ANNUAL REPORT
February 28, 2002 ING PRIME RATE TRUST
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ING FUNDS
ING Prime Rate Trust
ANNUAL REPORT
February 28, 2002
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Table of Contents
Portfolio Managers' Report ........................................ 2
Statistics and Performance ........................................ 5
Performance Footnotes ............................................. 7
Additional Notes and information .................................. 8
Report of Independent Auditors .................................... 9
Portfolio of Investments .......................................... 10
Statement of Assets and Liabilities ............................... 30
Statement of Operations ........................................... 31
Statement of Changes in Net Assets ................................ 32
Statements of Cash Flows .......................................... 33
Financial Highlights .............................................. 34
Notes to Financial Statements ..................................... 36
Tax Information ................................................... 43
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ING Prime Rate Trust
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PORTFOLIO MANAGERS' REPORT
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Dear Shareholders:
We are pleased to present the February 28, 2002 Annual Report for the ING Prime
Rate Trust (formerly the Pilgrim Prime Rate Trust).
Our fund family now has many funds of varying types which are designed to
provide core investment choices for the serious investor.
On March 1, 2002, several name changes took place with the Pilgrim Funds to
reflect our new association with the Aetna Funds under ING Group. The integrated
fund family is now called ING Funds.
ING Prime Rate Trust (the "Trust") invests in a diversified portfolio of
non-investment grade senior floating rate loans made primarily to U.S. based
corporations. During the year ended February 28, 2002, the Trust paid its 166th
consecutive dividend.
PERFORMANCE OF THE TRUST
Based on $0.12 of dividends declared for common shareholders during the quarter
ended February 28, 2002 and the average month-end net asset value ("NAV") per
share of $7.25, the annualized distribution rate was 6.80%1 for the quarter,
down from 7.48% as of November 30, 2001. As stated in earlier reports, the
decline in the annualized distribution rate is consistent with the dramatic
reduction in short term interest rates, commencing late in 2000 and lasting
through the end of the Trust's 2002 fiscal year end. The Trust's annualized
distribution rate based on the Trust's month-end NYSE Composite Closing Price
("Market") for the quarter was 7.31%1, which continues to present an attractive
yield advantage over many other variable and fixed income investment products.
The Trust's total return (based on NAV) for the quarter was 0.33%, as compared
to -3.06%, for the quarter ended November 30, 2001. The improvement reflects
both a decidedly better tone across the non-investment grade loan market in
recent months and a general firming of indicative loan prices subsequent to the
September 11, 2001 tragedies. Total return for the full fiscal year ended
February 28, 2002 was -3.02%, reflective largely of the still challenging credit
conditions that were undoubtedly exacerbated by the events of September 11th.
Default and recovery experience market-wide remains challenging, particularly in
those sectors in which fresh capital is scarce (e.g., telecommunications and
technology).
We continue to strive to improve the overall quality of the Trust's portfolio.
To that end, the Trust increased its exposure to borrowers from the cable
television and healthcare sectors, both of which have performed relatively well
in a comparably volatile credit environment. Conversely, we were fortunately
able to reduce exposure to the hospitality sector, one of the industry groupings
most significantly impacted in the wake of the attacks, without a meaningful
impact on net asset value. Diversification measures were also improved slightly
during the quarter ended February 28, 2002, as the number of individual issuers
increased to 254 (from 250) and the average position size remained unchanged, at
approximately 0.38% of total assets.
LEVERAGE
The Trust has utilized financial leverage to seek to increase the yield to the
holders of common shares. As of February 28, 2002, the Trust had $732 million of
borrowings outstanding, consisting of $450 million of `aaa/AAA' rated cumulative
auction rate preferred shares, and $282 million under a $550 million credit
facility. Total leverage, as a percentage of total assets (including preferred
shares), was 42.5% at year end. The weighted average cost of all borrowing and
leveraging as of the year end was 1.98%.
2
OUTLOOK
We continue to be encouraged by signs, some admittedly nascent, of recovery in
the U.S. economy. Improving economic conditions and the associated probability
of rising short-term interest provides the ideal backdrop for solid performance
on the part of loans. By definition, floating rate loans would provide an
increasing yield once the Federal Reserve begins to raise interest rates.
Conversely, bond prices generally move in the opposite direction as interest
rates, regardless of credit quality. As such, we believe the Trust at this time
is attractively positioned from a risk/return standpoint, relative to other
income generating alternatives.
We thank you for your investment in ING Prime Rate Trust.
/s/ Jeffrey A. Bakalar /s/ Daniel A. Norman
Jeffrey A. Bakalar Daniel A. Norman
Senior Vice President Senior Vice President
Co-Senior Portfolio Manager Co-Senior Portfolio Manager
ING Prime Rate Trust
April 19, 2002
3
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PORTFOLIO MANAGERS' FOOTNOTES
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1. The distribution rate is calculated by annualizing dividends declared
during the quarter and dividing the resulting annualized dividend by the
Trust's average month-end net asset value (in the case of NAV) or the
average month-end NYSE Composite closing price (in the case of Market). The
distribution rate is based solely on the actual dividends and
distributions, which are made at the discretion of management. The
distribution rate may or may not include all investment income and
ordinarily will not include capital gains or losses, if any.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
SENIOR LOANS ARE SUBJECT TO CREDIT RISKS AND THE POTENTIAL FOR NON-PAYMENT OF
SCHEDULED PRINCIPAL OR INTEREST PAYMENTS, WHICH MAY RESULT IN A REDUCTION OF THE
TRUST'S NAV.
THIS LETTER CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING STATEMENTS." ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING
STATEMENTS."
THE VIEWS EXPRESSED IN THIS LETTER REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
PORTFOLIO MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
4
ING Prime Rate Trust
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STATISTICS AND PERFORMANCE as of February 28, 2002
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PORTFOLIO CHARACTERISTICS
Net Assets $ 985,981,679
Assets Invested in Senior Loans* $1,644,669,913
Total Number of Senior Loans 254
Average Amount Outstanding per Loan $ 6,475,078
Total Number of Industries 34
Average Loan Amount per Industry $ 48,372,645
Portfolio Turnover Rate (YTD) 53%
Weighted Average Days to Interest Rate Reset 46 days
Average Loan Final Maturity 51 months
Total Leverage as a Percentage of Total Assets
(including Preferred Shares) 42.5%
* Includes loans and other debt received through restructurings
TOP TEN SENIOR LOAN INDUSTRIES AS A PERCENTAGE OF:
NET ASSETS TOTAL ASSETS
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Cable Television 11.5% 6.6%
Cellular Communications 11.3% 6.5%
Healthcare, Education and Childcare 10.3% 5.9%
Lodging 10.0% 5.8%
Leisure, Amusement, Motion Pictures and Entertainment 10.0% 5.7%
Chemicals, Plastics and Rubber 8.4% 4.9%
Containers, Packaging and Glass 7.6% 4.4%
Aerospace and Defense 7.3% 4.2%
Automobile 6.2% 3.6%
Beverage, Food and Tobacco 6.2% 3.5%
TOP TEN SENIOR LOANS AS A PERCENTAGE OF:
NET ASSETS TOTAL ASSETS
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Nextel Finance Co. 5.0% 2.8%
Charter Communications Operating LLC 4.5% 2.6%
Broadwing Corporation 2.8% 1.6%
Wyndham International, Inc. 2.5% 1.4%
Allied Waste Industries, Inc. 2.4% 1.4%
SC International Services 2.4% 1.4%
Starwood Hotels & Resorts Worldwide, Inc. 2.3% 1.3%
Ford Motor Credit Corp. 2.0% 1.1%
Dean Foods Corporation 1.7% 1.0%
Western Wireless Corp. 1.7% 1.0%
5
ING Prime Rate Trust
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STATISTICS AND PERFORMANCE as of February 28, 2002
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YIELDS AND DISTRIBUTION RATES
Average Average
(NAV) (MKT) Annualized Annualized
Prime 30-Day SEC 30-Day SEC Distribution Distribution
Quarter-ended Rate Yield(A) Yield(A) Rate at NAV(B) Rate at MKT(B)
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February 28, 2002 4.75% 7.26% 7.73% 6.80% 7.31%
November 30, 2001 5.00% 8.33% 9.26% 7.48% 8.23%
August 31, 2001 6.50% 10.49% 10.69% 8.19% 8.37%
May 31, 2001 7.00% 11.20% 11.38% 9.42% 9.50%
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
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1 Year -3.02% -9.20%
3 Years 0.89% -2.04%
5 Years 3.65% 1.23%
10 Years 5.70% N/A
Since Trust Inception(F,H) 6.73% N/A
Since Initial Trading on NYSE(G) N/A 5.56%
ASSUMES RIGHTS WERE EXERCISED AND EXCLUDES SALES CHARGES AND COMMISSIONS C,D,E
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
See performance footnotes on page 7.
6
ING Prime Rate Trust
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PERFORMANCE FOOTNOTES
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(A) Yield is calculated by dividing the Trust's net investment income per share
for the most recent thirty days by the net asset value (in the case of NAV)
or the NYSE Composite closing price (in the case of market) at quarter-end.
Yield calculations do not include any commissions or sales charges, and are
compounded for six months and annualized for a twelve-month period to
derive the Trust's yield consistent with the SEC standardized yield formula
for open-end investment companies.
(B) The distribution rate is calculated by annualizing each monthly dividend,
then averaging the annualized dividends declared for each month during the
quarter and dividing the resulting average annualized dividend amount by
the Trust's average net asset value (in the case of NAV) or the NYSE
Composite closing price (in the case of Market) at the end of the period.
(C) Calculation of total return assumes a hypothetical initial investment at
the net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) on the last business day before the first day
of the stated period, with all dividends and distributions reinvested at
the actual reinvestment price.
(D) On December 27, 1994, the Trust issued to its shareholders transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. On January 27, 1995, the offering expired and was fully
subscribed. The Trust issued 17,958,766 shares of its common stock to
exercising rights holders at a subscription price of $8.12. Offering costs
of $4,470,955 were charged against the offering proceeds.
(E) On October 18, 1996, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 18,122,963 shares of the
Trust's common stock at the rate of one share of common stock for each five
rights held. On November 12, 1996, the offering expired and was fully
subscribed. The Trust issued 18,122,963 shares of its common stock to
exercising rights holders at a subscription price of $9.09. Offering costs
of $6,972,203 were charged against the offering proceeds.
(F) Inception Date -- May 12, 1988.
(G) Initial Trading on NYSE -- March 9, 1992.
(H) Reflects partial waiver of fees.
7
ING Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program", formerly known
as the Dividend Reinvestment and Cash Purchase Plan) which allows common
shareholders a simple way to reinvest dividends and capital gains distributions,
if any, in additional common shares of the Trust. The Program also offers Trust
common shareholders the ability to make optional cash investments in any amount
from $100 to $5,000 on a monthly basis. Amounts in excess of $5,000 require
prior approval of the Trust. DST Systems, Inc., the Trust's Transfer Agent, is
the Administrator for the Program.
For dividend reinvestment purposes, the Administrator will purchase shares of
the Trust on the open market when the market price plus estimated commissions is
less than the net asset value on the valuation date. The Trust may issue new
shares when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date. New shares may be issued at the
greater of (i) net asset value or (ii) the market price of the shares during the
pricing period, minus a discount of 5%.
For optional cash investments, shares will be purchased on the open market by
the Administrator when the market price plus estimated commissions is less than
the net asset value on the valuation date. New shares may be issued by the Trust
when the market price plus estimated commissions is equal to or exceeds the net
asset value on the valuation date.
There is no charge to participate in the Program. Participants may elect to
discontinue participation in the Program at any time. Participants will share,
on a pro-rata basis, in the fees or expenses of any shares acquired in the open
market.
Participation in the Program is not automatic. If you would like to receive more
information about the Program or if you desire to participate, please contact
your broker or our Shareholder Services Department at (800) 992-0180.
KEY FINANCIAL DATES -- Calendar 2002 Dividends:
DECLARATION DATE EX-DATE PAYABLE DATE
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January 31 February 7 February 25
February 28 March 7 March 22
March 28 April 8 April 22
April 30 May 8 May 22
May 31 June 6 June 24
June 28 July 8 July 22
July 31 August 8 August 22
August 30 September 6 September 23
September 30 October 8 October 22
October 31 November 7 November 22
November 29 December 6 December 23
December 20 December 27 January 13, 2003
RECORD DATE WILL BE TWO BUSINESS DAYS AFTER EACH EX-DATE. THESE DATES ARE
SUBJECT TO CHANGE.
STOCK DATA
The Trust's shares are traded on the New York Stock Exchange (Symbol: PPR).
Effective March 1, 2002, the Trust's name changed to ING Prime Rate Trust and
its CUSIP number changed to 44977W106. On November 16, 1998 the Trust's name
changed to Pilgrim Prime Rate Trust and its cusip number became 72146W 10 3.
Prior to November 16, 1998 the Trust's name was Pilgrim America Prime Rate Trust
and its cusip number was 720906 10 6. The Trust's NAV and market price are
published daily under the "Closed-End Funds" feature in Barron's, The New York
Times, The Wall Street Journal and many other regional and national
publications.
8
ING Prime Rate Trust
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REPORT OF INDEPENDENT AUDITORS
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To the Shareholders and the Board of Trustees
ING Prime Rate Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the ING Prime Rate Trust (the "Trust")
(formerly the Pilgrim Prime Rate Trust) as of February 28, 2002, and the related
statements of operations and cash flows for the year then ended, and the
statements of changes in net assets for each of the years in the two-year period
ended February 28, 2002, and the financial highlights for each of the years in
the seven-year period ended February 28, 2002. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. For all periods ending prior to March
1, 1995, the financial highlights were audited by the auditors whose report
thereon dated March 16, 1995, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of investments owned as of February 28, 2002 by
confirmation with the custodian and other procedures we considered necessary. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
ING Prime Rate Trust as of February 28, 2002 and the results of its operations
and its cash flows for the year then ended, and the changes in its net assets
for each of the years in the two-year period ended February 28, 2002, and
financial highlights for each of the years in the seven-year period ended
February 28, 2002, in conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
Los Angeles, California
April 19, 2002
9
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 28, 2002
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Senior Loans*
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
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Aerospace and Defense: 7.3%
Aerostructures Corp. NR BB-
$ 2,329,252 Term Loan, maturing May 09, 2003 $ 2,253,551
Alliant Techsystems, Inc. B1 BB-
2,906,644 Term Loan, maturing April 20, 2009 2,941,840
Avborne NR NR
14,546,889 Term Loan, maturing June 30, 2005 9,091,806
DRS Technologies Ba3 BB-
1,995,000 Term Loan, maturing September 30, 2008 2,014,950
Erickson Air-Crane Company NR NR
8,529,838 Term Loan, maturing December 31, 2004 8,347,998
New Piper Aircraft NR NR
8,550,661 Term Loan, maturing April 15, 2005 8,443,777
Piedmont Aviation Services NR NR
6,239,878 Term Loan, maturing July 23, 2006 6,177,479
6,239,878 Term Loan, maturing July 23, 2007 6,177,479
Titan Corporation Ba3 BB-
3,447,368 Term Loan, maturing February 23, 2007 3,451,678
2,992,386 Term Loan, maturing February 23, 2007 2,996,126
Transdigm Holding Corporation B1 B+
556,354 Term Loan, maturing May 15, 2006 548,589
1,426,719 Term Loan, maturing May 15, 2007 1,406,805
Transtar Metals, Inc. NR NR
14,866,071 Term Loan, maturing December 31, 2005(3) 8,919,643
United Defense Industries B1 BB-
6,053,734 Term Loan, maturing August 13, 2009 6,083,058
Vought Aircraft Industries, Inc. Ba3 B
3,083,333 Term Loan, maturing December 31, 2006 2,944,583
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71,799,362
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Automobile: 6.2%
Breed Technolgies, Inc. NR NR
1,612,242 Term Loan, maturing December 20, 2004 1,371,414
Capital Tool & Design, Ltd. NR NR
9,131,964 Term Loan, maturing May 31, 2003 8,858,005
Collins & Aikman Products Ba3 BB-
3,000,000 Term Loan, maturing June 30, 2005 3,007,188
Dura Operating Corp Ba3 BB-
3,855,380 Term Loan, maturing March 31, 2006 3,854,177
Exide Technologies Caa2 CCC
5,210,467 Term Loan, maturing March 18, 2005 3,966,468
Ford Motor Credit Company Baa1 BBB+
20,000,000 Floating Rate Note maturing October 25, 2004 19,664,940
See Accompanying Notes to Financial Statements
10
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 28, 2002
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Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
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Automobile (continued)
Hayes Lemmerz International, Inc.(2) Caa2 NR
$ 5,478,750 Term Loan, maturing December 31, 2005(3) $ 4,427,275
Metaldyne Company, LLC Ba3 BB-
3,354,532 Term Loan, maturing June 21, 2009 3,193,095
Safelite Glass Corp. B3 NR
5,723,514 Term Loan, maturing September 30, 2007 5,823,676
7,105,846 Term Loan, maturing September 30, 2007 7,230,199
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61,396,437
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Banking: 1.2%
Outsourcing Solutions, Inc. B2 B+
12,231,030 Term Loan, maturing June 10, 2006 11,405,436
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11,405,436
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Beverage, Food and Tobacco: 6.2%
Aurora Foods B2 B
1,920,000 Revolving Loan, maturing June 30, 2005 1,797,600
4,963,563 Term Loan, maturing June 30, 2005 4,897,384
Commonwealth Brands, Inc. Ba3 BB-
2,265,170 Term Loan, maturing December 31, 2004 2,270,833
Cott Corporation Ba3 BB
1,930,000 Term Loan, maturing December 31, 2006 1,939,650
CP Kelco ApS B1 B+
5,232,963 Term Loan, maturing March 31, 2008 4,945,150
1,748,704 Term Loan, maturing September 30, 2008 1,652,525
Dean Foods Corporation Ba2 BB+
17,000,000 Term Loan, maturing July 15, 2008 17,145,707
Empire Kosher Poultry NR NR
13,545,000 Term Loan, maturing July 31, 2004 8,262,450
Flower Foods Ba2 BBB-
2,487,500 Term Loan, maturing March 26, 2007 2,505,845
Imperial Sugar Company NR NR
949,055 Term Loan, maturing December 31, 2005 768,735
1,025,865 Term Loan, maturing December 31, 2003 830,950
Interstate Bakeries Corporation BA1 BBB-
2,985,000 Term Loan, maturing July 19, 2007 3,003,656
Mafco Worldwide Corp. B1 B
3,666,667 Term Loan, maturing March 31, 2006 3,639,627
New World Coffee Manhattan Bagel, Inc. B3 B-
4,000,000 Secured Floating Rate Note maturing June 15, 2003 4,000,000
Nutrasweet Acquisition Corp. Ba3 NR
962,868 Term Loan, maturing May 25, 2007 962,868
See Accompanying Notes to Financial Statements
11
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 28, 2002
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Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
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Beverage, Food and Tobacco: (continued)
Pabst Brewing Company NR CCC
$ 2,377,056 Term Loan, maturing April 27, 2003 $ 2,186,892
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60,809,872
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Building and Real Estate: 5.6%
Corrections Corporation Of America B2 B
4,987,500 Term Loan, maturing December 31, 2002 4,987,500
9,391,605 Term Loan, maturing December 31, 2002 9,370,871
HQ Global WorkPlaces, Inc.(2) NR NR
3,865,243 Term Loan, maturing November 06, 2005(3) 2,898,933
Kevco, Inc.(2) NR D
1,075,454 Term Loan, maturing February 02, 2005(3) 737,923
National Golf Operating Partnership, L.P NR NR
8,835,292 Term Loan, maturing July 22, 2004 8,172,645
Rodamco North America Baa3 BBB-
7,140,645 Term Loan, maturing November 08, 2002 7,033,536
1,331,974 Term Loan, maturing September 25, 2002 1,331,974
U.S. Aggregates NR NR
5,137,631 Term Loan, maturing March 31, 2006(3) 3,978,191
Ventas Realty Limited Partnership NR NR
1,379,705 Term Loan, maturing December 31, 2005 1,380,137
15,073,116 Term Loan, maturing December 31, 2007 15,079,401
------------
54,971,111
------------
Cable Television: 11.5%
CC VI Operating Co., LLC Ba3 BB
8,000,000 Term Loan, maturing November 12, 2008 7,788,000
CC VIII Operating Co., LLC Ba3 BB+
4,500,000 Term Loan, maturing February 02, 2008 4,383,563
Century Cable Holdings, LLC Ba2 BB
8,000,000 Term Loan, maturing June 30, 2009 7,915,000
5,000,000 Term Loan, maturing December 31, 2009 4,948,010
Charter Communications Operating, LLC Ba3 BBB-
20,000,000 Term Loan, maturing September 18, 2008 19,390,000
26,056,250 Term Loan, maturing March 18, 2008 25,273,468
Insight Midwest Holdings, LLC Ba3 BB+
14,500,000 Term Loan, maturing December 31, 2009 14,558,261
Lodgenet Entertainment Corp. Ba3 B+
997,500 Term Loan, maturing June 30, 2006 985,031
MCC Iowa Mediacom Broadband Ba3 BB+
13,500,000 Term Loan, maturing September 30, 2010 13,569,376
Olympus Cable Holdings, LLC Ba2 BB
15,000,000 Term Loan, maturing September 30, 2010 14,907,420
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113,718,129
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See Accompanying Notes to Financial Statements
12
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 28, 2002
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Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Cargo Transport: 4.8%
American Commercial Lines B3 B+
$ 2,092,959 Term Loan, maturing June 30, 2007 $ 1,924,999
1,459,161 Term Loan, maturing June 30, 2006 1,342,063
Evergreen International Aviation, Inc. Ba2 B+
2,249,114 Term Loan, maturing May 07, 2003 2,035,448
94,793 Term Loan, maturing May 31, 2002 85,788
346,546 Term Loan, maturing May 07, 2003 313,624
Gemini Leasing, Inc. B1 NR
4,117,116 Term Loan, maturing August 12, 2005(3) 2,058,558
Interpool, Inc. Ba2 BBB
15,739,480 Term Loan, maturing October 26, 2002 15,788,666
Motor Coach Industries International, Inc. B2 B
5,000,000 Term Loan, maturing June 16, 2006 4,200,000
Neoplan USA Corporation NR NR
9,639,990 Term Loan, maturing May 29, 2005 9,639,990
Omnitrax Railroads, LLC NR NR
4,843,219 Term Loan, maturing May 13, 2005 4,831,111
Oshkosh Truck Company Ba2 BB+
2,962,500 Term Loan, maturing January 31, 2007 2,988,422
Railamerica, Inc. Ba3 BB-
1,199,061 Term Loan, maturing December 31, 2005 1,185,572
188,523 Revolving Loan, maturing December 31, 2005 184,988
452,280 Term Loan, maturing December 31, 2006 454,259
-----------
47,033,488
-----------
Cellular Communications: 11.3%
Airgate PCS, Inc. B2 B2
7,295,114 Term Loan, maturing September 30, 2008 7,240,401
967,427 Term Loan, maturing August 29, 2007 960,171
American Cellular Corporation Ba3 BB-
4,521,813 Term Loan, maturing March 31, 2009 4,425,467
2,592,246 Term Loan, maturing March 31, 2008 2,537,013
Microcell Connexions, Inc. B3 CC
5,000,000 Term Loan, maturing February 22, 2007 4,250,000
Independent Wireless One B2 B-
10,000,000 Term Loan, maturing June 20, 2008 9,825,000
Nextel Finance Company Ba2 BB-
4,750,000 Term Loan, maturing June 30, 2008 3,933,394
50,500,000 Term Loan, maturing March 31, 2009 41,089,527
4,750,000 Term Loan, maturing December 31, 2008 3,933,394
Nextel Operations, Inc. Ba2 BB-
6,611,043 Term Loan, maturing March 15, 2006 6,552,177
Rural Cellular Corp. Ba3 B+
4,990,078 Term Loan, maturing October 03, 2008 4,601,565
4,990,078 Term Loan, maturing April 03, 2009 4,601,565
See Accompanying Notes to Financial Statements
ING Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Cellular Communications (continued)
Western Wireless Ba2 Ba2
$ 3,600,000 Revolving Loan, maturing March 31, 2008 $ 3,078,000
8,000,000 Term Loan, maturing March 31, 2008 6,870,000
8,000,000 Term Loan, maturing September 30, 2008 7,146,664
------------
111,044,338
------------
Chemicals, Plastics and Rubber: 8.4%
Acadia Elastomers Corp. NR NR
9,452,555 Term Loan, maturing March 31, 2004 9,045,206
Cedar Chemicals Corporation NR NR
10,943,864 Term Loan, maturing October 31, 2003(3) 2,735,966
Equistar Chemicals, L.P. Ba2 BBB
4,987,500 Term Loan, maturing August 24, 2007 5,005,166
Euro United Corp(4) NR NR
14,887,500 Term Loan, maturing May 31, 2001(3) 4,466,250
Foam Fabricators, Inc. NR NR
3,889,180 Term Loan, maturing March 05, 2005 3,879,457
Foamex, L.P. B3 BB-
3,263,101 Term Loan, maturing June 30, 2005 3,177,444
2,966,466 Term Loan, maturing June 30, 2006 2,888,596
Geo Speciality Chemicals, Inc. B1 B+
3,000,000 Term Loan, maturing December 31, 2007 2,895,000
Hercules Incorporated Ba1 BB
11,137,327 Term Loan, maturing October 15, 2003 11,119,931
1,980,000 Term Loan, maturing November 15, 2005 1,984,744
Huntsman Corporation Caa2 D
5,099,561 Revolving Loan, maturing February 07, 2003 3,374,186
5,800,000 Term Loan, maturing December 31, 2002 5,792,750
260,155 Term Loan, maturing September 30, 2003 172,028
7,000,000 Term Loan, maturing December 31, 2005 4,628,750
Huntsman International, LLC B2 B+
3,158,023 Term Loan, maturing June 30, 2008 3,081,226
1,612,264 Term Loan, maturing June 30, 2005 1,549,386
3,158,023 Term Loan, maturing June 30, 2007 3,081,226
Lyondell Chemical Company Ba3 BB
4,963,386 Term Loan, maturing May 17, 2006 5,008,886
Millennium America, Inc. Baa3 BBB-
1,840,000 Term Loan, maturing June 18, 2006 1,849,200
Noveon, Inc. B1 BB-
4,711,250 Term Loan, maturing September 30, 2008 4,718,614
OM Group, Inc. Ba3 BB
1,994,991 Term Loan, maturing April 01, 2007 2,003,511
------------
82,457,523
------------
See Accompanying Notes to Financial Statements
14
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Containers, Packaging & Glass: 7.6%
Blue Ridge Paper Products B2 B+
$ 8,772,601 Term Loan, maturing May 14, 2006 $ 8,772,601
Greif Bros. Corp. Ba3 BB
2,382,990 Term Loan, maturing April 03, 2002 2,373,559
2,311,664 Term Loan, maturing February 28, 2008 2,323,463
Impaxx, Inc. NR NR
4,800,000 Term Loan, maturing December 31, 2005 4,750,609
Jefferson Smurfit Corp. Ba3 B+
3,000,000 Term Loan, maturing March 31, 2007 3,002,292
Lincoln Pulp & Eastern Fine Paper Corp.(2) NR NR
14,881,108 Term Loan, maturing August 31, 2004 13,032,232
92,280 Term Loan, maturing December 31, 2001 92,637
Nexpak Corporation B1 B+
2,295,403 Term Loan, maturing December 31, 2006 1,916,661
2,295,403 Term Loan, maturing December 31, 2005 1,916,661
Packaging Corporation Of America Baa3 BBB
1,510,295 Term Loan, maturing June 29, 2006 1,507,778
Pliant Corp. B2 B+
2,946,429 Term Loan, maturing May 31, 2008 2,924,330
Potlatch Corporation Baa2 BBB-
2,985,000 Term Loan, maturing June 29, 2005 2,996,815
Riverwood International Corporation B1 B+
1,008,333 Revolving Loan, maturing December 31, 2006 974,932
15,000,000 Term Loan, maturing December 31, 2006 15,079,020
Stone Container Corp. Ba3 B+
5,630,489 Term Loan, maturing December 31, 2005 5,637,527
5,068,574 Term Loan, maturing December 31, 2006 5,067,520
Tekni-Plex, Inc. B1 B+
2,955,000 Term Loan, maturing June 21, 2008 2,925,450
-----------
75,294,087
-----------
Data and Internet Services: 1.6%
360Networks, Inc.(2) NR D
7,500,000 Term Loan, maturing December 31, 2007(3) 1,375,000
5,000,000 Term Loan, maturing September 30, 2007(3) 850,000
Arch Wireless Holdings, Inc.(2) Caa1 D
8,515,897 Term Loan, maturing June 30, 2006(3) 1,450,368
ICG Equipment, Inc.(2) Caa3 D
6,995,226 Term Loan, maturing March 31, 2006 6,610,489
McLeod USA Corp.(2) Caa2 D
2,000,000 Term Loan, maturing May 30, 2008 1,260,000
Teletouch Communications(2) NR NR
9,896,064 Term Loan, maturing November 30, 2004(3) 3,661,544
Teligent, Inc.(2) NR NR
4,750,000 Term Loan, maturing June 30, 2006(3) 148,438
See Accompanying Notes to Financial Statements
15
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Data and Internet Services: (continued)
TSR Wireless(1) NR NR
$ 11,440,280 Term Loan, maturing June 30, 2005(3) $ 188,480
-----------
15,544,319
-----------
Diversified/Conglomerate Manufacturing: 4.1%
Allied Digital Technologies Corp.(2) NR NR
8,498,223 Term Loan, maturing December 31, 2005(3) 709,733
Barjan Products LLC NR NR
4,863,375 Term Loan, maturing May 31, 2006 4,644,523
Dresser, Inc. Ba3 BB-
5,957,531 Term Loan, maturing April 10, 2009 6,002,213
General Cable Corporation Ba3 BB+
3,725,589 Term Loan, maturing May 27, 2007 3,592,865
Manitowoc Company, Inc. Ba2 BB
1,990,000 Term Loan, maturing May 09, 2007 2,003,930
Mueller Group, Inc. B1 B+
2,992,386 Term Loan, maturing April 17, 2008 3,006,100
Neptune Technology Group Ba3 BB-
3,000,000 Term Loan, maturing November 01, 2008 3,030,000
SPX Corporation Ba2 BB+
4,950,040 Term Loan, maturing December 31, 2007 4,960,351
6,900,000 Term Loan, maturing September 30, 2004 6,865,500
United Pet Group NR NR
6,214,397 Term Loan, maturing March 31, 2006 6,232,862
-----------
41,048,077
-----------
Diversified/Conglomerate Service: 2.4%
Enterprise Profit Solutions Corp. NR NR
1,548,033 Term Loan, maturing June 14, 2001(3) 30,961
Mafco Finance Corp. NR NR
7,086,460 Term Loan, maturing August 14, 2002 7,020,024
Private Business NR NR
3,955,072 Term Loan, maturing August 19, 2006 3,915,521
URS Corporation Ba3 BB
10,283,277 Term Loan, maturing June 09, 2005 9,897,654
742,857 Revolving Loan, maturing June 09, 2005 715,000
1,218,750 Term Loan, maturing June 09, 2007 1,180,664
1,218,750 Term Loan, maturing June 09, 2006 1,180,664
-----------
23,940,488
-----------
Ecological: 3.5%
Allied Waste North America, Inc. Ba3 BB
10,245,003 Term Loan, maturing July 21, 2006 10,132,170
1,631,678 Term Loan, maturing July 21, 2005 1,585,922
12,294,003 Term Loan, maturing July 21, 2007 12,137,931
See Accompanying Notes to Financial Statements
16
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Ecological: (continued)
American Ref-Fuel Company LLC Baa2 BBB
$ 3,874,419 Term Loan, maturing April 30, 2005 $ 3,903,477
Rumpke Consolidated Company NR NR
7,143,312 Term Loan, maturing September 26, 2002 7,109,381
-----------
34,868,881
-----------
Electronics: 3.4%
Acterna LLC Caa1 B
11,184,314 Term Loan, maturing September 30, 2007 7,681,956
Decision One Corporation NR NR
2,188,647 Term Loan, maturing April 18, 2005 1,696,201
11,037,214 Term Loan, maturing April 18, 2005 8,553,841
Electro Mechanical Solutions(2) NR NR
2,405,453 Term Loan, maturing June 30, 2004(3) --
Insilco Technologies, Inc. Caa2 D
4,937,510 Term Loan, maturing March 25, 2007 2,962,507
Knowles Electronics, Inc. B1 B+
3,421,448 Term Loan, maturing June 29, 2007 3,276,037
Sarcom, Inc. NR NR
8,993,645 Term Loan, maturing June 30, 2001(3) 7,374,789
Transaction Network Services, Inc. Ba3 BB-
2,000,000 Term Loan, maturing April 03, 2007 1,995,000
-----------
33,540,331
-----------
Finance: 4.0%
Alliance Data Systems Corporation B1 B+
725,446 Term Loan, maturing August 30, 2002 700,056
14,100,000 Term Loan, maturing August 30, 2002 13,941,375
Anthony Crane Rental, L.P. B2 B+
14,625,000 Term Loan, maturing July 20, 2006 11,224,688
Bridge Information Systems(2) NR NR
1,311,211 Term Loan, maturing April 01, 2001(3) 745,634
664,839 Term Loan, maturing April 01, 2001(3) 378,067
3,736,604 Term Loan, maturing May 29, 2005(3) 1,494,642
Rent-A-Center, Inc. Ba2 BB-
2,963,898 Term Loan, maturing January 31, 2006 2,944,138
1,882,666 Term Loan, maturing December 31, 2007 1,877,958
4,751,886 Term Loan, maturing January 31, 2007 4,720,205
Value Asset Management, Inc. B1 NR
1,500,000 Term Loan, maturing April 28, 2003 1,488,750
-----------
39,515,513
-----------
Gaming: 5.4%
Aladdin Gaming LLC(2) NR D
2,968,421 Term Loan, maturing August 26, 2006(3) 2,101,642
4,455,000 Term Loan, maturing February 26, 2008(3) 3,154,140
See Accompanying Notes to Financial Statements
17
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Gaming: (continued)
Alliance Gaming Corporation B1 B+
$ 5,000,000 Term Loan, maturing December 31, 2006 $ 5,043,750
Ameristar Casinos, Inc. Ba3 B+
1,364,361 Term Loan, maturing December 20, 2007 1,376,726
1,591,754 Term Loan, maturing December 20, 2006 1,606,180
Argosy Gaming Company Ba2 BB
4,477,500 Term Loan, maturing July 31, 2008 4,537,199
Boyd Gaming Corporation Ba1 B+
6,343,742 Revolving Loan, maturing June 15, 2003 6,304,039
Mandalay Resort Group Ba2 BB+
17,000,000 Term Loan, maturing July 26, 2006 16,962,821
Palace Station Hotel & Casino Ba2 BB+
2,495,076 Revolving Loan, maturing September 30, 2003 2,420,224
Penn National Gaming Ba3 B+
4,925,000 Term Loan, maturing August 08, 2006 4,951,472
Scientific Games Corporation B1 B+
4,937,500 Term Loan, maturing September 30, 2007 4,956,016
-----------
53,414,209
-----------
Grocery: 0.2%
Grand Union Company(2) NR NR
883,075 Term Loan, maturing August 17, 2003(3) 13,246
Winn Dixie Stores, Inc. Baa3 BBB
2,470,000 Term Loan, maturing March 29, 2007 2,480,036
-----------
2,493,282
-----------
Healthcare, Education and Childcare: 10.3%
Advance PCS Ba1 BB+
1,322,713 Term Loan, maturing October 02, 2007 1,326,846
Alliance Imaging, Inc. B1 B+
1,302,985 Term Loan, maturing November 02, 2007 1,310,858
1,419,847 Term Loan, maturing November 02, 2006 1,395,000
4,623,838 Term Loan, maturing November 02, 2008 4,651,775
Alpharma Operating Corp. B1 BB-
2,566,667 Term Loan, maturing October 05, 2008 2,558,646
Apria Healthcare Group, Inc. Ba1 BBB-
4,987,500 Term Loan, maturing July 20, 2007 5,005,166
Brown Schools' (The) NR NR
11,453,904 Term Loan, maturing June 30, 2003 11,152,821
Caremark Rx, Inc. Ba3 BB
2,977,500 Term Loan, maturing March 15, 2006 3,008,207
Community Health Systems Ba3 B+
2,116,858 Term Loan, maturing December 31, 2003 2,127,630
2,116,858 Term Loan, maturing December 31, 2004 2,128,765
1,299,504 Term Loan, maturing December 31, 2005 1,308,438
See Accompanying Notes to Financial Statements
18
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Healthcare, Education and Childcare (continued)
Concentra Managed Care, Inc. B1 B+
$ 3,250,000 Term Loan, maturing June 30, 2006 $ 3,260,156
1,625,000 Term Loan, maturing June 30, 2007 1,630,078
Covenant Care, Inc. NR NR
5,734,683 Term Loan, maturing June 30, 2003 5,634,326
Express Scripts, Inc. Ba1 BB+
2,164,404 Term Loan, maturing March 31, 2005 2,150,877
Fountain View(2) NR NR
12,352,941 Term Loan, maturing March 31, 2004 11,815,475
Genesis Health Ventures, Inc. Ba3 BB-
1,739,725 Term Loan, maturing March 31, 2007 1,744,695
2,254,623 Term Loan, maturing March 31, 2007 2,262,854
1,555,582 Floating Rate Note maturing April 02, 2007 1,555,582
HCA -- The Healthcare Company Ba1 BBB-
10,285,714 Term Loan, maturing April 30, 2006 10,181,253
Healthcare Direct, Inc. NR NR
3,956,500 Term Loan, maturing August 01, 2006 3,919,981
1,519,158 Term Loan, maturing August 01, 2004 1,481,578
Kinetic Concepts, Inc. Ba3 B
3,980,000 Term Loan, maturing March 31, 2006 3,989,950
Magellan Health Services, Inc. B1 B+
1,985,518 Term Loan, maturing February 12, 2006 1,989,551
1,985,518 Term Loan, maturing February 12, 2005 1,989,551
Mariner Post Acute Network, Inc.(2) NR NR
3,630,168 Term Loan, maturing March 31, 2006(3) 2,049,230
4,433,302 Term Loan, maturing March 31, 2005(3) 2,502,599
Medpointe, Inc. B1 B+
2,992,500 Term Loan, maturing September 30, 2008 2,982,215
Sybron Dental -- Specialities, Inc. Ba3 BB-
1,166,239 Term Loan, maturing November 28, 2007 1,177,172
1,166,667 Term Loan, maturing November 28, 2007 1,177,604
Triad Hospitals, Inc. Ba3 B+
1,994,545 Term Loan, maturing September 30, 2008 2,019,615
Vision Twenty-One NR NR
2,898,018 Term Loan, maturing October 31, 2002 289,802
------------
101,778,296
------------
Home and Office Furnishings, Housewares, and Durable Consumer Products: 1.3%
American Blind & Wallpaper Factory, Inc. NR NR
722,983 Term Loan, maturing December 29, 2005 722,983
Desa International, Inc. Caa2 D
7,136,218 Term Loan, maturing November 26, 2004 5,334,323
Holmes Products Corporation B2 B
3,628,288 Term Loan, maturing February 05, 2007 2,920,772
See Accompanying Notes to Financial Statements
19
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Home and Office Furnishings, Housewares, and Durable Consumer Products: (continued)
Identity Group, Inc.
$ 4,525,000 Term Loan, maturing May 11, 2007 $ 2,896,000
Imperial Home Decor Group, Inc. NR NR
833,725 Term Loan, maturing April 04, 2006 771,195
-----------
12,645,273
-----------
Insurance: 1.4%
USI Holdings Corp. B1 B+
9,000,000 Term Loan, maturing September 17, 2004 8,955,000
White Mountains Insurance Group Ltd. Baa2 BBB-
4,500,000 Term Loan, maturing March 31, 2007 4,519,688
-----------
13,474,688
-----------
Leisure, Amusement, Motion Pictures and Entertainment: 10.0%
Amfac Parks and Resorts, Inc. NR NR
3,551,476 Term Loan, maturing September 30, 2005 3,542,598
3,551,476 Term Loan, maturing September 30, 2004 3,542,598
Bally Total Fitness Holding Corporation Ba3 B+
2,495,370 Term Loan, maturing November 10, 2004 2,493,811
Edwards Theatres, Inc. NR NR
9,729,443 Term Loan, maturing June 30, 2005 9,710,119
Fitness Holdings Worldwide, Inc. B1 B
8,302,500 Term Loan, maturing November 02, 2007 7,126,310
9,286,500 Term Loan, maturing November 02, 2006 7,970,909
Icon Health & Fitness, Inc. NR NR
2,750,000 Term Loan, maturing August 31, 2004 2,725,938
4,845,313 Term Loan, maturing November 29, 2004 4,821,086
5,494,603 Term Loan, maturing March 01, 2005 5,412,184
Metro-Goldwyn-Mayer Studios, Inc. Ba3 BB-
7,862,500 Term Loan, maturing March 31, 2005 7,819,909
7,462,500 Term Loan, maturing March 31, 2006 7,446,180
Panavision, Inc. B2 B+
14,088,243 Term Loan, maturing March 31, 2005 12,444,610
Regal Cinemas, Inc. B1 B+
3,000,000 Term Loan, maturing December 31, 2007 3,031,875
Six Flags Theme Parks, Inc. Ba2 BB-
2,992,500 Term Loan, maturing September 30, 2005 3,016,398
2,833,333 Revolving Loan, maturing November 03, 2004 2,790,833
United Artists Theatre Co. B3 BB-
11,656,991 Term Loan, maturing January 24, 2005 11,644,505
WFI Group, Inc. Ba2 NR
3,000,000 Term Loan, maturing July 14, 2004 3,000,000
-----------
98,539,863
-----------
See Accompanying Notes to Financial Statements
20
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Lodging: 10.0%
Extended Stay America, Inc. Ba3 BB-
$ 17,000,000 Term Loan, maturing January 15, 2008 $17,076,143
KSL Recreational Group, Inc. Ba3 B+
1,529,544 Term Loan, maturing April 30, 2006 1,508,991
1,529,544 Term Loan, maturing April 30, 2005 1,501,821
9,075,000 Term Loan, maturing December 22, 2006 8,958,731
Lodgian Financing Corp.(2) Ca D
17,071,616 Term Loan, maturing July 15, 2006 14,340,157
Meristar Investment Partners Ba3 B-
2,500,000 Term Loan, maturing March 31, 2002 2,362,500
6,512,760 Term Loan, maturing March 31, 2002 6,154,558
Starwood Hotels & Resorts Worldwide, Inc. Ba1 BBB-
20,000,000 Term Loan, maturing February 23, 2003 19,825,000
2,750,000 Term Loan, maturing February 23, 2003 2,758,308
Wyndham International, Inc. B1 BB
7,728,891 Term Loan, maturing June 30, 2004 6,988,208
19,756,144 Term Loan, maturing June 30, 2006 17,758,580
-----------
99,232,997
-----------
Machinery: 1.4%
Alliance Laundry Holdings B1 B
10,257,685 Term Loan, maturing June 30, 2005 9,693,513
Morris Material Handling, Inc. NR NR
264,491 Term Loan, maturing September 28, 2004 251,266
Vutek, Inc. B2 NR
1,294,825 Term Loan, maturing December 30, 2007 1,281,876
609,754 Term Loan, maturing December 30, 2007 607,468
1,721,639 Term Loan, maturing December 30, 2007 1,704,423
-----------
13,538,546
-----------
Mining, Steel, Iron and Non-Precious Metals: 0.1%
National Refractories Co.(2) NR NR
1,250,000 Term Loan, maturing September 30, 2001 1,236,010
-----------
1,236,010
-----------
Oil and Gas: 2.1%
Key Energy Services, Inc. Ba2 BB-
4,494,000 Revolving Loan, maturing October 26, 2003 4,454,677
Plains Marketing L.P. Ba1 BB
3,500,000 Term Loan, maturing September 21, 2007 3,503,283
PMC Company Ba1 BB
3,000,000 Term Loan, maturing May 05, 2006 3,015,000
Tesoro Petroleum Corporation Ba2 BBB-
6,000,000 Term Loan, maturing December 31, 2007 6,018,126
See Accompanying Notes to Financial Statements
21
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Oil and Gas: (continued)
W-H Energy Services B1 B
$ 3,473,750 Term Loan, maturing April 16, 2007 $ 3,465,065
-----------
20,456,151
-----------
Other Telecommunications: 3.4%
Broadwing, Inc. Ba3 BB+
17,500,000 Term Loan, maturing November 09, 2004 16,625,000
1,000,000 Term Loan, maturing June 28, 2007 967,000
10,000,000 Term Loan, maturing December 30, 2006 9,610,940
Infonet Services Corp. Ba3 BB-
4,887,500 Term Loan, maturing June 30, 2006 4,789,750
Pacific Coin NR NR
3,068,524 Term Loan, maturing December 29, 2007 1,841,114
-----------
33,833,804
-----------
Personal and Nondurable Consumer Products: 4.5%
AM Cosmetics Corp. NR NR
2,292,689 Revolving Loan, maturing May 30, 2004(3) 1,948,786
1,305,151 Term Loan, maturing May 30, 2004(3) 1,109,378
2,610,303 Term Loan, maturing December 31, 2004(3) 2,218,758
Amscan Holdings, Inc. B1 B+
9,569,096 Term Loan, maturing December 31, 2004 8,899,259
Armkel, LLC Ba3 B+
1,995,000 Term Loan, maturing March 28, 2009 2,010,587
Buhrmann U.S., Inc. Ba3 BB-
5,072,551 Term Loan, maturing October 26, 2007 4,918,112
3,216,857 Term Loan, maturing October 26, 2005 3,053,000
Centis, Inc. NR NR
3,421,250 Term Loan, maturing September 30, 2006(3) 1,197,438
3,900,000 Term Loan, maturing September 30, 2005(3) 1,365,000
Church & Dwight Co. Ba2 BB
2,000,000 Term Loan, maturing September 30, 2007 2,018,750
Jostens, Inc. B1 BB-
1,406,408 Term Loan, maturing May 31, 2008 1,411,858
3,245,601 Term Loan, maturing May 31, 2006 3,172,575
Norwood Promotional Products, Inc. NR NR
5,029,896 Term Loan, maturing February 01, 2005 5,029,896
1,057,265 Term Loan, maturing February 01, 2005 --
3,353,264 Term Loan, maturing February 01, 2005 1,742,021
Paint Sundry Brands LLC B1 B+
957,213 Term Loan, maturing August 11, 2006 918,924
977,360 Term Loan, maturing August 11, 2005 938,265
Playtex Products, Inc. Ba3 BB-
2,473,750 Term Loan, maturing May 31, 2009 2,497,327
See Accompanying Notes to Financial Statements
22
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Personal and Nondurable Consumer Products: (continued)
U.S. Office Products(2) NR NR
$ 3,489,974 Term Loan, maturing June 09, 2006(3) $ 116,880
-----------
44,566,814
-----------
Personal, Food & Miscellaneous: 4.1%
Coinmach Corporation B1 BB-
5,000,000 Term Loan, maturing July 25, 2009 5,044,790
Otis Spunkmeyer, Inc. NR NR
4,394,397 Term Loan, maturing December 31, 2005 4,130,734
Papa Gino's, Inc. NR NR
2,147,727 Term Loan, maturing August 31, 2007 2,113,478
5,085,938 Term Loan, maturing August 31, 2007 5,043,889
SC International Services Ba1 BBB-
24,740,097 Term Loan, maturing March 01, 2007 23,286,617
581,052 Term Loan, maturing March 01, 2007 546,915
-----------
40,166,423
-----------
Printing and Publishing: 6.0%
Adams Outdoor Advertising, L.P. B1 B+
2,000,000 Term Loan, maturing February 08, 2008 2,018,126
Advanstar Communications, Inc. B1 B+
3,782,857 Term Loan, maturing October 11, 2007 3,546,429
12,056,000 Term Loan, maturing April 11, 2007 11,453,200
Canwest Media, Inc. Ba3 BB-
4,265,264 Term Loan, maturing May 15, 2008 4,306,015
4,568,118 Term Loan, maturing May 15, 2009 4,611,762
Lamar Media Corporation Ba2 BB-
5,793,750 Term Loan, maturing March 01, 2006 5,688,738
Mail-Well I Corporation Ba3 BB
2,704,497 Term Loan, maturing February 22, 2007 2,649,563
Primedia, Inc. B1 BB-
3,980,000 Term Loan, maturing June 30, 2009 3,552,150
Transwestern Publishing Company Ba3 B+
2,985,000 Term Loan, maturing June 27, 2008 3,017,650
Vertis, Inc. B1 B+
3,934,360 Term Loan, maturing November 30, 2008 3,398,303
Von Hoffman Press, Inc. B1 B+
10,360,046 Term Loan, maturing July 01, 2005 10,075,144
3,185,798 Term Loan, maturing July 01, 2004 3,098,189
Ziff Davis Media, Inc. B3 CCC-
1,712,023 Term Loan, maturing March 31, 2007 1,332,524
-----------
58,747,793
-----------
See Accompanying Notes to Financial Statements
23
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Radio and Television Broadcasting: 4.6%
Benedek Broadcasting Corp. B2 CC
$ 7,000,000 Term Loan, maturing November 20, 2007 $ 6,567,750
Citadel Broadcasting Company Ba2 B+
4,500,000 Term Loan, maturing June 26, 2009 4,528,125
Emmis Communications Ba3 B+
10,484,144 Term Loan, maturing August 31, 2009 10,553,904
Gray Communications Systems Ba3 B+
3,000,000 Term Loan, maturing September 30, 2009 3,020,625
Pegasus Media & Communications, Inc. B1 B+
5,944,987 Term Loan, maturing April 30, 2005 5,757,970
Paxson Communications Corporation Ba3 BB
4,975,000 Term Loan, maturing June 30, 2006 4,975,000
Sinclair Broadcast Group, Inc. Ba2 BB-
5,000,000 Term Loan, maturing September 30, 2009 5,042,500
Susquehanna Media Co. Ba1 BB-
2,500,000 Term Loan, maturing June 30, 2008 2,509,375
Telemundo Group, Inc. B1 B+
2,000,000 Term Loan, maturing May 15, 2008 2,002,188
-----------
44,957,437
-----------
Retail Stores: 4.6%
Advance Stores Company Ba3 B+
5,000,000 Term Loan, maturing November 30, 2007 5,014,585
Murray's Discount Auto Stores, Inc. NR NR
701,249 Revolving Loan, maturing June 30, 2003 674,187
10,976,822 Term Loan, maturing June 30, 2003 10,791,467
Peebles, Inc. NR NR
9,531,918 Term Loan, maturing April 30, 2002 9,245,960
713,848 Term Loan, maturing April 30, 2001 692,433
Rite Aid Corporation B2 BB-
17,000,000 Term Loan, maturing June 27, 2005 16,490,000
Travel Centers Of America, Inc. Ba3 BB
2,500,000 Term Loan, maturing November 14, 2008 2,522,918
-----------
45,431,550
-----------
Telecommunication Equipment: 4.9%
American Tower L.P. B2 BB-
11,916,667 Term Loan, maturing June 30, 2007 10,273,382
Crown Castle Operating Company Ba3 BB-
13,000,000 Term Loan, maturing March 15, 2008 12,647,921
Pinnacle Towers, Inc. B3 CC
12,077,801 Term Loan, maturing June 30, 2007 10,918,332
See Accompanying Notes to Financial Statements
24
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Telecommunication Equipment: (continued)
Spectrasite Communications, Inc. B3 B+
$ 8,500,000 Term Loan, maturing December 31, 2007 $ 7,333,375
Tripoint Global Communications, Inc. NR NR
5,075,040 Term Loan, maturing May 31, 2006 4,694,179
TSI Telecommunication Services, Inc. Ba3 B+
2,500,000 Term Loan, maturing December 31, 2006 2,356,250
--------------
48,223,439
--------------
Textiles and Leather: 3.4%
Accessory Network Group, Inc. NR NR
8,231,155 Term Loan, maturing June 30, 2003 6,582,070
Galey & Lord, Inc.(2) Caa2 D
3,288,730 Term Loan, maturing April 01, 2006 2,258,262
4,636,019 Term Loan, maturing April 02, 2005 3,183,401
Humphrey's, Inc.(2) NR NR
5,957,119 Term Loan, maturing January 15, 2003(3) 24,424
Levi Strauss & Co Ba3 BB+
506,859 Term Loan, maturing August 29, 2003 508,443
714,286 Revolving Loan, maturing August 29, 2003 694,196
Malden Mills Industries, Inc.(2) NR NR
9,340,635 Term Loan, maturing October 28, 2006(3) 5,137,349
Polymer Group, Inc. B3 CC
4,779,769 Term Loan, maturing December 20, 2005 4,337,640
3,000,000 Term Loan, maturing December 20, 2006 2,721,249
Scovill Fasteners, Inc. NR NR
3,973,214 Term Loan, maturing November 26, 2003 3,741,984
Targus Group, Inc. NR NR
3,449,938 Term Loan, maturing December 20, 2006 3,355,064
William Carter Company Ba3 BB-
997,500 Term Loan, maturing September 30, 2008 1,001,864
--------------
33,545,946
--------------
Total Senior Loans -- 166.8%
(cost $1,830,295,383) 1,644,669,913
--------------
See Accompanying Notes to Financial Statements
25
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Other Corporate Debt
Bank Loan
Ratings+
Principal (unaudited)
Amount Borrower/Tranche Description Moody's S&P Value
-----------------------------------------------------------------------------------------------
Automobile 0.5%
Capital Tool & Design Ltd. NR NR
$ 6,000,000 Subordinated Note, maturing July 26, 2003 $ 4,800,000
-----------
4,800,000
-----------
Finance 1.0%
Value Asset Management, Inc. B2 NR
10,000,000 Sr. Sub Bridge, maturing August 31, 2005 9,925,000
-----------
9,925,000
-----------
Healthcare, Education and Childcare 0.0%
Vision Twenty-One NR NR
368,022 Subordinated Convertible Note, maturing
October 31, 2003(3) 37
37
-----------
Home and Office Furnishings, Housewares, and Durable Consumer Products 0.0%
MP Holdings NR NR
64,527 Subordinated Note, maturing March 14, 2007 61,301
-----------
61,301
-----------
Oil and Gas 0.8%
Premcor Refining, Inc. Ba3 BB
9,000,000 Floating Rate Note, maturing November 15, 2004 7,380,000
-----------
7,380,000
-----------
Other Telecommunications: 0.4%
Pacific Coin
3,898,822 Subordinated Loan, maturing December 29, 2007(3) 3,820,846
-----------
3,820,846
-----------
Personal & Nondurable Consumer Products 0.2%
AM Cosmetics Corp. NR NR
3,127,215 Subordinated Note, maturing May 30, 2007 --
Paint Sundry Brands, LLC B2 B+
2,875,000 Subordinated Note, maturing August 11, 2008 2,371,875
-----------
2,371,875
-----------
Textiles and Leather 0.1%
Tartan Textile Services NR NR
1,332,583 Subordinated Note, maturing April 1, 2011 1,265,954
-----------
1,265,954
-----------
Total Other Corporate Debt -- 3.0%
(cost $36,028,268) 29,625,013
-----------
See Accompanying Notes to Financial Statements
26
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Common Stock
Shares Value
-------- ----------
Aerospace and Defense 0.0%
11,130 Stellex Technologies, Inc.@(R) $ 275,767
----------
Automobile 1.0%
212,171 Breed Technologies, Inc.@(R) 2,989,489
660,808 Safelite Glass Corporation@(R) 6,528,783
44,605 Safelite Realty@(R) 1
----------
9,518,273
----------
Diversified/Conglomerate Services 0.0%
60,056 Staff Leasing, Inc. 180,168
----------
Electronics 0.1%
350,059 Decision One Corporation@(R) 1,501,753
----------
Healthcare, Education and Childcare 0.3%
190,605 Genesis Health Ventures, Inc.@ 2,969,626
----------
Home and Office Furnishings 0.2%
80,400 American Blind and Wallpaper, Inc.@(R) 804
300,141 Imperial Home Decor Group, Inc.@(R) 1,654,378
300,141 IHDG Realty@(R) 1
590 MP Holdings, Inc.@(R) 6
17,582 Soho Publishing@(R) 176
----------
1,655,365
----------
Machinery 0.2%
481,373 Morris Material Handling, Inc@(R) 1,771,453
----------
Other Telecommunications 0.0%
1,091 Pacific Coin, Inc.@(R) 1
----------
Personal and Nondurable Consumer Products 0.0%
37,197 AM Cosmetics Corp.@(R) --
----------
Textiles and Leather 0.0%
127,306 Dan River, Inc.@ 52,195
----------
Total Common Stock -- 1.8%
(Cost $13,865,777) 17,924,601
----------
See Accompanying Notes to Financial Statements
27
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
Stock Purchase Warrants and Other Securities
Shares Value
------ -----
415 AM Cosmetics Corp., Series E-1 Preferred Stock, exchangable for common
shares on a 1-for-1 basis@(R) $ --
----------
1 Autotote Systems, Inc., Option representing 0.248% common shares
issued and outstanding @(R) --
----------
80,208 Boston Chicken Inc., residual interest in Boston Chicken Plan Trust@(R)(2) 8,014,961
----------
80,634 Capital Tool & Design, Warrants representing 19,000 common shares@(R) --
----------
10,000 Casden Properties Operation, 10,000 shares of junior Cumulative
Preferred partnership Units(R) 250,000
----------
19,000 Covenant Care, Inc., Warrants representing 19,000 common shares
expiring June 30, 2003@(R) --
----------
2,696 Electro Mechanical Solutions, Warrants representing 2,564 common
shares, expires September 29, 2002@(R) --
----------
16,501 Exide, Warrants representing 16,501 common shares, expiring
March 16, 2006@(R) 164
2,223 Genesis Health Ventures, Preferred Stock@ 238,973
----------
19,397 Holmes Group, Warrants representing 19,397 common shares, expiring
May 7, 2006@(R) --
----------
430 Murray's Discount Auto Stores, Inc., Warrants representing common
stock(R), expires January 22, 2007 3,485,592
----------
4,000 New World Coffee, Manhattan Bagel, Inc., Warrants representing
4,000 common shares, expiring June 15, 2006@(R) 160,720
----------
48,930 Scientific Games Corp, Warrants representing Class B common stock,
non-voting@(R) 262,859
----------
23,449 Tartan Textiles Services, Series D Preferred Stock@(R) 2,227,655
----------
36,775 Tartan Textiles Services, Series E Preferred Stock@(R) 2,333,852
----------
167,239 Crown Paper, Inc. -- Conversion rights representing Tembec
common shares@(R)(2) 1,292,072
----------
243,778 Vision Twenty-One, Warrants representing 243,778 common shares@(R) --
----------
Total Other Securities -- 1.9% (Cost $14,021,840) 18,266,848
----------
Total Investments (Cost $1,894,211,268)(5) 173.5% 1,710,486,375
Preferred Shares and Liabilities in Excess of Cash and
Other Assets, net (73.5%) (724,504,696)
----- -------------
Net Assets 100.0% $985,981,679
===== =============
See Accompanying Notes to Financial Statements
28
ING Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 2002
--------------------------------------------------------------------------------
----------
@ Non-income producing security.
(R) Restricted security.
* Senior loans, while exempt from registration under the Securities Act of
1933, contain certain restrictions on resale and cannot be sold publicly.
These senior loans bear interest (unless otherwise noted) at rates that
float periodically at a margin above the Prime Rate of a U.S. bank
specified in the credit agreement, LIBOR, the certificate of deposit rate,
or in some cases another base lending rate.
NR Not Rated
+ Bank Loans rated below Baa by Moody's Investors Services, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.
(1) The borrower filed for protection under Chapter 7 of the U.S. Federal
bankruptcy code.
(2) The borrower filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code.
(3) Loan is on non-accrual basis.
(4) The borrower filed for protection under the Canadian Bankruptcy and
Insolvency Act.
(5) For federal income tax purposes, the cost of investments is $1,890,986,340
and net unrealized depreciation consists of the following:
Gross Unrealized Appreciation $ 20,940,900
Gross Unrealized Depreciation (201,440,865)
--------------
Net Unrealized Depreciation $ (180,499,965)
==============
See Accompanying Notes to Financial Statements
29
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of February 28, 2002
--------------------------------------------------------------------------------
ASSETS:
Investments in securities at value (Cost $1,894,211,268) $ 1,710,486,375
Cash 867,088
Receivables:
Interest 8,992,155
Other 141,879
Prepaid expenses 327,394
Prepaid arrangement fees on notes payable 270,810
---------------
Total assets 1,721,085,701
---------------
LIABILITIES:
Notes payable 282,000,000
Deferred arrangement fees on senior loans 618,222
Accrued interest payable 517,066
Accrued preferred shares dividend payable 77,611
Payable to affiliates 1,378,362
Accrued expenses 512,761
---------------
Total liabilities 285,104,022
---------------
Preferred shares, $25,000 stated value per share
at liquidation value (18,000 shares outstanding) 450,000,000
NET ASSETS $ 985,981,679
===============
Net asset value per common share outstanding (net assets
divided by 136,972,914 common shares
authorized and outstanding, par value $0.01) $ 7.20
===============
Net Assets Consist of:
Paid in capital $ 1,287,948,209
Undistributed net investment income 8,856,756
Accumulated net realized loss on investments (127,098,393)
Net unrealized depreciation of investments (183,724,893)
---------------
Net assets $ 985,981,679
===============
See Accompanying Notes to Financial Statements
30
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Year Ended February 28, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 134,792,818
Arrangement fees earned 1,659,184
Dividends 19,511
Other 3,172,692
-------------
Total investment income 139,644,205
-------------
EXPENSES:
Interest 14,249,438
Investment management fees 14,838,307
Administration fees 4,637,682
Transfer agent and registrar fees 389,577
Reports to shareholders 160,000
Custodian fees 616,463
Revolving credit facility fees 272,990
Professional fees 745,114
Preferred shares -- dividend disbursing agent fees 1,182,556
Insurance expense 54,131
Pricing fees 102,585
ICI fees 10,472
Postage fees 253,500
Trustees' fees 68,000
Miscellaneous fees 167,728
NYSE Registration fees 141,916
-------------
Total expenses 37,890,459
-------------
Net investment income 101,753,746
-------------
REALIZED AND UNREALIZED LOSS FROM INVESTMENTS:
Net realized loss on investments (53,063,828)
Net change in unrealized depreciation of investments (69,951,020)
-------------
Net loss on investments (123,014,848)
-------------
Net decrease in net assets resulting from operations $ (21,261,102)
=============
See Accompanying Notes to Financial Statements
31
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended Year Ended
February 28, February 28,
2002 2001
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 101,753,746 $ 121,538,218
Net realized loss on investments (53,063,828) (4,909,435)
Change in unrealized depreciation
of investments (69,951,020) (101,823,007)
--------------- ---------------
Net increase (decrease) in net assets resulting from
operations (21,261,102) 14,805,776
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income:
Common shares (85,728,945) (117,654,573)
Preferred shares (15,273,093) (8,783,182)
--------------- ---------------
Decrease in net assets from distributions to
shareholders (101,002,038) (126,437,755)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Common shares issued from dividend reinvestment 919,219 5,733,515
Common shares sold in connection with shelf offerings 87,513 1,236,107
Offering costs of preferred shares (194,010) (5,244,654)
--------------- ---------------
Net increase from capital share transactions 812,722 1,724,968
--------------- ---------------
Net decrease in net assets (121,450,418) (109,907,011)
NET ASSETS:
Beginning of year 1,107,432,097 1,217,339,108
--------------- ---------------
End of year (including undistributed net investment
income of $8,856,756 and $7,032,048, respectively) $ 985,981,679 $ 1,107,432,097
=============== ===============
SUMMARY OF COMMON SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income 114,904 666,982
Shares sold in connection with shelf offerings 10,939 143,928
--------------- ---------------
Net increase in shares common shares outstanding 125,843 810,910
=============== ===============
Gross proceeds from offering of prefered stock $ -- $ 450,000,000
SUMMARY OF PREFERRED SHARES SOLD:
Series M -- 3,600
Series T -- 3,600
Series W -- 3,600
Series Th -- 3,600
Series F -- 3,600
--------------- ---------------
Total preferred shares sold -- 18,000
=============== ===============
See Accompanying Notes to Financial Statements
32
ING Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Year Ended February 28, 2002
--------------------------------------------------------------------------------
INCREASE (DECREASE) in Cash
Cash Flows From Operating Activities:
Interest received $ 138,007,208
Dividends received 19,511
Facility fees paid (112,660)
Arrangement fee received 1,229,435
Other income received 3,090,462
Interest paid (16,063,801)
Other operating expenses paid (24,226,698)
Purchases of portfolio securities (993,089,455)
Proceeds from disposition of portfolio securities 1,217,901,206
---------------
Net cash provided by operating activities 326,755,208
---------------
Cash Flows From Financing Activities:
Dividends paid to common shareholders (84,809,726)
Cost incurred in offering of preferred shares (194,010)
Dividends paid to preferred shareholders (15,457,176)
Proceeds from common shares shelf offerings 87,513
Loan advance (228,000,000)
---------------
Net cash flows used in financing activities (328,373,399)
---------------
Net change in cash (1,618,191)
Cash at beginning of year 2,485,279
---------------
Cash at end of year $ 867,088
===============
Reconciliation Of Net Decrease In Net Assets Resulting From
Operations To Net Cash Used for Operating Activities:
Net decrease in net assets resulting from operations $ (21,261,102)
---------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used for operating activities:
Change in unrealized depreciation of investments 69,951,020
Net accretion of discounts on investments (5,907,458)
Realized loss on sale of investments 53,063,828
Purchase of investments (993,089,455)
Proceeds on sale of investments 1,217,901,204
Decrease in interest receivable 9,121,850
Increase in other assets (82,230)
Decrease in prepaid arrangement fees on notes payable 160,330
Decrease in prepaid expenses 63,165
Decrease in deferred arrangement fees on senior loans (429,749)
Decrease in accrued interest payable (1,814,363)
Decrease in payable to affiliates (241,311)
Decrease in accrued expenses (680,521)
---------------
Total adjustments 348,016,310
---------------
Net cash provided by operating activities $ 326,755,208
===============
Non-Cash Financing Activities:
Reinvestment of common share dividends $ 919,219
See Accompanying Notes to Financial Statements
33
ING Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a common share outstanding throughout the period
Years Ended February 28 or February 29,
--------------------------------------------------
2002 2001 2000
------------- ------------- -------------
Per Share Operating Performance
Net asset value, beginning of period $ 8.09 $ 8.95 $ 9.24
Net investment income 0.74 0.88 0.79
Net realized and unrealized gain (loss)
on investments (0.89) (0.78) (0.30)
------------- ------------- -------------
Increase (decrease) in net asset value
from investment operations (0.15) 0.10 0.49
Distributions to Common Shareholders
from net investment income (0.63) (0.86) (0.78)
Distribution to Preferred Shareholders (0.11) (0.06) --
Increase in net asset value from share
offerings -- -- --
Reduction in net asset value from
rights offering -- -- --
Increase in net asset value from
repurchase of capital stock -- -- --
Reduction in net asset value from
Preferred Shares offerings -- (0.04) --
------------- ------------- -------------
Net asset value, end of period $ 7.20 $ 8.09 $ 8.95
============= ============= =============
Closing market price at end of period $ 6.77 $ 8.12 $ 8.25
Total Return(3)
Total investment return at closing
market price(4) (9.20)% 9.10% (5.88)%
Total investment return at net asset
value(5) (3.02)% 0.19% 5.67%
Ratios/Supplemental Data
Net assets end of period (000's) $ 985,982 $ 1,107,432 $ 1,217,339
Preferred Rate Shares
Aggregate amount outstanding
(000's) $ 450,000 $ 450,000 --
Liquidation and market value
Per Share $ 25,000 $ 25,000 --
Asset coverage Per Share** 235% 215% --
Average borrowings (000's) $ 365,126 $ 450,197 $ 524,019
Ratios to average net assets including
preferred*
Expenses (before interest and other
fees related to revolving credit
facility) 1.57% 1.62% --
Expenses 2.54% 3.97% --
Net investment income 6.83%(A) 9.28% --
Ratios to average net assets plus bor-
rowing
Expenses (before interest and other
fees related to revolving credit
facility) 1.66% 1.31% 1.00%(9)
Expenses 2.70% 3.21% 2.79%(9)
Net investment income 7.24%(B) 7.50% 6.12%
Ratios to average net assets
Expenses (before interest and other
fees related to revolving credit
facility) 2.25% 1.81% 1.43%(9)
Expenses 3.64% 4.45% 4.00%(9)
Net investment income 9.79%(C) 10.39% 8.77%
Portfolio turnover rate 53% 46% 71%
Common shares outstanding at end
of period (000's) 136,973 136,847 136,036
Years Ended February 28 or February 29,
-------------------------------------------------------------------------
1999(8) 1998(8) 1997(8) 1996(7)
------------- ------------- ------------- -------------
Per Share Operating Performance
Net asset value, beginning of period $ 9.34 $ 9.45 $ 9.61 $ 9.66
Net investment income 0.79 0.87 0.82 0.89
Net realized and unrealized gain (loss)
on investments (0.10) (0.13) (0.02) (0.08)
------------- ------------- ------------- -------------
Increase (decrease) in net asset value
from investment operations 0.69 0.74 0.80 0.81
Distributions to Common Shareholders
from net investment income (0.82) (0.85) (0.82) (0.86)
Distribution to Preferred Shareholders -- -- -- --
Increase in net asset value from share
offerings 0.03 -- -- --
Reduction in net asset value from
rights offering -- -- (0.14) --
Increase in net asset value from
repurchase of capital stock -- -- -- --
Reduction in net asset value from
Preferred Shares offerings -- -- -- --
------------- ------------- ------------- -------------
Net asset value, end of period $ 9.24 $ 9.34 $ 9.45 $ 9.61
============= ============= ============= =============
Closing market price at end of period $ 9.56 $ 10.31 $ 10.00 $ 9.50
Total Return(3)
Total investment return at closing
market price(4) 1.11% 12.70% 15.04%(6) 19.19%
Total investment return at net asset
value(5) 7.86% 8.01% 8.06%(6) 9.21%
Ratios/Supplemental Data
Net assets end of period (000's) $ 1,202,565 $ 1,034,403 $ 1,031,089 $ 862,938
Preferred Rate Shares
Aggregate amount outstanding
(000's) -- -- -- --
Liquidation and market value
Per Share -- -- -- --
Asset coverage Per Share** -- -- -- --
Average borrowings (000's) $ 490,978 $ 346,110 $ 131,773 $ --
Ratios to average net assets including
preferred*
Expenses (before interest and other
fees related to revolving credit
facility) -- -- -- --
Expenses -- -- -- --
Net investment income -- -- -- --
Ratios to average net assets plus bor-
rowing
Expenses (before interest and other
fees related to revolving credit
facility) 1.05%(9) 1.04% 1.13% --
Expenses 2.86%(9) 2.65% 1.92% --
Net investment income 6.00% 6.91% 7.59% --
Ratios to average net assets
Expenses (before interest and other
fees related to revolving credit
facility) 1.50%(9) 1.39% 1.29% --
Expenses 4.10%(9) 3.54% 2.20% 1.23%
Net investment income 8.60% 9.23% 8.67% 9.23%
Portfolio turnover rate 68% 90% 82% 88%
Common shares outstanding at end
of period (000's) 130,206 110,764 109,140 89,794
----------
(1) Annualized.
(2) Prior to the waiver of expenses, the ratios of expenses to average net
assets were 1.95% (annualized), 1.48% and 1.44% for the period from May 12,
1988 to February 28, 1989, and for the fiscal years ended February 28, 1990
and February 29, 1992, respectively, and the ratios of net investment
income to average net assets were 8.91% (annualized), 10.30% and 7.60% for
the period from May 12, 1988 to February 28, 1989, and for the fiscal years
ended February 28, 1990 and February 29, 1992, respectively.
(3) Total return calculations are attributable to common shareholders.
(4) Total investment return measures the change in the market value of your
investment assuming reinvestment of dividends and capital gain
distributions, if any, in accordance with the provisions of the dividend
reinvestment plan. On March 9, 1992, the shares of the Trust were initially
listed for trading on the New York Stock Exchange. Accordingly, the total
investment return for the year ended February 28, 1993, covers only the
period from March 9, 1992, to February 28, 1993. Total investment return
for periods prior to the year ended February 28, 1993, are not presented
since market values for the Trust's shares were not available. Total
returns for less than one year are not annualized.
(5) Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at
net asset value at the end of each period and assumes reinvestment of
dividends and capital gain distributions in accordance with the provisions
of the dividend reinvestment plan. This calculation differs from total
investment return because it excludes the effects of changes in the market
values of the Trust's shares. Total returns for less than one year are not
annualized.
(6) Calculation of total return excludes the effects of the per share dilution
resulting from the rights offering as the total account value of a fully
subscribed shareholder was minimally impacted.
See Accompanying Notes to Financial Statements
34
ING Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Continued)
--------------------------------------------------------------------------------
Years Ended February 28 or February 29,
--------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00
0.74 0.60 0.60 0.76 0.98 1.06 0.72
0.07 (0.05) 0.01 (0.02) (0.05) -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
0.81 0.55 0.61 0.74 0.93 1.06 0.72
(0.73) (0.60) (0.57) (0.75) (0.96) (1.06) (0.72)
-- -- -- -- -- -- --
-- -- -- -- -- -- --
(0.44) -- -- -- -- -- --
-- 0.02 0.05 -- -- -- --
-- -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 9.66 $ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00
============= ============= ============= ============= ============= ============= =============
$ 8.75 $ 9.25 $ 9.13 -- -- -- --
3.27%(6) 8.06% 10.89% -- -- -- --
5.24%(6) 6.28% 7.29% 7.71% 9.74% 11.13% 7.35%
$ 867,083 $ 719,979 $ 738,810 $ 874,104 $ 1,158,224 $ 1,036,470 $ 252,998
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
$ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
1.30% 1.31% 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2)
7.59% 6.04% 5.88% 7.62%(2) 9.71% 10.32%(2) 9.68%(1)(2)
108% 87% 81% 53% 55% 100% 49%(1)
89,794 71,835 73,544 87,782 116,022 103,660 25,294
----------
(7) ING Investments, LLC, the Trust's investment manager, acquired certain
assets of Pilgrim Management Corporation, the Trust's former investment
manager, in a transaction that closed on April 7, 1995.
(8) The Manager agreed to reduce its fee for a period of three years from the
Expiration Date of the November 12, 1996 Rights Offering to 0.60% of the
average daily net assets, plus the proceeds of any outstanding borrowings,
over $1.15 billion.
(9) Calculated on total expenses before impact of earnings credits.
* Ratios do not reflect the effect of dividend payments to Preferred
Shareholders; income ratios reflect income earned on assets attributable to
preferred shares.
** Asset coverage represents the total assets available for settlement of
Preferred Stockholder's interest and notes payables in relation to the
Preferred Shareholder interest and notes payable balance outstanding. The
Preferred Shares were first offered November 2, 2000.
(A) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets including preferred shares
would have been 6.43% for the year ended February 28, 2002.
(B) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets plus borrowings applicable to
common shares would have been 6.82% for the year ended February 28, 2002.
(C) Had the Trust not amortized premiums and accreted discounts, the ratio of
net investment income to average net assets applicable to common shares
would have been 9.22% for the year ended February 28, 2002.
See Accompanying Notes to Financial Statements
35
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 2002
--------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
ING Prime Rate Trust (formerly known as Pilgrim Prime Rate Trust, the "Trust"),
is registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end, investment management company. The Trust invests in
senior loans which are exempt from registration under the Securities Act of 1933
(the "`33 Act") but contain certain restrictions on resale and cannot be sold
publicly. These loans bear interest (unless otherwise noted) at rates that float
periodically at a margin above the Prime Rate of a U.S. bank specified in the
credit agreement, the London Inter-Bank Offered Rate ("LIBOR"), the certificate
of deposit rate, or in some cases another base lending rate. The following is a
summary of the significant accounting policies consistently followed by the
Trust in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America.
A. Senior Loan and Other Security Valuation. Loans are normally valued at the
mean of the means of one or more bid and asked quotations obtained from a
pricing service or other sources determined by the board to be independent
and believed to be reliable. Loans for which reliable quotations are not
available may be valued with reference to another loan or a group of loans
for which quotations are more readily available and whose characteristics
are comparable to the loan being valued. Under this approach, the
comparable loan or loans serve as a proxy for changes in value. The Trust
has engaged an independent pricing service to provide quotations from
dealers in loans and to calculate values under the proxy procedure
described above. It is expected that most of the loans held by the Trust
will be valued with reference to quotations from the independent pricing
service or with reference to the proxy procedure described above.
ING Investments, LLC (formerly ING Pilgrim Investments, LLC, the
"Investment Manager") may believe that the price for a loan derived from
market quotations or the proxy procedure described above is not reliable or
accurate. Among other reasons, this may be the result of information about
a particular loan or borrower known to the Investment Manager that the
Investment Manager believes may not be known to the pricing service or
reflected in a price quote. In this event, the loan is valued at fair value
as determined in good faith under procedures established by the Trust's
Board of Trustees and in accordance with the provisions of the 1940 Act.
Under these procedures, fair value is determined by the Investment Manager
and monitored by the Trust's Board of Trustees through its Valuation
Committee. In fair valuing a loan, consideration is given to several
factors, which may include, among others, the following: (i) the
charactistics of and fundamental analytical data relating to the loan,
including the cost, size, current interest rate, period until the next
interest rate reset, maturity and base lending rate of the loan, the terms
and conditions of the loan and any related agreements, and the position of
the loan in the borrower's debt structure; (ii) the nature, adequacy and
value of the collateral, including the Trust's rights, remedies and
interests with respect to the collateral; (iii) the creditworthiness of the
borrower and the cash flow coverage of outstanding principal and interest,
based on an evaluation of its financial condition, financial statements and
information about the borrower's business, cash flows, capital structure
and future prospects; (iv) information relating to the market for the loan,
including price quotations for, and trading in, the loan and interests in
similar loans; (v) the reputation and financial condition of the agent for
the loan and any intermediate participants in the loan; (vi) the borrower's
management; and (vii) the general economic and market conditions affecting
the fair value of the loan. Securities for which the primary market is a
national securities exchange or the NASDAQ National Market System are
stated at the last reported sale price on the day of valuation. Debt and
equity securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued at the
mean between the last reported bid and asked price. Securities other than
senior loans for which reliable quotations are not readily available and
all other assets will be valued at their respective fair values as
determined in good faith by, or under procedures established by, the Board
of Trustees of the Trust. Investments in securities
36
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 2002
--------------------------------------------------------------------------------
maturing in less than 60 days from the date of acquisition are valued at
amortized cost, which, when combined with accrued interest, approximates
market value.
B. Federal Income Taxes. It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no federal income tax provision is
required.
At February 28, 2002, the Trust had capital loss carryforwards for federal
income tax purposes of approximately $125,806,013 which are scheduled to
expire through February 28, 2011.
The Board of Trustees intends to offset any future net capital gains with
the capital loss carryforwards until each carryforward has been fully
utilized or expires.
C. Security Transactions and Revenue Recognition. Loans are booked on a
settlement date basis and security transactions are accounted for on trade
date (date the order to buy or sell is executed). Realized gains or losses
are reported on the basis of identified cost of securities delivered.
Dividend income is recognized on the ex-dividend date. Interest income is
recorded on an accrual basis at the then current interest rate of the loan.
The accrual of interest on loans is discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to meet
payments as they become due. Upon such discontinuance, all unpaid accrued
interest is reversed. Cash collections on nonaccrual senior loans are
generally applied as a reduction to the recorded investment of the loan.
Senior loans are returned to accrual status only after all past due amounts
have been received and the borrower has demonstrated sustained performance.
For all loans acquired prior to March 1, 2001, arrangement fees, which
represent non-refundable fees associated with the acquisition of loans, are
deferred and recognized over the shorter of 2.5 years or the actual terms
of the loan. For all loans, except revolving credit facilities, acquired
subsequent to February 28, 2001, arrangement fees are treated as discounts
and accreted as described in Note 1.H. Arrangement fees associated with
revolving credit facilities acquired subsequent to February 28, 2001 are
deferred and recognized over the shorter of 4 years or the actual term of
the loan.
D. Distributions to Shareholders. The Trust records distributions to its
shareholders on the ex-date. Distributions from income are declared by the
Trust on a monthly basis. Distributions from capital gains, if any, are
declared on an annual basis. The amount of distributions from net
investment income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ from
accounting principles generally accepted in the United States of America
for items such as the treatment of short term capital gains and the
amortization of premiums and accretion of discounts. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent that these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassifications.
Distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are
reported as distributions in excess of net investment income and/or
realized capital gains. To the extent they exceed net investment income and
net realized capital gains for tax purposes, they are reported as a tax
return of capital. During the year ended February 28, 2002 the Trust
reclassified $2,580,000 from undistributed net investment income to
accumulated net realized loss on investments, to reflect the treatment of
permanent book/tax differences.
E. Dividend Reinvestments. Pursuant to the Shareholder Investment Program
(formerly known as the Automatic Dividend Reinvestment Plan), DST Systems,
Inc., the Plan Agent, purchases, from time to time, shares of beneficial
interest of the Trust on the open market to satisfy dividend reinvestments.
Such shares are purchased only when the closing sale or bid price plus
commission is less than the net asset value per share of the stock on the
valuation date. If the market
37
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 2002
--------------------------------------------------------------------------------
price plus commissions is equal to or exceeds the net asset value, new
shares are issued at the greater of (i) net asset value or (ii) the market
price of the shares during the pricing period, minus a discount of 5%.
F. Use of Estimates. Management of the Trust has made certain estimates and
assumptions relating to the reporting of assets, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with generally accepted accounting principles in the United
States of America. Actual results could differ from these estimates.
G. Share Offerings. During the year ended February 28, 1999, the Trust began
issuing shares under various shelf registration statements, whereby the net
proceeds received by the Trust from share sales may not be less than the
greater of (i) the NAV per share or (ii) 94% of the average daily market
price over the relevant pricing period.
H. Change in Accounting Principle. In November 2000 the American Institute of
Certified Public Accountants (the "AICPA") issued a revised version of the
AICPA Audit and Accounting Guide for Investment Companies (the "Guide").
Effective March 1, 2001, the Fund adopted the provisions of the Guide and
began amortizing premiums and accreting discounts on debt securities. Prior
to March 1, 2001, the Trust had not amortized premiums nor accreted
discounts. The cumulative effect of this accounting change had no impact on
net assets of the Trust, but resulted in a $3,653,000 increase in the cost
of securities and a corresponding $3,653,000 increase in net unrealized
depreciation of investments, based on securities held by the Trust on March
1, 2001. The effect of this change during the year ended February 28,2002,
was to increase net investment income by approximately $5,907,000, increase
unrealized depreciation of investments by approximately $3,327,000 and
increase net realized loss on investments by approximately $2,580,000.
I. Reclassification. Under EITF Topic D-98, Classification and Measurement of
Redeemable Securities, which was issued on July 19, 2001, preferred
securities that are redeemable for cash or other assets are to be
classified outside of permanent equity to the extent that the redemption is
at a fixed or determinable price and at the option of the holder or upon
the occurrence of an event that is not solely within the control of the
issuer. Subject to the guidance of the EITF, the Trust's preferred stock,
which was previously classified as a component of net assets, has been
reclassified outside of permanent equity (net assets) in the accompanying
financial statements. Prior year amounts have also been reclassified to
conform with this presentation. The impact of this reclassification creates
no change to the net assets available to common shareholders.
NOTE 2 -- INVESTMENTS
For the year ended February 28, 2002, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $993,089,455 and $1,217,901,206, respectively. At February 28, 2002, the
Trust held senior loans valued at $1,644,669,913 representing 96.2% of its total
investments. The market value of these assets is established as set forth in
Note 1.
38
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 2002
--------------------------------------------------------------------------------
The senior loans acquired by the Trust may take the form of a direct co-lending
relationship with the corporate issuer, an assignment of a co-lender's interest
in a loan, or a participation interest in a co-lender's interest in a loan. The
lead lender in a typical corporate loan syndicate administers the loan and
monitors collateral. In the event that the lead lender becomes insolvent, enters
FDIC receivership or, if not FDIC insured, enters into bankruptcy, the Trust may
incur certain costs and delays in realizing payment, or may suffer a loss of
principal and/or interest. Additionally, certain situations may arise where the
Trust acquires a participation in a co-lender's interest in a loan and the Trust
does not have privity with or direct recourse against the corporate issuer.
Accordingly, the Trust may incur additional credit risk as a participant because
it must assume the risk of insolvency or bankruptcy of the co-lender from which
the participation was acquired. Common and preferred stocks, and stock purchase
warrants held in the portfolio were acquired in conjunction with senior loans
held by the Trust. Certain of these stocks and warrants are restricted and may
not be publicly sold without registration under the '33 Act, or without an
exemption under the '33 Act. In some cases, these restrictions expire after a
designated period of time after issuance of the stock or warrant. These
restricted securities are valued at fair value as determined by the Board of
Trustees by considering quality, dividend rate, and marketability of the
securities compared to similar issues. In order to assist in the determination
of fair value, the Trust will obtain quotes from dealers who periodically trade
in such securities where such quotes are available. Dates of acquisition and
cost or assigned basis of restricted securities are as follows:
Date of Cost or
Acquisition Assigned Basis
----------- --------------
American Blind and Wallpaper, Inc. -- Common 01/12/99 --
AM Cosmetics Corp. -- Common 06/08/99 $ 385,610
AM Cosmetics Corp. -- Preferred Stock 06/02/99 --
Autotote Systems, Inc. -- Option 02/26/97 --
Boston Chicken--Residual interest in Boston Chicken Trust 12/26/00 8,014,961
Breed Technologies -- Common 12/27/00 3,343,665
Capital Tool & Design -- Warrants 07/26/96 --
Casden Properties Corporation -- Preferred Partnership Units 12/31/98 --
Covenant Care, Inc. -- Warrants 12/22/95 --
Decision One Corporation -- Common 06/16/00 --
Electro Mechanical Solutions -- Warrants 06/20/00 --
Holmes Product Corporation -- Warrants 10/24/01 --
Imperial Home Decor Group -- Common 05/02/01 1,654,378
IHDG Realty -- Common 05/02/01 1
Morris Material Handling -- Common 01/10/01 3,009,059
MP Holdings, Inc. -- Common 03/14/01 6
New World Coffee Manhattan Bagel, Inc. -- Warrants 09/27/01 --
Murray's Discount Auto Stores, Inc. -- Warrants 02/16/99 --
Pacific Coin -- Common 07/09/01 1
Safelite Glass Corporation 09/12/00 --
Safelite Realty 09/12/00 --
Stellex Technologies, Inc. -- Common 10/17/01 275,767
Scientific Games Corp. -- Common 05/11/01 --
Soho Publishing, Inc. -- Common 03/14/01 176
Tartan Textiles Services, Series D Preferred Stock 07/17/01 2,227,655
Tartan Textiles Services, Series E Preferred Stock 07/17/01 2,333,852
Crown Paper, Inc. -- Conversion rights representing
Tembec Common Shares 01/10/01 1,292,072
Vision Twenty-One -- Warrants 11/28/00 --
-----------
Total restricted securities excluding senior loans (market value
of $32,989,460 was 3.3% of net assets at February 28, 2002) $22,537,203
===========
39
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 2002
--------------------------------------------------------------------------------
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Investment Management Agreement with the
Investment Manager, a wholly-owned subsidiary of ING Funds Services, LLC
(formerly ING Pilgrim Group, LLC, the "Administrator"), to provide advisory and
management services. The Investment Management Agreement compensates the
Investment Manager with a fee, computed daily and payable monthly, at an annual
rate of 0.80% of the Trust's average daily net assets (inclusive of preferred
stock) plus borrowings ("Managed Assets").
The Trust has also entered into an Administration Agreement with the
Administrator to provide administrative services and also to furnish facilities.
The Administrator is compensated with a fee, computed daily and payable monthly,
at an annual rate of 0.25% of the Trust's average daily Managed Assets.
At February 28, 2002, the Trust had the following amounts recorded in payable to
affiliates on the accompanying Statement of Assets and Liabilities:
Accrued Investment Accrued Administrative
Management Fees Fees Total
------------------ ---------------------- ----------
$1,050,181 $328,181 $1,378,362
NOTE 4 -- COMMITMENTS
The Trust has entered into both a 364 day and a five year revolving credit
agreement, collateralized by assets of the Trust, to borrow up to $550 million
from a syndicate of major financial institutions maturing July 15, 2003.
Borrowing rates under these agreements are based on a fixed spread over LIBOR,
the federal funds rate, or a commercial paper based rate. Prepaid arrangement
fees for any unborrowed amounts are amortized over the term of the agreements.
The amount of borrowings outstanding at February 28, 2002, was $282 million, at
a weighted average interest rate of 2.2%. The amount of borrowings represented
16.4% of net assets plus borrowings at February 28, 2002. Average borrowings for
the the year ended February 28, 2002 were $365,126,028 and the average
annualized interest rate was 4.0%.
As of February 28, 2002, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Airgate PCS, Inc. $ 2,737,459
Aladdin Gaming LLC 5,000,000
Alliance Data Systems Corp. 1,785,714
Aurora Foods 80,000
Boyd Gaming Corporation 2,155,819
Doshi Diagnostic 1,287,031
Express Scripts, Inc. 3,092,006
Huntsman Corporation 2,306,035
Insight Health Services Corp. 5,000,000
Key Energy Group, Inc. 2,107,757
Lamar Media Corporation 6,562,500
Levi Strauss & Co. 4,279,927
Murray's Discount Auto Stores, Inc. 998,749
Packaging Corporation of America 2,753,594
Palace Station Hotel and Casino 5,088,147
Rail America, Inc. 246,529
Riverwood International Corp. 4,491,667
Six Flags Theme Parks, Inc. 7,166,667
URS Corporation 4,971,429
Western Wireless 6,400,000
-----------
$68,511,030
===========
NOTE 5 -- RIGHTS AND OTHER OFFERINGS
On October 18, 1996, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 18,122,963 shares of the
Trust's common stock at the rate of one share of common stock for each five
rights held. On November 12, 1996, the offering expired and was fully
subscribed. The Trust issued 18,122,963 shares of its common stock to exercising
rights holders at a subscription price of $9.09. Offering costs of $6,972,203
were charged against the offering proceeds.
40
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 2002
--------------------------------------------------------------------------------
On December 27, 1994, the Trust issued to its shareholders transferable rights
which entitled the holders to subscribe for 17,958,766 shares of the Trust's
common stock at the rate of one share of common stock for each four rights held.
On January 27, 1995, the offering expired and was fully subscribed. The Trust
issued 17,958,766 shares of its common stock to exercising rights holders at a
subscription price of $8.12. Offering costs of $4,470,955 were charged against
the offering proceeds.
As of February 28, 2002, share offerings pursuant to shelf registrations were as
follows:
Registration Shares Shares
Date Registered Remaining
------------ ---------- ----------
6/11/98 15,000,000 --
6/19/98 10,000,000 9,730,800
9/15/98 25,000,000 19,170,354
3/04/99 5,000,000 3,241,645
On November 2, 2000, the Trust issued 3,600 shares each of Series M, Series W
and Series F Auction Rate Cumulative Preferred Shares, $.01 Par Value, $25,000
liquidation preference, for a total issuance of $270 million. Also, on November
16, 2000, the Trust issued 3,600 shares of Series T and Series Th Auction Rate
Cumulative Preferred Shares, $.01 Par Value, $25,000, liquidation preference,
for a total issuance of $180 million. All such Preferred Shares were outstanding
as of February 28, 2001. Costs associated with the offering of approximately
$5,438,664 were charged against the proceeds received. The Trust used the net
proceeds of the offering to partially pay down the then existing indebtedness.
The Trust may reborrow amounts in the future to increase its use of leverage
which will be consistent with the limitations imposed by the Investment Company
Act of 1940. Preferred Shares pay dividends based on a rate set at auctions,
normally held every 7 days. In the most instances dividends are also payable
every 7 days, on the first business day following the end of the rate period.
NOTE 6 -- CUSTODIAL AGREEMENT
State Street Bank, Kansas City ("SSBKC") serves as the Trust's custodian and
recordkeeper. Custody fees paid to SSBKC are reduced by earnings credits based
on the cash balances held by SSBKC for the Trust. There were no earnings credits
for the year ended February 28, 2002.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the year ended February 28, 2002, the Trust purchased and sold holdings
in senior loans from/to affiliated funds managed by the Investment Manager at
prices determined by the Investment Manager to represent market prices. The cost
of purchased loans was $18,278,387 and the proceeds and cost of sold loans were
$66,132,025 and $66,870,375, respectively, excluding any benefit to the Trust
from the recognition of deferred arrangement fees.
NOTE 8 -- SUBORDINATED LOANS AND UNSECURED LOANS
The primary risk arising from investing in subordinated loans or in unsecured
loans is the potential loss in the event of default by the issuer of the loans.
The Trust may acquire a subordinated loan only if, at the time of acquisition,
it acquires or holds a Senior Loan from the same borrower. The Trust will
acquire unsecured loans only where the Investment Manager believes, at the time
of acqusition, that the Trust would have the right to payment upon default that
is not subordinate to any other creditor. The Trust may invest up to 5% of its
total assets, measured at the time of investment, in subordinated loans and
unsecured loans. As of February 28, 2002, the Trust held 2.7% of its total
assets in subordinated loans and unsecured loans.
41
ING Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 2002
--------------------------------------------------------------------------------
NOTE 9 -- SUBSEQUENT EVENTS
Subsequent to February 28, 2002, the Trust paid to Common Shareholders the
following dividends from net investment income:
Per Share Amount Declaration Date Record Date Payable Date
---------------- ---------------- ----------- ------------
$ 0.0385 02/28/2002 03/11/2002 03/20/2002
$ 0.0385 03/28/2002 04/10/2002 04/18/2002
Subsequent to February 28, 2002, the Trust paid to Preferred Shareholders the
following dividends from net investment income:
Total
Preferred Per Share Auction Record Payable
Shares Amount Dates Dates Dates
--------- --------- -------------------- -------------------- --------------------
Series M $ 53.08 03/04/02 to 04/08/02 03/11/02 to 04/15/02 03/12/02 to 04/16/02
Series T $ 54.54 03/05/02 to 04/10/02 03/12/02 to 04/16/02 03/13/02 to 04/17/02
Series W $ 55.28 03/06/02 to 04/10/02 03/13/02 to 04/17/02 03/14/02 to 04/18/02
Series Th $ 54.15 03/07/02 to 04/11/02 03/14/02 to 04/18/02 03/15/02 to 04/19/02
Series F $ 53.12 03/01/02 to 04/05/02 03/08/02 to 04/12/02 03/11/02 to 04/15/02
Management's Additional Operating Information (Unaudited)
APPROVAL OF CHANGES IN INVESTMENT POLICIES
At a Special Meeting of Trust Shareholders, held August 6, 1998, Shareholders
approved changes in the Trust's fundamental investment policies which make
available certain additional investment opportunities to the Trust, including
(i) investing in loans in any form of business entity, as long as the loans
otherwise meet the Trust's requirements regarding the quality of loans in which
it may invest; (ii) the treatment of lease participations as Senior Loans which
would constitute part of the 80% of the Trust's assets normally invested in
Senior Loans; (iii) investing in all types of hybrid loans that meet credit
standards established by the Investment Manager constituting part of the 20% of
the Trust's assets that may be invested in Other Investments; (iv) the ability
to invest up to 5% of its total assets in both subordinated loans and unsecured
loans which would constitute part of the 20% of the Trust's assets that may be
invested in Other Investments.
Additionally, another policy change approved by the Board of Trustees of the
Trust, which does not require shareholder approval, permits the Trust to accept
guarantees and expanded forms of intangible assets as collateral, including
copyrights, patent rights, franchise value, and trademarks. Another policy
change approved by the Board, that does not require shareholder approval,
provides that 80% of the Trust's gross assets, as opposed to 80% of its net
assets, may normally be invested in Senior Loans.
The Trust's Manager considered the evolving nature of the syndicated loan market
and the potential benefits to the Trust and its shareholders of revising the
restriction to permit the Trust to invest in loans other than Senior Loans and
the increase in the number of attractive investment opportunities available to
the Trust due to the change.
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule
23c-1 under the Investment Company Act of 1940, the Trust may from time to time
purchase shares of beneficial interest of the Trust in the open market, in
privately negotiated transactions and/or purchase shares to correct erroneous
transactions.
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program") which enables
investors to conveniently add to their holdings at reduced costs. Should you
desire further information concerning this Program, please contact the
Shareholder Servicing Agent at (800) 992-0180.
42
ING Prime Rate Trust
--------------------------------------------------------------------------------
TAX INFORMATION (Unaudited)
--------------------------------------------------------------------------------
The Trust is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise within 60 days of the Trust's fiscal year end (February 28,
2002) as to the federal tax status of distributions received by the Trust's
shareholders. Accordingly, the Trust is hereby advising you that the following
dividends were paid to Common Shareholders during the fiscal year ended February
28, 2002:
Per Share
Type of Dividend Amount Ex-Dividend Date Payable Date
---------------- -------- ---------------- ------------
Ordinary Income $ 0.0620 03/08/01 03/22/01
$ 0.0650 04/06/01 04/22/01
$ 0.0600 05/08/01 05/22/01
$ 0.0580 06/07/01 06/22/01
$ 0.0540 07/06/01 07/23/01
$ 0.0540 08/08/01 08/22/01
$ 0.0520 09/06/01 09/24/01
$ 0.0470 10/05/01 10/22/01
$ 0.0470 11/07/01 11/23/01
$ 0.0430 12/06/01 12/24/01
$ 0.0420 12/27/01 01/11/02
$ 0.0410 02/11/02 02/25/02
--------
Total $ 0.625
========
The Trust is hereby advising you that the following dividends were paid to
Preferred Shareholders during the fiscal year ended February 28, 2001:
Total
Preferred Type of Per Share Auction Record Payable
Shares Dividend Amount Dates Dates Dates
--------- --------------- --------- ------------------ ----------------- -----------------
Series M Ordinary Income $834.08 3/5/01 to 2/25/02 3/12/01 to 3/4/02 3/13/01 to 3/5/02
Series T Ordinary Income $836.77 3/6/01 to 2/26/02 3/13/01 to 3/5/02 3/14/01 to 3/6/02
Series W Ordinary Income $854.68 2/28/01 to 2/27/02 3/7/01 to 3/6/02 3/8/01 to 3/7/02
Series Th Ordinary Income $854.51 3/1/01 to 2/28/02 3/8/01 to 3/7/02 3/9/01 to 3/8/02
Series F Ordinary Income $834.82 3/2/01 to 2/22/02 3/9/01 to 3/1/02 3/12/01 to 3/4/02
Corporate shareholders are generally entitled to take the dividend received
deduction on the portion of the Trust's dividend distributions that qualify
under tax law. The percentage of the Trust's fiscal year 2001 net investment
income dividends that qualify for the corporate dividends received deductions is
0.02%.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Trust. In January 2002, you
should have received an IRS Form 1099 DIV regarding the federal tax status of
the dividends and distributions received by you in calendar year 2001.
43
INVESTMENT MANAGER
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
ADMINISTRATOR
ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
INSTITUTIONAL INVESTORS AND ANALYSTS
Call ING Prime Rate Trust
1-800-336-3436, Extension 2217
DISTRIBUTOR
ING Funds Distributor, Inc.
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-334-3444
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 219368
Kansas City, Missouri 64141-9368
CUSTODIAN
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, California 90071
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
ING Prime Rate Trust Account
c/o ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for account
or other information, at 1-800-992-0180
A prospectus containing more complete information regarding the Trust, including
charges and expenses, may be obtained by calling ING Funds Distributor, Inc.,
Distributor, at 1-800-992-0180. Please read the prospectus carefully before you
invest or send money.
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INF FUNDS PRTANN022802-042402