be required by the 1940 Act
or the rules thereunder or other applicable law, the Manager agrees that the
Sub-Adviser, any affiliated person of the Sub-Adviser, and each person, if any,
who, within the meaning of Section 15 of the 1933 Act controls the Sub-Adviser
(1) shall bear no responsibility and shall not be subject to any liability for
any act or omission respecting the Fund , and (2) shall not be liable for, or
subject to any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Sub-Adviser's duties, or by reason of
reckless disregard of the Sub-Adviser's obligations and duties under this
Agreement.
14. Indemnification.
(a) The Manager agrees to indemnify and hold harmless the
Sub-Adviser, any affiliated person of the Sub-Adviser, and each person, if any,
who, within the meaning of Section 15 of the 1933 Act controls ("controlling
person") the Sub-Adviser (all of such persons being referred to as "Sub-Adviser
Indemnified Persons") against any and all losses, claims, damages, liabilities,
or litigation (including legal and other expenses) to which a Sub-Adviser
Indemnified Person may become subject under the 1933 Act, the 1940 Act, the
Advisers Act, under any other statute, at common law or otherwise, arising out
of the Manager's responsibilities to the Fund which (1) may be based upon the
Manager's negligence, willful misfeasance, or bad faith in the performance of
its duties (which could include a negligent action or a negligent omission to
act), or by reason of the Manager's reckless disregard of its obligations and
duties under this Agreement, or (2) may be based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or prospectus covering shares of the Fund, or any amendment thereof or
any supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon information furnished to the Manager or the Fund or to any affiliated
person of the Manager by a Sub-Adviser Indemnified Person; provided however,
that in no case shall the indemnity in favor of the Sub-Adviser Indemnified
Person be deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or by reason of its
reckless disregard of obligations and duties under this Agreement.
61
(b) Notwithstanding Section 13 of this Agreement, the Sub-Adviser
agrees to indemnify and hold harmless the Manager, any affiliated person of the
Manager, and any controlling person of the Manager (all of such persons being
referred to as "Manager Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including legal and other expenses)
to which a Manager Indemnified Person may become subject under the 1933 Act,
1940 Act, the Advisers Act, under any other statute, at common law or otherwise,
arising out of the Sub-Adviser's responsibilities as Sub-Adviser of the Fund
which (1) may be based upon the Sub-Adviser's negligence, willful misfeasance,
or bad faith in the performance of its duties (which could include a negligent
action or a negligent omission to act), or by reason of the Sub-Adviser's
reckless disregard of its obligations and duties under this Agreement, or (2)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or prospectus covering the shares
of the Fund, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact known or which should have been known
to the Sub-Adviser and was required to be stated therein or necessary to make
the statements therein not misleading, if such a statement or omission was made
in reliance upon information furnished to the Manager, the Fund, or any
affiliated person of the Manager or Fund by the Sub-Adviser or any affiliated
person of the Sub-Adviser; provided, however, that in no case shall the
indemnity in favor of a Manager Indemnified Person be deemed to protect such
person against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence in the performance
of its duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement.
(c) The Manager shall not be liable under Paragraph (a) of this
Section 14 with respect to any claim made against a Sub-Adviser Indemnified
Person unless such Sub-Adviser Indemnified Person shall have notified the
Manager in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Sub-Adviser Indemnified Person (or after such Sub-Adviser
Indemnified Person shall have received notice of such service on any designated
agent), but failure to notify the Manager of any such claim shall not relieve
the Manager from any liability which it may have to the Sub-Adviser Indemnified
Person against whom such action is brought except to the extent the Manager is
prejudiced by the failure or delay in giving such notice. In case any such
action is brought against the Sub-Adviser Indemnified Person, the Manager will
be entitled to participate, at its own expense, in the defense thereof or, after
notice to the Sub-Adviser Indemnified Person, to assume the defense thereof,
with counsel satisfactory to the Sub-Adviser Indemnified Person. If the Manager
assumes the defense of any such action and the selection of counsel by the
Manager to represent the Manager and the Sub-Adviser Indemnified Person would
result in a conflict of interests and therefore, would not, in the reasonable
judgment of the Sub-Adviser Indemnified Person, adequately represent the
interests of the Sub-Adviser Indemnified Person, the Manager will, at
62
its own expense, assume the defense with counsel to the Manager and, also at its
own expense, with separate counsel to the Sub-Adviser Indemnified Person, which
counsel shall be satisfactory to the Manager and to the Sub-Adviser Indemnified
Person. The Sub-Adviser Indemnified Person shall bear the fees and expenses of
any additional counsel retained by it, and the Manager shall not be liable to
the Sub-Adviser Indemnified Person under this Agreement for any legal or other
expenses subsequently incurred by the Sub-Adviser Indemnified Person
independently in connection with the defense thereof other than reasonable costs
of investigation. The Manager shall not have the right to compromise on or
settle the litigation without the prior written consent of the Sub-Adviser
Indemnified Person if the compromise or settlement results, or may result in a
finding of wrongdoing on the part of the Sub-Adviser Indemnified Person.
(d) The Sub-Adviser shall not be liable under Paragraph (b) of this
Section 14 with respect to any claim made against a Manager Indemnified Person
unless such Manager Indemnified Person shall have notified the Sub-Adviser in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Manager Indemnified Person (or after such Manager Indemnified Person shall have
received notice of such service on any designated agent), but failure to notify
the Sub-Adviser of any such claim shall not relieve the Sub-Adviser from any
liability which it may have to the Manager Indemnified Person against whom such
action is brought except to the extent the Sub-Adviser is prejudiced by the
failure or delay in giving such notice. In case any such action is brought
against the Manager Indemnified Person, the Sub-Adviser will be entitled to
participate, at its own expense, in the defense thereof or, after notice to the
Manager Indemnified Person, to assume the defense thereof, with counsel
satisfactory to the Manager Indemnified Person. If the Sub-Adviser assumes the
defense of any such action and the selection of counsel by the Sub-Adviser to
represent both the Sub-Adviser and the Manager Indemnified Person would result
in a conflict of interests and therefore, would not, in the reasonable judgment
of the Manager Indemnified Person, adequately represent the interests of the
Manager Indemnified Person, the Sub-Adviser will, at its own expense, assume the
defense with counsel to the Sub-Adviser and, also at its own expense, with
separate counsel to the Manager Indemnified Person, which counsel shall be
satisfactory to the Sub-Adviser and to the Manager Indemnified Person. The
Manager Indemnified Person shall bear the fees and expenses of any additional
counsel retained by it, and the Sub-Adviser shall not be liable to the Manager
Indemnified Person under this Agreement for any legal or other expenses
subsequently incurred by the Manager Indemnified Person independently in
connection with the defense thereof other than reasonable costs of
investigation. The Sub-Adviser shall not have the right to compromise on or
settle the litigation without the prior written consent of the Manager
Indemnified Person if the compromise or settlement results, or may result in a
finding of wrongdoing on the part of the Manager Indemnified Person.
63
15. Duration and Termination.
(a) This Agreement shall become effective on the date first
indicated above, subject to the condition that the Fund's Board of Trustees,
including a majority of those Trustees who are not interested persons (as such
term is defined in the 1940 Act) of the Manager or the Sub-Adviser, and the
shareholders of the Fund, shall have approved this Agreement. Unless terminated
as provided herein, this Agreement shall remain in full force and effect for two
years from such date and continue on an annual basis thereafter with respect to
the Fund covered by this Agreement; provided that such annual continuance is
specifically approved each year by (a) the Board of Trustees of the Fund, or by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, and (b) the vote of a majority of those Trustees who are
not parties to this Agreement or interested persons (as such term is defined in
the 1940 Act) of any such party to this Agreement cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated with respect to the Fund: (a) by the
Manager at any time, upon sixty (60) days' written notice to the Sub-Adviser and
the Fund, (b) at any time without payment of any penalty by the Fund, by the
Fund's Board of Trustees or a majority of the outstanding voting securities of
the Fund, upon sixty (60) days' written notice to the Manager and the
Sub-Adviser, or (c) by the Sub-Adviser upon three (3) months' written notice
unless the Fund or the Manager requests additional time to find a replacement
for the Sub-Adviser, in which case the Sub-Adviser shall allow the additional
time requested by the Fund or Manager not to exceed three (3) additional months
beyond the initial three-month notice period; provided, however, that the
Sub-Adviser may terminate this Agreement at any time without penalty, effective
upon written notice to the Manager and the Fund, in the event either the
Sub-Adviser (acting in good faith) or the Manager ceases to be registered as an
investment adviser under the Advisers Act or otherwise becomes legally incapable
of providing investment management services pursuant to its respective contract
with the Fund, or in the event the Manager becomes bankrupt or otherwise
incapable of carrying out its obligations under this Agreement, or in the event
that the Sub-Adviser does not receive compensation for its services from the
Manager or the Fund as required by the terms of this agreement.
In the event of termination for any reason, all records of the Fund
shall promptly be returned to the Manager or the Fund, free from any claim or
retention of rights in such record by the Sub-Adviser, although the Sub-Adviser
may, at its own expense, make and retain a copy of such records. This Agreement
shall automatically terminate in the event of its assignment (as such term is
described in the 1940 Act). In the event this Agreement is terminated or is not
approved in the manner described above, the Sections or Paragraphs numbered 9,
10, 11, 12, 13, 14 and 17 of this Agreement shall remain in effect, as well as
any applicable provision of this Section numbered 15 and, to the extent that
only amounts are owed to the Sub-Adviser as compensation for services rendered
while the agreement was in effect, Section 6.
64
(b) Notices.
Any notice must be in writing and shall be sufficiently given (1)
when delivered in person, (2) when dispatched by telegram or electronic
facsimile transfer (confirmed in writing by postage prepaid first class air mail
simultaneously dispatched), (3) when sent by internationally recognized
overnight courier service (with receipt confirmed by such overnight courier
service), or (4) when sent by registered or certified mail, to the other party
at the address of such party set forth below or at such other address as such
party may from time to time specify in writing to the other party.
If to the Fund:
ING Prime Rate Trust
7337 East Doubletree Ranch Road
Scottsdale, AZ 85258
Attention: Kimberly A. Anderson
If to the Sub-Adviser:
Aeltus Investment Management, Inc.
10 State House Square
Hartford, CT 06103-3602
Attention: Michael Gioffre
16. Amendments. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and no amendment of this Agreement shall be effective
until approved as required by applicable law.
17. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
Arizona, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or orders of the SEC
thereunder, and without regard for the conflicts of laws principle thereof. The
term "affiliate" or "affiliated person" as used in this Agreement shall mean
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
(b) The Manager and the Sub-Adviser acknowledge that the Fund enjoys
the rights of a third-party beneficiary under this Agreement, and the Manager
acknowledges that the Sub-Adviser enjoys the rights of a third party beneficiary
under the Management Agreement.
65
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(d) To the extent permitted under Section 15 of this Agreement, this
Agreement may only be assigned, as defined in the Investment Company Act of
1940, by any party with the prior written consent of the other parties.
(e) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable.
(f) Nothing herein shall be construed as constituting the
Sub-Adviser as an agent or co-partner of the Manager, or constituting the
Manager as an agent or co-partner of the Sub-Adviser.
(g) This agreement may be executed in counterparts.
66
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed as of the day and year first above written.
ING INVESTMENTS, LLC
By:
---------------------------
Title
-------------------------
AELTUS INVESTMENT MANAGEMENT, INC.
By:
---------------------------
Title
-------------------------
SCHEDULE A
WITH RESPECT TO THE
SUB-ADVISORY AGREEMENT
BETWEEN
ING INVESTMENTS, LLC
AND
AELTUS INVESTMENT MANAGEMENT, INC.
ANNUAL
SUB-ADVISER FEE
(AS A PERCENTAGE OF LAST CONTINUED/
FUND MANAGED ASSETS)* APPROVED BY BOARD NEXT REAPPROVAL DATE
---- ---------------- ----------------- --------------------
ING Prime Rate Trust .36% April 9, 2003 September 1, 2003
* MANAGED ASSETS MEANS AVERAGE DAILY GROSS ASSETS, MINUS THE SUM OF THE TRUST'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 TRUST, AND THE LIQUIDATION
PREFERENCE OF ANY OUTSTANDING PREFERRED SHARES).
68
APPENDIX 3
PRINCIPAL EXECUTIVE OFFICERS OF ING INVESTMENTS, LLC
7337 E. DOUBLETREE RANCH ROAD
SCOTTSDALE, AZ 85258
NAME AND TITLE
James M. Hennessy - President and CEO
Stanley D. Vyner - Chief Investment Risk Officer
Michael J. Roland - Executive VP, CFO & Treasurer
Lydia L. Homer - Senior VP & Controller
William H. Rivoir, III - Senior VP & Secretary
Robert S. Naka - Senior VP & Assistant Secretary
PRINCIPAL EXECUTIVE OFFICERS AND DIRECTORS OF
AELTUS INVESTMENT MANAGEMENT, INC.
10 STATE HOUSE SQUARE
HARTFORD, CT 06103
NAME AND TITLE
Thomas J. McInerney, Director
Robert J. Crispin, Director
J.Scott Fox, Director, President and CEO
Neil Kochen, Executive VP
Jeffrey T. Becker, Senior VP and CFO
Michael Gioffre, Senior VP, Counsel and Secretary
PRINCIPAL EXECUTIVE OFFICERS OF ING FUNDS SERVICES, LLC
7337 E. DOUBLETREE RANCH ROAD
SCOTTSDALE, AZ 85258
NAME AND TITLE
James M. Hennessy - President and CEO
Michael J. Roland - Executive VP, CFO & Treasurer
Lydia L. Homer - Senior VP & Controller
William H. Rivoir III - Senior VP & Secretary
Robert S. Naka - Senior VP & Assistant Secretary
PRINCIPAL EXECUTIVE OFFICERS OF ING FUNDS DISTRIBUTOR, LLC
7337 E. DOUBLETREE RANCH ROAD
SCOTTSDALE, AZ 85258
NAME AND TITLE
Robert J. Boulware - President & CEO
69
James M. Hennessy - Senior Executive VP & Chief Operating Officer
Michael J. Roland - Executive VP, CFO & Treasurer
Lydia L. Homer - Senior VP & Controller
Lauren Bensinger - VP & Chief Compliance Officer
70
APPENDIX 4
AGGREGATE MANAGEMENT AGREEMENT
FISCAL ADVISORY FEES LAST APPROVED BY
NAME OF FUND YEAR END PAID SHAREHOLDERS
------------ -------- ---- ------------
ING Prime Rate Trust 02/28/03 $12,698,403 08/25/2000
71
APPENDIX 5
CURRENT ADVISER AND PROPOSED SUB-ADVISER FEES
FUND ADVISER FEE PROPOSED SUB-ADVISER FEE
---- ----------- ------------------------
ING Prime Rate Trust 0.80% 0.3600%
72
ING PRIME RATE TRUST-COMMON SHARES
ANNUAL MEETING OF SHAREHOLDERS SCHEDULED FOR AUGUST 19, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby instructs Kimberly A. Anderson, Jeffrey A. Bakalar or
Michael J. Roland (Proxies) to vote the shares held by him or her at the Annual
Meeting of shareholders (the "Annual Meeting") of ING Prime Rate Trust (the
"Trust") to be held at: 7337 East Doubletree Ranch Road, Scottsdale, Arizona
85258-2034, on August 19, 2003, at 10:00 a.m., Local time and at any adjournment
thereof, in the manner directed below with respect to the matters referred to in
the Proxy Statement for the Annual Meeting, receipt of which is hereby
acknowledged, and in the Proxies' discretion, upon such other matters as may
properly come before the meeting or any adjournment(s) thereof.
Please vote, sign and date this Proxy Ballot and return it in the enclosed
envelope.
These voting instructions will be voted as specified. IF NO SPECIFICATION IS
MADE, THIS VOTING INSTRUCTION WILL BE VOTED "FOR" ALL PROPOSALS.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE STRONGLY
URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY BALLOT AS SOON AS POSSIBLE.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
4) Return the Proxy Ballot in the envelope provided.
Please indicate your vote by an "X" in the appropriate box below.
THIS PROXY BALLOT IS VALID ONLY WHEN SIGNED AND DATED
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
FOR
FOR WITHHOLD ALL
VOTE ON TRUSTEES ALL ALL EXCEPT
---------------- --- --- ------
1. To elect nine members of the To withhold
Board of Trustees to represent authority to
the interests of the holders vote, mark
of Common Shares of the Trust "For All
until the election and Except" and
qualification of their write the
successors. nominee's
number on the
01) Paul S. Doherty, 02) J. line below.
Michael Earley, 03) R. Barbara
Gitenstein, 04) Thomas J.
McInerney, 05) David W.C.
Putnam, 06) Blaine E. Rieke,
07) John G. Turner, 08) Roger
B. Vincent, and 09) Richard A.
Wedemeyer. [ ] [ ] [ ]
2. Not Applicable
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
----------------- --- ------- -------
3. Ratification of the selection
of KPMG LLP as the current [ ] [ ] [ ]
independent auditor of the
Trust.
4. To approve a Sub-Advisory
Agreement between ING
Investments, LLC and Aeltus
Investment Management, Inc., [ ] [ ] [ ]
with no change in the Adviser,
the portfolio managers, or the
overall management fee paid by
the Trust.
5. Such other business as may
properly come before the
Annual Meeting or any
adjournment(s) or [ ] [ ] [ ]
postponement(s) thereof.
This Proxy Ballot must be signed exactly as your name(s) appears hereon. If as
an attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add titles as such. Joint owners must each
sign.
------------------------- --------------------------------------
Signature Date Signature (Joint Owners) Date
ING PRIME RATE TRUST-AUCTION RATE CUMULATIVE
PREFERRED SHARES SERIES M, T, W, TH AND F
ANNUAL MEETING OF SHAREHOLDERS SCHEDULED FOR AUGUST 19, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby instructs Kimberly A. Anderson, Jeffrey A. Bakalar or
Michael J. Roland (Proxies) to vote the shares held by him or her at the Annual
Meeting of shareholders (the "Annual Meeting") of ING Prime Rate Trust (the
"Trust") to be held at: 7337 East Doubletree Ranch Road, Scottsdale, Arizona
85258-2034, on August 19, 2003, at 10:00 a.m., Local time and at any adjournment
thereof, in the manner directed below with respect to the matters referred to in
the Proxy Statement for the Annual Meeting, receipt of which is hereby
acknowledged, and in the Proxies' discretion, upon such other matters as may
properly come before the meeting or any adjournment(s) thereof.
Please vote, sign and date this Proxy Ballot and return it in the enclosed
envelope.
These voting instructions will be voted as specified. IF NO SPECIFICATION IS
MADE, THIS VOTING INSTRUCTION WILL BE VOTED "FOR" ALL PROPOSALS.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE STRONGLY
URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY BALLOT AS SOON AS POSSIBLE.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
4) Return the proxy card in the envelope provided.
Please indicate your vote by an "X" in the appropriate box below.
THIS PROXY BALLOT IS VALID ONLY WHEN SIGNED AND DATED
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
FOR
FOR WITHHOLD ALL
VOTE ON TRUSTEES ALL ALL EXCEPT
---------------- --- --- ------
1. Not Applicable
2. To elect two members of the To withhold
Board of Trustees to represent authority to
the interests of the holders of vote, mark
Auction Rate Cumulative "For All
Preferred Shares - Series M, T, [ ] [ ] [ ] Except" and
W, TH and F of the Trust - write the
until the election and nominee's
qualification of their number on the
successors. line below.
(1) Walter H. May and (2) Jock
Patton _____________
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
----------------- --- ------- -------
3. Ratification of the selection
of KPMG LLP as the current [ ] [ ] [ ]
independent auditor of the
Trust.
4. To approve a Sub-Advisory
Agreement between ING
Investments, LLC and Aeltus
Investment Management, Inc., [ ] [ ] [ ]
with no change in the Adviser,
the portfolio managers, or the
overall management fee paid by
the Trust.
5. Such other business as may [ ] [ ] [ ]
properly come before the Annual
Meeting or any adjournment(s) or
postponement(s) thereof.
This Proxy Ballot must be signed exactly as your name(s) appears hereon. If as
an attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add titles as such. Joint owners must each
sign.
------------------------------- --------------------------------------
Signature Date Signature (Joint Owners) Date