As filed with the Securities and Exchange Commission on April 27, 2011
Securities Act File No. 333-161327
Investment Company Act File No. 811-05410
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM N-2
(Check Appropriate box or boxes)
Registration Statement Under The Securities Act Of 1933 |
x |
Pre-Effective Amendment No. |
o |
Post-Effective Amendment No. 3 |
x |
and/or |
|
Registration Statement Under The Investment Company Act Of 1940 |
x |
Amendment No. 86
|
x |
ING PRIME RATE TRUST
(Exact Name of Registrant Specified in Charter)
7337 E. Doubletree Ranch Road, Suite 100
Scottsdale, AZ 85258
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 992-0180
Huey P. Falgout, Jr. ING Investments, LLC 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, AZ 85258 (Name and Address of Agent for Service) |
With copies to: Jeffrey S. Puretz, Esq. Dechert LLP 1775 I Street, NW Washington, DC 20006 |
________________________
Approximate Date of Proposed Offering:
As soon as practical after the effective date of this Registration Statement
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. x
It is proposed that this filing will become effective:
x When declared effective pursuant to Section 8(c) of the Securities Act of 1933.
ING PRIME RATE TRUST
(Registrant)
5,000,000 Common Shares
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement consists of the following papers and documents:
*
Cover Sheet
*
Contents of Registration Statement
*
ING Prime Rate Trust 5,000,000 Common Shares Prospectus dated June 30, 2011
*
ING Prime Rate Trust 5,000,000 and 25,000,000 Statement of Additional Information dated June 30, 2011
*
Part C
*
Signature Page
Prospectus | June 30, 2011 |
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INVESTMENTS |
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Table of Contents |
The following synopsis is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Prospectus.
The Trust is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended, and the rules, regulations, and exemptive orders thereunder (“1940 Act”). It was organized as a Massachusetts business trust on December 2, 1987. As of June 15, 2011, the Trust’s net asset value (“NAV”) per Common Share was $[ ].
As of June 15, 2011, the Trust had [ ] Common Shares outstanding, which are traded on the NYSE under the symbol PPR. At that date, the last reported sales price of a Common Share of the Trust was $[ ].
To provide investors with as high a level of current income as is consistent with the preservation of capital. There is no assurance that the Trust will achieve its investment objective.
The Trust’s investment adviser is ING Investments, LLC (“ING Investments” or “Adviser”), an Arizona limited liability company. As of March 31, 2011, ING Investments managed approximately $[ ] billion in assets.
ING Investments is registered with the SEC as an investment adviser. ING Investments is an indirect, wholly-owned subsidiary of ING Groep N.V. (“ING Groep”) (NYSE:ING). ING Groep is a global financial institution of Dutch origin offering banking, investments, life insurance and retirement services to over 85 million private, corporate and institutional clients in more than 40 countries. With a diverse workforce of about 105,000 people, ING Groep is dedicated to setting the standard in helping its clients manage their financial future. ING Investments became an investment management firm in April 1995.
ING Groep has adopted a formal restructuring plan that was approved by the European Commission in November 2009 under which the ING life insurance businesses, including the retirement services and investment management businesses, which include the Adviser and its affiliates, would be divested by ING Groep by the end of 2013. To achieve this goal, ING Groep announced in November 2010 that it plans to pursue two separate initial public offerings: one a U.S. focused offering that would include U.S. based insurance, retirement services, and investment management operations: and the other a European based offering for European and Asian based insurance and investment management operations. There can be no assurance that the restructuring plan will be carried out through two offerings or at all.
The restructuring plan and the uncertainty about its implementation, whether implemented through the planned initial public offerings or through other means, in whole or in part, may be disruptive to the businesses of ING entities, including the ING entities that service the Trust, and may cause, among other things, interruption or reduction of business and services, diversion of management’s attention from day-to-day operations, and loss of key employees or customers. A failure to complete the offerings or other means of implementation on favorable terms could have a material adverse impact on the operations of the businesses subject to the restructuring plan. The restructuring plan may result in the Adviser’s loss of access to services and resources of ING Groep, which could adversely affect its businesses and profitability. In addition, the divestment of ING businesses, including the Adviser, may potentially be deemed a “change of control” of the entity. A change of control would result in the termination of the Trust’s advisory and sub-advisory agreements, which would trigger the necessity for new agreements that would require approval of the Trust’s Board, and may trigger the need for shareholder approval. Currently, the Adviser does not anticipate that the restructuring will have a material adverse impact on the Trust or its operations and administration.
The Adviser receives an annual fee, payable monthly, in an amount equal to 0.80% of the Trust’s average daily gross asset value, minus the sum of the Trust’s accrued and unpaid dividends on any outstanding preferred shares and accrued liabilities (other than liabilities for the principal amount of any borrowings incurred, commercial paper, or notes issued by the Trust and the liquidation preference of any outstanding preferred shares) (“Managed Assets”). This definition includes the assets acquired through the Trust’s use of leverage.
ING Investment Management Co. (“ING IM” or “Sub-Adviser”) serves as sub-adviser to the Trust. ING IM is an affiliate of the Adviser.
See “Investment Management and Other Service Providers — Sub-Adviser” later in this Prospectus.
Income dividends on Common Shares accrue, are declared, and are paid monthly. Income dividends may be distributed in cash or reinvested in additional full and fractional shares of the Trust through the Trust’s Shareholder Reinvestment Program.
Principal Investment Strategies
The Trust seeks to achieve
its investment objective by investing, under normal market conditions,
at least 80% of its net assets (plus borrowings for investment
purposes) in U.S. dollar-denominated floating
rate secured senior loans (“Senior Loans”). The Trust
will provide shareholders with at least 60 days’ prior notice of any
change in this investment policy. Under normal market conditions, the
Trust invests at least 80% of its assets
ING Prime Rate Trust | 1 |
The Senior Loans in which the Trust invests either hold the most senior position in the capital structure of the borrower, hold an equal ranking with other senior debt, or have characteristics that the Adviser or Sub-Adviser believes justify treatment as senior debt. These Senior Loans are typically below investment-grade quality.
The Trust typically makes its investments in Senior Loans by purchasing a portion of the overall loan, i.e. , the Trust becomes one of a number of lenders investing in the loan. The Trust may also make its investments in Senior Loans through the use of derivative instruments such as participations, credit-linked notes, credit default swaps, and total return swaps as long as the reference obligation for any such instrument is a Senior Loan. Investments through the use of such derivative instruments involve counterparty risk, i.e. , the risk that the party from which such instrument is purchased will not perform as agreed. The Trust seeks to minimize such counterparty risk by purchasing such investments from large, well established and highly rated counterparties.
Other Investment Strategies and Policies
Assets not invested in Senior Loans may be invested in unsecured loans; subordinated loans; and tranches of floating rate asset-backed securities, including structured notes, short-term debt securities, and equities acquired in connection with investments in loans. See “Investment Objective and Policies” later in this Prospectus.
Loans in which the Trust invests typically have multiple reset periods at the same time, with each reset period applicable to a designated portfolio of the loan. The maximum duration of an interest rate reset on any loan in which the Trust may invest is one year. In order to achieve overall reset balance, the Trust will ordinarily maintain a dollar-weighted average time until the next interest rate adjustment on its loans of 90 days or less.
Normally at least 80% of the Trust’s portfolio will be invested in Senior Loans with maturities of one to ten years. The maximum maturity on any loan in which the Trust may invest is ten years.
To seek to increase the yield on the Common Shares, the Trust may engage in lending its portfolio securities. Such lending will be fully secured by investment-grade collateral held by an independent agent.
The Trust may invest up to 20% of its total assets, measured at the time of investment, in a combination of one or more of the following types of investments: loans to borrowers organized or located in countries outside the United States and outside U.S. territories and possessions or Canada; unsecured floating rate loans, notes, and other debt instruments; floating rate subordinated loans; tranches of floating rate asset-backed securities; short-term debt securities; and equity securities incidental to investment in loans. See “Investment Objective and Policies” later in this Prospectus.
The Trust may engage in executing repurchase and reverse repurchase agreements.
To seek to increase the yield on the Common Shares, the Trust employs financial leverage by borrowing money and may also issue preferred shares. The timing and terms of leverage will be determined by the Trust’s Board of Trustees (“Board”) in consultation with the Adviser or Sub-Adviser. See “Risk Factors and Special Considerations — Leverage” later in this Prospectus.
The Trust may borrow money in an amount permitted under the 1940 Act, including the rules, regulations, interpretations thereunder and any exemptive or other relief provided by the SEC. The Trust’s obligations to holders of its debt are senior to its ability to pay dividends on, or repurchase, Common Shares and preferred shares, or to pay holders of Common Shares and preferred shares in the event of liquidation.
Under the 1940 Act, the Trust may issue preferred shares so long as immediately after any issuance of preferred shares the value of the Trust’s total assets (less all Trust liabilities and indebtedness that is not senior indebtedness) is at least twice the amount of the Trust’s senior indebtedness plus the involuntary liquidation preference of all outstanding shares.
The Trust is authorized to issue an unlimited number of shares of a class of preferred stock in one or more series (“Preferred Shares”). In November 2000, the Trust issued 3,600 shares each of Series M, T, W, Th, and F Preferred Shares for a total issuance of $450 million.. These Auction Rate Cumulative Preferred Shares had a $0.01 par value and $25,000 liquidation preference per share. The Trust’s obligations to holders of the Preferred Shares are senior to its ability to pay dividends on, or repurchase, Common Shares, or to pay holders of Common Shares in the event of liquidation.
The 1940 Act also requires that the holders of the Preferred Shares, voting as a separate class, have the right to:
In each case, the holders of Common Shares voting separately as a class will elect the remaining trustees.
Since
early February 2008, the Trust has not received sufficient hold orders
or any purchase requests for its Preferred Shares during their weekly
auctions that equaled the full amount of such shares. As a result,
under the terms of the Preferred Shares, the amounts sold, if any, by
each selling shareholder are reduced
pro rata
or to zero. In
addition, the dividend rate on such Preferred Shares, which is normally
set by means of a Dutch auction procedure, automatically reset to the
maximum rate permitted under the Preferred Shares program. That maximum
rate is 150% of the applicable commercial paper base rate on the day of
the auction. While it is possible that the dividend rate for the
Preferred Shares will be set by means of an auction at some future
time,
2 | ING Prime Rate Trust |
The Trust maintains a diversified investment portfolio through an investment strategy which seeks to limit exposure to any one issuer or industry.
As a diversified investment company, the Trust may not make investments in any one issuer (other than the U.S. government) if, immediately after such purchase or acquisition, more than 5% of the value of the Trust’s total assets would be invested in such issuer, or the Trust would own more than 25% of any outstanding issue. The Trust will consider a borrower on a loan, including a loan participation, to be the issuer of that loan. In addition, with respect to a loan under which the Trust does not have privity with the borrower or would not have a direct cause of action against the borrower in the event of the failure of the borrower to make payment of scheduled principal or interest, the Trust will also separately meet the foregoing requirements and consider each interpositioned bank (a lender from which the Trust acquires a loan) to be an issuer of the loan. This investment strategy is a fundamental policy that may not be changed without shareholder approval. With respect to no more than 25% of its total assets, the Trust may make investments that are not subject to the foregoing restrictions.
In addition, a maximum of 25% of the Trust’s total assets, measured at the time of investment, may be invested in any one industry. This investment strategy is also a fundamental policy that may not be changed without shareholder approval.
The Common Shares are offered by the Trust through the Trust’s Shareholder Reinvestment Program. The Shareholder Reinvestment Program allows participating shareholders to reinvest all dividends in additional shares of the Trust, and also allows participants to purchase additional Common Shares through optional cash investments in amounts ranging from a minimum of $100 to a maximum of $100,000 per month. The Trust and ING Investments Distributor, LLC (“Distributor”) reserve the right to reject any purchase order. Please note that cash, traveler’s checks, third-party checks, money orders, and checks drawn on non-U.S. banks (even if payment may be effected through a U.S. bank) generally will not be accepted. Common Shares may be issued by the Trust under the Shareholder Reinvestment Program only if the Trust’s Common Shares are trading at a premium to NAV. If the Trust’s Common Shares are trading at a discount to NAV, Common Shares purchased under the Shareholder Reinvestment Program will be purchased on the open market. See “Plan of Distribution” later in this Prospectus.
Shareholders may elect to participate in the Shareholder Reinvestment Program by telephoning the Trust or submitting a completed Participation Form to BNY Mellon Investment Servicing (U.S.) Inc. (formerly, PNC Global Investment Servicing (U.S.) Inc.).
Common Shares also may be offered pursuant to privately negotiated transactions between the Trust or the Distributor and individual investors. Common Shares of the Trust issued in connection with privately negotiated transactions will be issued at the greater of: (i) NAV per Common Share of the Trust’s Common Shares; or (ii) at a discount ranging from 0% to 5% of the average daily market price of the Trust’s Common Shares at the close of business on the two business days preceding the date upon which Common Shares are sold pursuant to the privately negotiated transaction. See “Plan of Distribution” later in this Prospectus.
The Trust’s administrator is ING Funds Services, LLC (“Administrator”). The Administrator is an affiliate of the Adviser. The Administrator receives an annual fee, payable monthly, in a maximum amount equal to 0.25% of the Trust’s Managed Assets.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Credit Risk on Senior Loans The Trust invests a substantial portion of its assets in below investment-grade Senior Loans and other below investment-grade assets. Below investment-grade loans involve a greater risk that borrowers may not make timely payment of the interest and principal due on their loans. They also involve a greater risk that the value of such loans could decline significantly. If borrowers do not make timely payments of the interest due on their loans, the yield on the Trust’s Common Shares will decrease. If borrowers do not make timely payment of the principal due on their loans, or if the value of such loans decreases, the Trust’s NAV will decrease.
Demand For Loans An increase in demand for loans may adversely affect the rate of interest payable on new loans acquired by the Trust and it may also increase the price of loans in the secondary market. A decrease in the demand for loans may adversely affect the price of loans in the Trust’s portfolio, which could cause the Trust’s NAV to decline.
Discount from
NAV
As with any security, the
market value of the Common Shares may increase or decrease from the
amount that you paid for the Common Shares. The Trust’s Common
ING Prime Rate Trust | 3 |
Impact of Shareholder Reinvestment Program and Privately Negotiated Transactions The issuance of Common Shares through the Shareholder Reinvestment Program and/or through privately negotiated transactions may have an adverse effect on prices in the secondary market for the Trust’s Common Shares by increasing the number of Common Shares available for sale. In addition, the Common Shares may be issued at a discount to the market price for such Common Shares, which may put downward pressure on the market price for Common Shares of the Trust.
Interest Rate Changes in short-term market interest rates will directly affect the yield on the Trust’s Common Shares. If short-term market interest rates fall, the yield on the Trust’s Common Shares will also fall. To the extent that the interest rate spreads on loans in the Trust’s portfolio experience a general decline, the yield on the Trust’s Common Shares will fall and the value of the Trust’s assets may decrease, which will cause the Trust’s NAV to decrease. Conversely, when short-term market interest rates rise, because of the lag between changes in such short-term rates and the resetting of the floating rates on assets in the Trust’s portfolio, the impact of rising rates will be delayed to the extent of such lag.
Leverage The Trust’s use of leverage through borrowings or the issuance of preferred shares can adversely affect the yield on the Trust’s Common Shares. To the extent that the Trust is unable to invest the proceeds from the use of leverage in assets which pay interest at a rate which exceeds the rate paid on the leverage, the yield on the Trust’s Common Shares will decrease. In addition, in the event of a general market decline in the value of assets such as those in which the Trust invests, the effect of that decline will be magnified in the Trust because of the additional assets purchased with the proceeds of the leverage. As of June 15, 2011 the Trust had $[ ] million in outstanding borrowings under one credit facility and $[ ] million of Preferred Shares (issued and outstanding).
Limited Secondary Market for Loans Because of the limited secondary market for loans, the Trust may be limited in its ability to sell loans in its portfolio in a timely fashion and/or at a favorable price.
Non-U.S. and Non-Canadian Issuers The Trust may invest up to 20% of its total assets, measured at the time of investment, in loans, secured or unsecured, to borrowers that are organized or located in countries outside the United States and outside U.S. territories or possessions or Canada.
The Trust may invest up to 15% of its total assets, measured at the time of investment, in investments denominated in the Organization for Economic Co-operation and Development (“OECD”) currencies (including the euro), other than the U.S. dollar. The Trust will engage in currency exchange transactions to seek to hedge, as closely as practicable, 100% of the economic impact to the Trust arising from foreign currency fluctuations. The Trust may not be entirely successful in implementing this hedging strategy, resulting in the Trust being adversely affected by foreign currency fluctuations. Investment in foreign borrowers involves special risks, including that foreign borrowers may be subject to:
Temporary Defensive Positions When market conditions make it advisable, the Trust may hold a portion of its assets in cash and short-term interest bearing instruments. Moreover, in periods when, in the opinion of the Adviser or Sub-Adviser, a temporary defensive position is appropriate, up to 100% of the Trust’s assets may be held in cash and/or short-term interest bearing instruments. The Trust may not achieve its investment objective when pursuing a temporary defensive position.
4 | ING Prime Rate Trust |
WHAT YOU PAY TO INVEST - TRUST EXPENSES
The cost you pay to
invest in the Trust includes the expenses incurred by the Trust. In
accordance with SEC requirements, the table below shows the expenses of
the Trust, including interest expense on borrowings, as a percentage of
the average net assets of the Trust and not as a percentage of gross
assets or Managed Assets. By showing expenses as a percentage of the
average net assets, expenses are not expressed as a percentage of all
of the assets that are invested for the Trust. The table below assumes
that the Trust has issued Preferred Shares and has borrowed an
aggregate amount equal to 30% of its Managed Assets. For information
about the Trust’s expense ratios if the Trust had not borrowed
or issued Preferred Shares, see “Risk Factors and Special
Considerations - Annual Expenses Without Borrowings or Preferred
FEES AND EXPENSES OF THE TRUST
Shareholder Transaction Expenses: |
Shareholder Reinvestment Program Fees | None |
Privately Negotiated Transactions: |
Commission (as a percentage of offering price) | 3.00% |
Annual Expenses (as a percentage of average net assets attributable to Common Shares): |
Management and Administrative Fees (1) | [ ]% |
Interest Expense on Borrowed Funds | [ ]% |
Other Operating Expenses (2) | [ ]% |
Total Annual Expenses (3) | [ ]% |
(1) | Pursuant to the investment advisory agreement with the Trust, the Adviser is paid a fee of 0.80% of the Trust’s Managed Assets. Pursuant to its Administration Agreement with the Trust, the Administrator is paid a fee of 0.25% of the Trust’s Managed Assets. See “Investment Management and Other Service Providers — The Administrator.” |
(2) | Other Operating Expenses are based on estimated amounts for the current fiscal year which, in turn, are based on other operating expenses for the fiscal year ended February 28, 2011, and do not include the expenses of borrowing. During the fiscal year ended February 28, 2011, the Trust incured a non-recurring Federal excise tax expense in the amount of $[ ] ([ ])% of average daily net assets) which has been fully reimbursed by the Adviser and excluded from expenses. |
(3) | If the expenses of the Trust are calculated based on the Managed Assets of the Trust (assuming that the Trust has used leverage by borrowing an aggregate amount equal to 30% of the Trust’s Managed Assets), the Total Annual Expense ratio would be [ ]%. |
Example
The following Example shows the amount of the expenses that an investor in the Trust would bear on a $1,000 investment that is held for the different time periods in the table. The Example assumes that all dividends and other distributions are reinvested at NAV and that the percentage amounts listed under Total Annual Expenses in the table above remain the same in the years shown. The table and the assumption in the Example of a 5% annual return are required by regulations of the SEC applicable to all investment companies. The assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Trust’s Common Shares. For more complete descriptions of certain of the Trust’s costs and expenses, see “Investment Management and Other Service Providers.”
The following Example applies to shares issued in connection with privately negotiated transactions, which have the maximum front-end sales load of 3%.
1 Year | 3 Years | 5 Years | 10 Years |
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return and borrowings by the Trust in an aggregate amount equal to 30% of its Managed Assets. | $ | [ ] | [ ] | [ ] | [ ] |
The purpose of the table is to assist you in understanding the various costs and expenses that an investor in the Trust will bear directly or indirectly.
The foregoing Example should not be considered a representation of future expenses and actual expenses may be greater or less than those shown.
The financial highlights on the following pages are intended to help you understand the Trust’s shares’ financial performance for the past ten fiscal years, or if shorter, the period of each class’ operations. The financial information has been derived from the Trust’s financial statements that were audited by KPMG LLP, an independent registered public accounting firm. The report of KPMG LLP, along with the financial statements included in the annual shareholder report dated February 28, 2011, which includes the financial highlights for the most recent ten fiscal years or, if shorter, the period of each class’ operations, are incorporated herein by reference. A free copy of the annual shareholder report may be obtained by calling 1-800-336-3436.
Selected data for a share of beneficial interest outstanding throughout each year or period.
Per Share Operating
Performance
|
Total
Investment
Return (1) |
Ratios to
average
net assets |
Supplemental
data |
||||||||||
Net asset value, beginning of
year or period |
Net investment income (loss)
|
Net realized and
unrealized gain (loss)
|
Distribution to Preferred
Shareholders
|
Change in net asset value from
Share offerings |
Total from investment
operations
|
Distributions to Common Shareholders
from net investment income |
Total distributions
|
Net asset
value, end of year or period
|
Closing market price at end
of
year or period |
Total investment return
at
net asset value (2) |
Total investment
return at closing
market price (3) |
Expenses
(before interest and other fees
related to revolving credit facility) (4) |
Expenses prior to fee waivers
and/or
recoupments, if any (4) |
Expenses
net of fee waivers and/or
recoupments, if any (4) |
Net investment income
(loss)
(4)
|
Net assets, end of year or
period
|
Portfolio Turnover
|
Year or period
ended
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
($000’s)
|
%
|
ING Prime Rate Trust | |||||||||||||
02-28-11 | |||||||||||||
02-28-10 | 3.81 | 0.28 | 1.95 | (0.00)* | — | 2.23 | (0.32) | (0.32) | 5.72 | 5.94 | 60.70 | 81.66 | 1.77 (6) | 1.99 (6) | 1.93 | 5.56 | 830,785 | 38 |
02-28-09 | 6.11 | 0.46 | (2.29) | (0.06) | — | (1.89) | (0.41) | (0.47) | 3.81 | 3.50 | (31.93) (5) | (32.03) (5) | 1.95 | 3.01 | 3.01 | 7.86 | 552,840 | 10 |
02-29-08 | 7.65 | 0.75 | (1.57) | (0.16) | — | (0.98) | (0.56) | (0.72) | 6.11 | 5.64 | (13.28) | (17.25) | 2.20 | 4.36 | 4.36 | 10.35 | 886,976 | 60 |
02-28-07 | 7.59 | 0.71 | 0.06 | (0.16) | — | 0.61 | (0.55) | (0.71) | 7.65 | 7.40 | 8.85 | 13.84 | 2.21 | 4.62 | 4.62 | 9.42 | 1,109,539 | 60 |
02-28-06 | 7.47 | 0.57 | 0.12 | (0.11) | — | 0.58 | (0.46) | (0.57) | 7.59 | 7.02 | 8.53 | (0.82) | 2.33 | 4.27 | 4.27 | 7.71 | 1,100,671 | 81 |
02-28-05 | 7.34 | 0.45 | 0.16 | (0.05) | — | 0.56 | (0.43) | (0.48) | 7.47 | 7.56 | 7.70 | 2.04 | 2.29 | 3.18 | 3.17 | 6.04 | 1,082,748 | 93 |
02-29-04 | 6.73 | 0.46 | 0.61 | (0.04) | — | 1.03 | (0.42) | (0.46) | 7.34 | 7.84 | 15.72 | 28.77 | 2.11 | 2.40 | 2.40 | 6.68 | 1,010,325 | 87 |
02-28-03 | 7.20 | 0.50 | (0.47) | (0.05) | — | (0.02) | (0.45) | (0.50) | 6.73 | 6.46 | 0.44 | 2.53 | 2.19 | 2.68 | 2.68 | 7.33 | 922,383 | 48 |
02-28-02 | 8.09 | 0.74 | (0.89) | (0.11) | — | (0.26) | (0.63) | (0.74) | 7.20 | 6.77 | (3.02) | (9.20) | 2.25 | 3.64 | 3.64 | 9.79 | 985,982 | 53 |
(1) | Total investment return calculations are attributable to common shares. |
(2) | 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, if any, in accordance with the provisions of the dividend reinvestment plan. Total investment return at net asset value is not annualized for periods less than one year. |
(3) | Total investment return at market value has been calculated assuming a purchase at market value at the beginning of each period and a sale at market value at the end of each period and assumes reinvestment of dividends and capital gain distributions, if any, in accordance with the provisions of the dividend reinvestment plan. Total investment return at market value is not annualized for periods less than one year. |
(4) | Annualized for periods less than one year. |
(5) | There was no impact on total return due to payments by affiliates. |
(6) | Includes excise tax fully reimbursed by the Investment Adviser. |
* | Amount is more than $(0.005). |
Selected data for a share of beneficial interest outstanding throughout each year or period.
Ratios to average net assets
including Preferred Shares (a) |
Ratios to average net
assets
plus borrowings |
Supplemental data
|
||||||||||||
Expenses (before interest and other
fees
related to revolving credit facility) (4) |
Expenses
prior to fee waivers and/or
recoupments, if any (4) |
Expenses net
of fee waivers and/or
recoupments, if any (4) |
Net investment income
(loss)
(4)
|
Expenses (before interest and other
fees
related to revolving credit facility) (4) |
Expenses
prior to fee waivers and/or
recoupments, if any (4) |
Expenses net
of fee waivers and/or
recoupments, if any (4) |
Net investment income
(loss)
(4)
|
Preferred Shares - Aggregate
amount
outstanding |
Liquidation and market value per
share
of Preferred Shares |
Asset coverage inclusive
of Preferred
Shares and debt per share (b) |
Borrowings at end of period
|
Asset
coverage per $1,000 of debt
(b)
|
Average borrowings
|
Common shares outstanding at end of
year or period |
Year or period
ended
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
(%)
|
($000’s)
|
($)
|
($)
|
($000’s)
|
($)
|
($000’s)
|
($000’s)
|
ING Prime Rate Trust | ||||||||||||||
02-28-11 | ||||||||||||||
02-28-10 | 1.36 (6) | 1.52 (6) | 1.48 | 4.26 | 1.67 (6) | 1.87 (6) | 1.81 | 5.23 | 200,000 | 25,000 | 98,400 | 83,000 | 13,419 | 46,416 | 145,210 |
02-28-09 | 1.54 | 2.38 | 2.38 | 6.22 | 1.54 | 2.37 | 2.37 | 6.21 | 225,000 | 25,000 | 70,175 | 81,000 | 10,603 | 227,891 | 145,178 |
02-29-08 | 1.54 | 3.05 | 3.05 | 7.23 | 1.60 | 3.17 | 3.17 | 7.53 | 450,000 | 25,000 | 53,125 | 338,000 | 4,956 | 391,475 | 145,094 |
02-28-07 | 1.57 | 3.27 | 3.27 | 6.68 | 1.56 | 3.25 | 3.25 | 6.63 | 450,000 | 25,000 | 62,925 | 281,000 | 6,550 | 459,982 | 145,033 |
02-28-06 | 1.64 | 3.02 | 3.02 | 5.44 | 1.58 | 2.90 | 2.90 | 5.24 | 450,000 | 25,000 | 55,050 | 465,000 | 4,335 | 509,178 | 145,033 |
02-28-05 | 1.60 | 2.22 | 2.21 | 4.21 | 1.63 | 2.27 | 2.26 | 4.32 | 450,000 | 25,000 | 53,600 | 496,000 | 4,090 | 414,889 | 145,033 |
02-29-04 | 1.45 | 1.65 | 1.65 | 4.57 | 1.84 | 2.09 | 2.09 | 5.82 | 450,000 | 25,000 | 62,425 | 225,000 | 7,490 | 143,194 | 137,638 |
02-28-03 | 1.49 | 1.81 | 1.81 | 4.97 | 1.82 | 2.23 | 2.23 | 6.10 | 450,000 | 25,000 | 62,375 | 167,000 | 9,218 | 190,671 | 136,973 |
02-28-02 | 1.57 | 2.54 | 2.54 | 6.83 | 1.66 | 2.70 | 2.70 | 7.24 | 450,000 | 25,000 | 58,675 | 282,000 | 6,092 | 365,126 | 136,973 |
(a) | Ratios do not reflect the effect of dividend payments to Preferred Shareholders; income ratios reflect income earned on assets attributable to Preferred Shareholders; ratios do not reflect any add-back for the borrowings. |
(b) | Asset coverage ratios, as presented in previous annual reports, represented the coverage available for both the borrowings and preferred shares expressed in relation to each $1,000 of borrowings and preferred shares liquidation value outstanding. The Asset coverage ratio per $1,000 of debt is now presented to represent the coverage available to each $1,000 of borrowings before consideration of any preferred shares liquidation, while the Asset coverage inclusive of Preferred Shares, presents the coverage available to both borrowings and preferred shares, expressed in relation to the per share liquidation price of the preferred shares. Asset coverage, with respect to Preferred Shares, represents the total assets of the Trust, less all liabilities and indebtedness not represented by “senior securities” (i.e., the Trust’s Preferred Shares and borrowings described above) in relation to the total amount of Preferred Shares and borrowings outstanding. Asset coverage, with respect to borrowings, represents the total assets of the Trust, less all liabilities and indebtedness not represented by senior securities (i.e. the Trust’s Preferred shares and borrowings described above) in relation to the total amount of only borrowings outstanding (i.e. the denominator of the borrowings ratio includes only borrowings; in contrast, the denominator of the Preferred Share ratio includes both borrowings and Preferred Shares). |
The following table shows for the Trust’s Common Shares for the periods indicated: (1) the high and low closing prices as shown on the NYSE Composite Transaction Tape; (2) the NAV per Common Share represented by each of the high and low closing prices as shown on the NYSE Composite Transaction Tape; and (3) the discount from or premium to NAV per Share (expressed as a percentage) represented by these closing prices. The table also sets forth the aggregate number of shares traded as shown on the NYSE Composite Transaction Tape during the respective quarter.
Price | NAV |
Premium/(Discount)
To NAV |
Reported
NYSE Volume |
|||
Calendar Quarter Ended | High | Low | High | Low | High | Low |
March 31, 2008 | 6.41 | 5.25 | 6.92 | 5.87 | (4.33) | (13.08) | 38,127,200 |
June 30, 2008 | 6.05 | 5.58 | 6.53 | 6.08 | (5.02) | (11.33) | 22,528,000 |
September 30, 2008 | 5.69 | 4.23 | 6.44 | 5.60 | (11.65) | (26.31) | 28,055,900 |
December 31, 2008 | 4.39 | 2.59 | 5.56 | 3.22 | 3.68 | (35.03) | 45,017,400 |
March 31, 2009 | 3.99 | 2.98 | 3.85 | 3.35 | 7.14 | (17.91) | 26,200,000 |
June 30, 2009 | 4.21 | 3.60 | 4.91 | 3.83 | (5.48) | (15.77) | 28,921,000 |
September 30, 2009 | 5.06 | 4.16 | 5.44 | 4.89 | (6.31) | (15.10) | 33,299,400 |
December 31, 2009 | 5.25 | 4.94 | 5.60 | 5.41 | (4.62) | (9.49) | 34,169,700 |
March 31, 2010 | 6.28 | 5.27 | 5.84 | 5.60 | 7.53 | (6.39) | 50,473,000 |
June 30, 2010 | ||||||
September 30, 2010 | ||||||
December 31, 2010 | ||||||
March 31, 2011 |
On June 15, 2011, the last reported sale price of a Common Share of the Trust’s Common Shares on the NYSE was $[ ]. The Trust’s NAV on June 15, 2011 was $[ ]. See “How Shares Are Priced — Net Asset Value.” This represented a ([ ])% discount below the NAV ($[ ]) as of that date.
The Trust’s Common Shares have traded in the market above, at, and below NAV since March 9, 1992, when the Trust’s Common Shares were listed on the NYSE. The Trust cannot predict whether its Common Shares will trade in the future at a premium or discount to NAV, and if so, the level of such premium or discount. Shares of closed-end investment companies frequently trade at a discount from NAV.
INVESTMENT OBJECTIVE AND POLICIES
The Trust’s investment objective is to provide investors with as high a level of current income as is consistent with the preservation of capital. The Trust seeks to achieve this investment objective by investing in the types of assets described below:
1.Senior Loans. Under normal market conditions, at least 80% of the Trust’s net assets (plus borrowings for investment purposes) will be invested in Senior Loans. This investment policy may be changed without shareholder approval so long as the Trust provides its shareholders with at least 60 days’ prior notice of any changes in this investment policy. Under normal market conditions, the Trust invests at least 80% of its assets in Senior Loans made to corporations or other business entities organized under U.S. or Canadian law and that are domiciled in the United States and in U.S. territories and possessions or Canada.
The Senior Loans in which the Trust invests either hold the most senior position in the capital structure of the borrower, hold an equal ranking with other senior debt, or have characteristics (such as a senior position secured by liens on a borrower’s assets) that the Adviser or Sub-Adviser believes justify treatment as senior debt. These Senior Loans are typically below investment-grade credit quality.
The Trust typically makes its investments in Senior Loans by purchasing a portion of the overall loan, i.e., the Trust becomes one of a number of lenders investing in the loan. The Trust may also make its investments in Senior Loans through the use of derivative instruments such as participations, credit-linked notes, credit default swaps, and total return swaps as long as the reference obligation for any such instrument is a Senior Loan. Investments through the use of such derivative instruments involve counterparty risk, i.e., the risk that the party from which such instrument is purchased will not perform as agreed. The Trust seeks to minimize such counterparty risk by purchasing such investments only from large, well established and highly rated counterparties.
2.Other Investments. Under normal market conditions, the Trust may invest up to 20% of its total assets, measured at the time of investment, in a combination of one or more of the following types of investments (“Other Investments”):
3.Cash and Short-Term Instruments. Under normal market conditions, the Trust may invest in cash and/or short-term instruments. During periods when, in the opinion of the Adviser or Sub-Adviser, a temporary defensive posture in the market is appropriate, the Trust may hold up to 100% of its assets in cash and/or short-term instruments.
4.Other Investment Strategies. The Trust may lend its portfolio securities, on a short-term or long-term basis, in an amount equal to up to 33 1 / 3 % of its total assets.
Fundamental Diversification Policies
1.Industry Diversification. The Trust may invest in any industry. The Trust may not invest more than 25% of its total assets, measured at the time of investment, in any single industry.
2.Borrower Diversification. As a diversified investment company, the Trust may not make investments in any one issuer (other than the U.S. government) if, immediately after such purchase or acquisition, more than 5% of the value of the Trust’s total assets would be invested in such issuer, or the Trust would own more than 25% of any outstanding issue. The Trust will consider the borrower on a loan, including a loan participation, to be the issuer of such loan. With respect to no more than 25% of its total assets, the Trust may make investments that are not subject to the foregoing restrictions.
These fundamental diversification policies may only be changed with approval by a majority of all shareholders, including the vote of a majority of any holders of Preferred Shares and any other preferred shares, voting separately as a class.
INVESTMENT OBJECTIVE AND POLICIES (continued)The Adviser and Sub-Adviser follow certain investment policies set by the Trust’s Board. Some of those policies are set forth below. Please refer to the SAI for additional information on these and other investment policies.
1.Limitations on currencies. The Trust’s investments must be denominated in U.S. dollars, provided that the Trust may invest up to 15% of its total assets in investments denominated in the OECD currencies (including the euro), other than the U.S. dollar. The Trust will engage in currency exchange transactions to seek to hedge, as closely as practicable, 100% of the economic impact to the Trust arising from foreign currency fluctuations.
2.Maturity. Although the Trust has no restrictions on portfolio maturity, under normal market conditions, at least 80% of the Trust’s total assets will be invested in assets with remaining maturities of one to ten years. The maximum maturity on any loan in which the Trust can invest is ten years.
3.Limitations on Other Investments. The Trust may also invest up to 20% of its total assets, measured at the time of investment, in Other Investments. The following additional limitations apply to Other Investments:
4.Investment Quality; Credit Analysis. Loans in which the Trust invests generally are rated below investment-grade credit quality or are unrated. In acquiring a loan, the Adviser or Sub-Adviser will consider some or all of the following factors concerning the borrower: ability to service debt from internally generated funds; adequacy of liquidity and working capital; appropriateness of capital structure; leverage consistent with industry norms; historical experience of achieving business and financial projections; the quality and experience of management; and adequacy of collateral coverage. The Adviser or Sub-Adviser performs its own independent credit analysis of each borrower. In so doing, the Adviser or Sub-Adviser may utilize information and credit analyses from agents that originate or administer loans, other lenders investing in a loan, and other sources. The Adviser or Sub-Adviser also may communicate directly with management of the borrowers. These analyses continue on a periodic basis for any Senior Loan held by the Trust. See “Risk Factors and Special Considerations — Credit Risk on Senior Loans.”
5.Use of Leverage. The Trust may borrow money and issue preferred shares to the fullest extent permitted by the 1940 Act. See “Policy on Borrowing” and “Policy on Issuance of Preferred Shares.”
6. Short-term Instruments. Short-term instruments in which the Trust invests may include: (i) commercial paper rated A-1 by Standard and Poor’s Ratings Services (“S&P”) or P-1 by Moody’s Investors Service, Inc. (“Moody’s”), or of comparable quality as determined by the Adviser or Sub-Adviser; (ii) certificates of deposit, bankers’ acceptances, and other bank deposits and obligations; and (iii) securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities.
The Trust has a policy of borrowing for investment purposes. The Trust seeks to use proceeds from borrowing to acquire loans and other investments which pay interest at a rate higher than the rate the Trust pays on borrowings. Accordingly, borrowing has the potential to increase the Trust’s total income available to holders of its Common Shares.
The Trust may issue notes, commercial paper, or other evidences of indebtedness and may be required to secure repayment by mortgaging, pledging, or otherwise granting a security interest in the Trust’s assets. The terms of any such borrowings will be subject to the provisions of the 1940 Act and they will also be subject to the more restrictive terms of any credit agreements relating to borrowings and, to the extent the Trust seeks a rating for borrowings, to additional guidelines imposed by rating agencies, which are expected to be more restrictive than the provisions of the 1940 Act. The Trust may borrow money in an amount permitted under the 1940 Act, including the rules, regulations, interpretations thereunder and any exemptive or other relief provided by the SEC. See “Risk Factors and Special Considerations — Leverage” and “Risk Factors and Special Considerations — Restrictive Covenants and 1940 Act Restrictions.”
INVESTMENT OBJECTIVE AND POLICIES (continued)Policy on Issuance of Preferred Shares
The Trust has a policy of issuing preferred shares for investment purposes. The Trust seeks to use the proceeds from preferred shares to acquire loans and other investments which pay interest at a rate higher than the dividends payable on preferred shares. The terms of the issuance of preferred shares are subject to the 1940 Act and to additional guidelines imposed by rating agencies, which are more restrictive than the provisions of the 1940 Act. Under the 1940 Act, the Trust may issue preferred shares so long as immediately after any issuance of preferred shares the value of the Trust’s total assets (less all Trust liabilities and indebtedness that is not senior indebtedness) is at least twice the amount of the Trust’s senior indebtedness plus the involuntary liquidation preference of all outstanding Preferred Shares. See “Risk Factors and Special Considerations — Leverage.” In November 2000, the Trust issued 3,600 shares each of Series M, T, W, Th, and F Preferred Shares for a total issuance of $450 million.
Since early February 2008, the Trust has not received sufficient hold orders or any purchase requests for its Preferred Shares during their weekly auctions that equaled the full amount of such shares. As a result, under the terms of the Preferred Shares, the amounts sold, if any, by each selling shareholder are reduced pro rata or to zero. In addition, the dividend rate on such Preferred Shares, which is normally set by means of a Dutch auction procedure, automatically reset to the maximum rate permitted under the Preferred Shares program. That maximum rate is 150% of the applicable commercial paper base rate on the day of the auction. While it is possible that the dividend rate for the Preferred Shares will be set by means of an auction at some future time, there is no current expectation that this will be the case. On June 9, 2008, the Trust announced the approval by the Board of a partial redemption of its outstanding Preferred Shares. Since June 9, 2008, the Trust has announced the approval by the Board of a number of partial redemptions of its outstanding Preferred Shares. As of June 30, 2011, pursuant to these partial redemptions, the Trust has redeemed $375 million of its previously outstanding Preferred Shares and has $75 million of Preferred Shares still outstanding. The Preferred Shares were redeemed using proceeds available through the Trust’s existing bank loan facility and with cash held by the Trust. Redemption costs and the on-going costs of obtaining leverage through a bank loan facility may reduce returns to Common Shares and may be higher than the costs of leverage obtained through the Preferred Shares. The Trust will continue to monitor the situation and evaluate potential options to restore liquidity to and/or provide additional refinancing options for this market in the context of regulatory guidelines, as well as the economic and tax implications for both its Common and Preferred shareholders. There can be no assurance that any means for liquidity will be identified, and if they are, it is possible that the Trust’s leverage or its benefits from leverage will diminish.
As stated under “Investment Objective and Policies,” the Trust will invest primarily in Senior Loans. This section contains a discussion of the characteristics of Senior Loans and the manner in which those investments are made.
Senior Loans are loans that are typically made to business borrowers to finance leveraged buy-outs, recapitalizations, mergers, stock repurchases, and internal growth. Senior Loans generally hold the most senior position in the capital structure of a borrower and are usually secured by liens on the assets of the borrowers; including tangible assets such as cash, accounts receivable, inventory, property, plant and equipment, common and/or preferred stocks of subsidiaries; and intangible assets including trademarks, copyrights, patent rights, and franchise value. The Trust may also receive guarantees as a form of collateral.
Senior Loans are typically structured to include two or more types of loans within a single credit agreement. The most common structure is to have a revolving loan and a term loan. A revolving loan is a loan that can be drawn upon, repaid fully or partially, and then the repaid portions can be drawn upon again. A term loan is a loan that is fully drawn upon immediately and once repaid, it cannot be drawn upon again. Sometimes there may be two or more term loans and they may be secured by different collateral, have different repayment schedules and maturity dates. In addition to revolving loans and term loans, Senior Loan structures can also contain facilities for the issuance of letters of credit and may contain mechanisms for lenders to pre-fund letters of credit through credit-linked deposits.
The Trust typically invests only in the term loan portions of Senior Loan structures, although it does sometimes invest in the revolving loan portions and the pre-funded letters of credit portions.
By virtue of their senior position and collateral, Senior Loans typically provide lenders with the first right to cash flows or proceeds from the sale of a borrower’s collateral if the borrower becomes insolvent (subject to the limitations of bankruptcy law, which may provide higher priority to certain claims such as employee salaries, employee pensions, and taxes). This means Senior Loans are generally repaid before unsecured bank loans, corporate bonds, subordinated debt, trade creditors, and preferred or common stockholders.
Senior Loans typically pay interest at least quarterly at rates which equal a fixed percentage spread over a base rate such as the London Inter-Bank Offered Rate (“LIBOR”). For example, if LIBOR were 3% and the borrower were paying a fixed spread of 2.50%, the total interest rate paid by the borrower would be 5.50%. Base rates, and therefore the total rates paid on Senior Loans, float, i.e. , they change as market rates of interest change.
Although a base rate such as LIBOR can change every day, loan agreements for Senior Loans typically allow the borrower the ability to choose how often the base rate for its loan will change. A single loan may have multiple reset periods at the same time, with each reset period applicable to a designated portion of the loan. Such periods can range from one day to one year, with most borrowers choosing monthly or quarterly reset periods. During periods of rising interest rates, borrowers will tend to choose longer reset periods, and during periods of declining interest rates, borrowers will tend to choose shorter reset periods. The fixed spread over the base rate on a Senior Loan typically does not change.
Senior Loans generally are arranged through private negotiations between a borrower and several financial institutions represented by an agent who is usually one of the originating lenders. In larger transactions, it is common to have several agents; however, generally only one such agent has primary responsibility for ongoing administration of a Senior Loan. Agents are typically paid fees by the borrower for their services. The agent is primarily responsible for negotiating the loan agreement which establishes the terms and conditions of the Senior Loan and the rights of the borrower and the lenders. The agent also is responsible for monitoring collateral and for exercising remedies available to the lenders such as foreclosure upon collateral.
Loan agreements may provide for the termination of the agent’s agency status in the event that it fails to act as required under the relevant loan agreement, becomes insolvent, enters Federal Deposit Insurance Corporation (“FDIC”) receivership or, if not FDIC insured, enters into bankruptcy. Should such an agent, lender, or assignor with respect to an assignment interpositioned between the Trust and the borrower become insolvent or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of such person and any loan payment held by such person for the benefit of the Trust should not be included in such person’s or entity’s bankruptcy estate. If, however, any such amount were included in such person’s or entity’s bankruptcy estate, the Trust would incur certain costs and delays in realizing payment or could suffer a loss of principal or interest. In this event, the Trust could experience a decrease in the NAV.
THE TRUST’S INVESTMENTS (continued)The Trust acquires Senior Loans from lenders such as commercial and investment banks, insurance companies, finance companies, other investment companies, and private investment funds.
The Trust typically invests in Senior Loans primarily by purchasing an assignment of a portion of a Senior Loan from a third party, either in connection with the original loan transaction ( i.e. , in the primary market) or after the initial loan transaction ( i.e. , in the secondary market). When the Trust purchases a Senior Loan in the primary market, it may share in a fee paid to the original lender. When the Trust purchases a Senior Loan in the secondary market, it may pay a fee to, or forego a portion of interest payments from, the lender making the assignment. The Trust may also make its investments in Senior Loans through the use of derivative instruments such as participations, credit-linked notes, credit default swaps, and total return swaps as long as the reference obligation for any such instrument is a Senior Loan. Investments through the use of such derivative instruments involve counter party risk, i.e., the risk that the party from which such instrument is purchased will not perform as agreed. Unlike an assignment as described below, the Trust does not have a direct contractual relationship with the borrower. The Trust seeks to minimize such counter party risk by purchasing such investments only from large, well-established, and highly-rated counterparties.
Except for rating agency guidelines imposed on the Trust’s portfolio while it has outstanding Preferred Shares, there is no minimum rating or other independent evaluation of a borrower limiting the Trust’s investments and most Senior Loans that the Trust may acquire, if rated, will be rated below investment-grade credit quality. See “Risk Factors and Special Considerations — Credit Risk on Senior Loans.”
Assignments. When the Trust is a purchaser of an assignment, it succeeds to all the rights and obligations under the loan agreement of the assigning lender and becomes a lender under the loan agreement with the same rights and obligations as the assigning lender. These rights include the ability to vote along with the other lenders on such matters as enforcing the terms of the loan agreement ( e.g. , declaring defaults, initiating collection action, etc. ). Taking such actions typically requires at least a vote of the lenders holding a majority of the investment in the loan and may require a vote by lenders holding two-thirds or more of the investment in the loan. Because the Trust usually does not hold a majority of the investment in any loan, it will not be able by itself to control decisions that require a vote by the lenders.
Acquisition Costs. When the Trust acquires an interest in a Senior Loan in the primary market, it typically acquires the loan at par value less its portion of the fee paid to all originating lenders. When the Trust acquires an interest in a Senior Loan in the secondary market, it may be at par value but typically the Trust will do so at premium or discount to par value.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Risk is inherent in all investing. The following discussion summarizes some of the risks that you should consider before deciding whether to invest in the Trust. For addtional information about the risks associated with investing in the Trust, see “Additional Information About Investments and Investment Techniques” in the SAI.
Borrowings under the Credit Facility Program. The Trust has a policy of borrowing to acquire income-producing investments which, by their terms, pay interest at a rate higher than the rate the Trust pays on borrowings. Accordingly, borrowing has the potential to increase the Trust’s total income. The Trust currently is a party to one credit facility with financial institutions that permit the Trust to borrow up to an aggregate of $225 million. Interest is payable on the credit facility by the Trust at a variable rate that is tied to either LIBOR, the federal funds rate, or a commercial paper-based rate and includes a facility fee on unused commitments. As of June 15, 2011 the Trust had $[ ] million in outstanding borrowings. Collectively, the lenders under the credit facility have a security interest in all assets of the Trust.
Under the credit facility, the lenders have the right to liquidate Trust assets in the event of default by the Trust under such credit facility, and the Trust may be prohibited from paying dividends in the event of certain adverse events or conditions respecting the Trust, Adviser, or Sub-Adviser until the credit facility is repaid in full or until the event or condition is cured.
Changes to NAV. The NAV of the Trust is expected to change in response to a variety of factors, primarily in response to changes in the creditworthiness of the borrowers on the loans in which the Trust invests. See “Risk Factors and Special Considerations — Credit Risk on Senior Loans.” Changes in market interest rates may also have an impact on the Trust’s NAV. See “Risk Factors and Special Considerations — Interest Rate Risk.” Another factor which can affect the Trust’s NAV is changes in the pricing obtained for the Trust’s assets. See “How Shares Are Priced — Valuation of the Trust’s Assets” later in this Prospectus.
Credit Derivatives. The Trust may enter into credit default swaps, either as a buyer or a seller of the swap. As a buyer of the swap, the Trust pays a fee to protect against the risk that a security held by the Trust will default. As a seller of the swap, the Trust receives payment(s) in return for its obligation to pay the counterparty an agreed upon value of a security in the event of a default of the security issuer. Credit default swaps are largely unregulated and susceptible to liquidity, credit, and counterparty risks.
Credit Risk on Senior Loans. The Trust’s ability to pay dividends and repurchase its Common Shares is dependent upon the performance of the assets in its portfolio. That performance, in turn, is subject to a number of risks, chief among which is credit risk on the underlying assets.
Credit risk is the risk of nonpayment of scheduled interest or principal payments. In the event a borrower fails to pay scheduled interest or principal payments on a Senior Loan held by the Trust, the Trust will experience a reduction in its income and a decline in the market value of the Senior Loan. This will likely reduce dividends and lead to a decline in the NAV of the Trust’s Common Shares. See “The Trust’s Investments — Investment by the Trust.”
Senior Loans generally involve less risk than unsecured or subordinated debt and equity instruments of the same issuer because the payment of principal and interest on Senior Loans is a contractual obligation of the issuer that, in most instances, takes precedence over the payment of dividends, or the return of capital, to the issuer’s shareholders and payments to bond holders. The Trust generally invests in Senior Loans that are secured with specific collateral. However, the value of the collateral may not equal the Trust’s investment when the loan is acquired or may decline below the principal amount of the Senior Loan subsequent to the Trust’s investment. Also, to the extent that collateral consists of stocks of the borrower or its subsidiaries or affiliates, the Trust bears the risk that the stocks may decline in value, be relatively illiquid, or may lose all or substantially all of its value, causing the Senior Loan to be undercollateralized. Therefore, the liquidation of the collateral underlying a Senior Loan may not satisfy the issuer’s obligation to the Trust in the event of non payment of scheduled interest or principal and the collateral may not be readily liquidated.
In the event of the bankruptcy of a borrower, the Trust could experience delays and limitations on its ability to realize the benefits of the collateral securing the Senior Loan. Among the credit risks involved in a bankruptcy are assertions that the pledge of collateral to secure a loan constitutes a fraudulent conveyance or preferential transfer that would have the effect of nullifying or subordinating the Trust’s rights to the collateral.
The Senior Loans in which the Trust invests are generally rated lower than investment-grade credit quality, i.e. , rated lower than “Baa” by Moody’s Investors Service, Inc. or “BBB” by Standard & Poor’s Ratings Services, or have been issued by issuers who have issued other debt securities which, if unrated, would be rated lower than investment-grade credit quality. Investment decisions will be based largely on the credit analysis performed by the Adviser or Sub-Adviser, and not on
RISK FACTORS AND SPECIAL CONSIDERATIONS (continued) rating agency evaluation. This analysis may be difficult to perform. Information about a Senior Loan and its issuer generally is not in the public domain. Moreover, Senior Loans are not often rated by any nationally recognized rating service. Many issuers have not issued securities to the public and are not subject to reporting requirements under federal securities laws. Generally, however, issuers are required to provide financial information to lenders and information may be available from other Senior Loan participants or agents that originate or administer Senior Loans.Demand for Loans. At times during recent years, the volume of loans has increased. However, during such periods, demand for loans has also grown. An increase in demand may benefit the Trust by providing increased liquidity for loans and higher sales prices, but it may also adversely affect the rate of interest payable on loans acquired by the Trust, the rights provided to the Trust under the terms of a loan agreement, and increase the price of loans that the Trust wishes to purchase in the secondary market. A decrease in the demand for loans may adversely affect the price of loans in the Trust’s portfolio, which could cause the Trust’s NAV to decline.
Derivative Instruments. Derivative instruments are subject to a number of risks, including the risk of changes in the market price of the underlying securities, credit risk with respect to the counterparty, risk of loss due to changes in interest rates, and liquidity risk. The use of certain derivatives may also have a leveraging effect which may increase the volatility of the Trust and reduce its returns.
Discount From NAV. The Trust’s Common Shares have traded in the market above, at, and below NAV since March 9, 1992, when the Trust’s shares were initially listed on the NYSE. The reasons for the Trust’s Common Shares trading at a premium to or discount from NAV are not known to the Trust, and the Trust cannot predict whether its Common Shares will trade in the future at a premium to or discount from NAV, and if so, the level of such premium or discount. Shares of closed-end investment companies frequently trade at a discount from NAV. The possibility that Common Shares of the Trust will trade at a discount from NAV is a risk separate and distinct from the risk that the Trust’s NAV may decrease.
Equity Securities Incidental to Investments in Loans. Subject to the aggregate 20% limit on Other Investments, the Trust may acquire equity securities as an incident to the purchase or ownership of a loan or in connection with a reorganization of a borrower or its debt. Investments in equity securities incidental to investment in loans entail certain risks in addition to those associated with investment in loans. The value of these securities may be affected more rapidly, and to a greater extent, by company-specific developments and general market conditions. These risks may increase fluctuations in the Trust’s NAV. The Trust may frequently possess material non-public information about a borrower as a result of its ownership of a loan of such borrower. Because of prohibitions on trading in securities of issuers while in possession of such information the Trust might be unable to enter into a transaction in a security of such a borrower when it would otherwise be advantageous to do so.
Impact of Shareholder Reinvestment Program and Privately Negotiated Transactions. The issuance of Common Shares through the Trust’s Shareholder Reinvestment Program may have an adverse effect on the secondary market for the Trust’s Common Shares. The increase in the number of the Trust’s outstanding Common Shares resulting from issuances pursuant to the Trust’s Shareholder Reinvestment Program or pursuant to privately negotiated transactions, and the discount to the market price at which such Common Shares may be issued, may put downward pressure on the market price for Common Shares of the Trust. Common Shares will not be issued pursuant to the Trust’s Shareholder Reinvestment Program at any time when Common Shares are trading at a price lower than the Trust’s NAV per Common Share.
Interest Rate. During normal market conditions, changes in market interest rates will affect the Trust in certain ways. The principal effect will be that the yield on the Trust’s Common Shares will tend to rise or fall as market interest rates rise and fall. This is because almost all of the assets in which the Trust invests pay interest at rates which float in response to changes in market rates. However, because the interest rates on the Trust’s assets reset over time, there will be an imperfect correlation between changes in market rates and changes to rates on the portfolio as a whole. This means that changes to the rate of interest paid on the portfolio as a whole will tend to lag behind changes in market rates.
Market interest rate changes may also cause the Trust’s NAV to experience moderate volatility. This is because the value of a loan asset in the Trust is partially a function of whether it is paying what the market perceives to be a market rate of interest for the particular loan, given its individual credit and other characteristics. If market interest rates change, a loan’s value could be affected to the extent the interest rate paid on that loan does not reset at the same time. As discussed above, the rates of interest paid on the loans in which the Trust invests have a weighted average reset period that typically is less than 90 days. Therefore, the impact of the lag between a change in market interest rates and the change in the overall rate on the portfolio is expected to be minimal.
RISK FACTORS AND SPECIAL CONSIDERATIONS (continued)To the extent that changes in market rates of interest are reflected not in a change to a base rate such as LIBOR but in a change in the spread over the base rate which is payable on loans of the type and quality in which the Trust invests, the Trust’s NAV could also be adversely affected. This is because the value of a loan asset in the Trust is partially a function of whether it is paying what the market perceives to be a market rate of interest for the particular loan, given its individual credit and other characteristics. However, unlike changes in market rates of interest for which there is only a temporary lag before the portfolio reflects those changes, changes in a loan’s value based on changes in the market spread on loans in the Trust’s portfolio may be of longer duration.
Finally, substantial increases in interest rates may cause an increase in loan defaults as borrowers may lack the resources to meet higher debt service requirements.
Lending Portfolio Securities. To generate additional income, the Trust may lend portfolio securities, in an amount equal to up to 33 1 / 3 % of the Trust’s total assets, to broker-dealers, major banks, or other recognized domestic institutional borrowers of securities. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower default or fail financially. The Trust intends to engage in lending portfolio securities only when such lending is fully secured by investment-grade collateral held by an independent agent.
Leverage. The Trust may borrow money in an amount permitted under the 1940 Act, including the rules, regulations, interpretations thereunder and any exemptive or other relief provided by the SEC. The Trust may also issue preferred shares so long as immediately after any issuance of preferred shares the value of the Trust’s total assets (less all Trust liabilities and indebtedness that is not senior indebtedness) is at least twice the amount of the Trust’s senior indebtedness plus the involuntary liquidation preference of all outstanding shares. In November 2000, the Trust issued 3,600 shares each of Series M, T, W, Th, and F Preferred Shares for a total issuance of $450 million. Borrowings and the issuance of preferred shares are referred to in this Prospectus collectively as “leverage.” The Trust may use leverage for investment purposes, to finance the repurchase of its Common Shares, and to meet other cash requirements. The use of leverage for investment purposes increases both investment opportunity and investment risk.
Capital raised through leverage will be subject to interest and other costs, and these costs could exceed the income earned by the Trust on the proceeds of such leverage. There can be no assurance that the Trust’s income from the proceeds of leverage will exceed these costs. However, the Adviser or Sub-Adviser seeks to use leverage for the purposes of making additional investments only if they believe, at the time of using leverage, that the total return on the assets purchased with such funds will exceed interest payments and other costs on the leverage.
To the extent that the Trust is unable to invest the proceeds from the use of leverage in assets which pay interest at a rate which exceeds the rate paid on the leverage, the yield on the Trust’s Common Shares will decrease. In addition, in the event of a general market decline in the value of assets such as those in which the Trust invests, the effect of that decline will be magnified in the Trust because of the additional assets purchased with the proceeds of the leverage. The Trust’s lenders and Preferred Shareholders will have priority to the Trust’s assets over the Trust’s Common shareholders.
The Trust currently uses leverage by borrowing money on a floating rate basis and by the issuance of Preferred Shares. The current rate on the borrowings (as of June 15, 2011) is [ ]%. The current dividend rate on the Preferred Shares (as of June 15, 2011) for each series: Series M - [ ]%; Series T - [ ]%, Series W - [ ]%, Series Th - [ ]%; and Series F - [ ]%.
Since early February 2008, the Trust has not received sufficient hold orders or any purchase requests for its Preferred Shares during their weekly auctions that equaled the full amount of such shares. As a result, under the terms of the Preferred Shares, the amounts sold, if any, by each selling shareholder are reduced pro rata or to zero. In addition, the dividend rate on such Preferred Shares, which is normally set by means of a Dutch auction procedure, automatically reset to the maximum rate permitted under the Preferred Shares program. That maximum rate is 150% of the applicable commercial paper base rate on the day of the auction. While it is possible that the dividend rate for the Preferred Shares will be set by means of an auction at some future time, there is no current expectation that this will be the case. On June 9, 2008, the Trust announced the approval by the Board of a partial redemption of its outstanding Preferred Shares. Since June 9, 2008, the Trust has announced the approval by the Board of a number of partial redemptions of its outstanding Preferred Shares. As of June 30, 2011, pursuant to these partial redemptions, the Trust has redeemed $375 million of its previously outstanding Preferred Shares and has $75 million of Preferred Shares still outstanding. The Preferred Shares were redeemed using proceeds available through the Trust’s existing bank loan facility and with cash held by the Trust. Redemption costs and the on-going costs of obtaining leverage through a bank loan facility may reduce returns to Common Shares and may be higher than the costs of leverage obtained through the Preferred Shares. The Trust will continue to monitor the
RISK FACTORS AND SPECIAL CONSIDERATIONS (continued) situation and evaluate potential options to restore liquidity to and/or provide additional refinancing options for this market in the context of regulatory guidelines, as well as the economic and tax implications for both its Common and Preferred shareholders. There can be no assurance that any means for liquidity will be identified, and if they are, it is possible that the Trust’s leverage or its benefits from leverage will diminish.The Trust’s leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. The funds borrowed pursuant to the credit facilities or obtained through the issuance of Preferred Shares and any other preferred shares, may constitute a substantial lien and burden by reason of their prior claim against the income of the Trust and against the net assets of the Trust in liquidation.
The Trust is not permitted to declare dividends or other distributions, including dividends and distributions with respect to Common Shares or Preferred Shares, or to purchase Common Shares or Preferred Shares unless: (i) at the time thereof the Trust meets certain asset coverage requirements; and (ii) there is no event of default under any credit facility program that is continuing. See “Risk Factors and Special Considerations — Restrictive Covenants and 1940 Act Restrictions” later in this Prospectus. In the event of a default under a credit facility program, the lenders have the right to cause a liquidation of the collateral ( i.e. , sell Senior Loans and other assets of the Trust) and, if any such default is not cured, the lenders may be able to control the liquidation as well.
In addition, the Trust is not permitted to pay dividends on, or redeem or repurchase, Common Shares unless all accrued dividends on the Preferred Shares and all accrued interest on borrowings have been paid or set aside for payment.
Because the fee paid to the Adviser will be calculated on the basis of Managed Assets, the fee will be higher when leverage is utilized, giving the Adviser an incentive to utilize leverage.
The Trust is subject to certain restrictions imposed by lenders to the Trust and may be subject to certain restrictions imposed by guidelines of one or more rating agencies which may issue ratings for debt or the Preferred Shares issued by the Trust. These restrictions are expected to impose asset coverage, fund composition requirements and limits on investment techniques, such as the use of financial derivative products, that are more stringent than those imposed on the Trust by the 1940 Act. These covenants or guidelines could impede the Adviser or Sub-Adviser from fully managing the Trust’s portfolio in accordance with the Trust’s investment objective and policies.
Annual Expenses Without Borrowings or Preferred Shares
If the Trust were not to have borrowed or have Preferred Shares outstanding, the remaining expenses, as a percentage of the net assets of the Trust, would be as follows:
Annual Expenses Without Borrowings or Preferred
Shares
(as a percentage of net assets attributable to Common Shares) |
Management and Administrative Fees (as a percentage of Managed Assets) (1) | [ ]% |
Other Operating Expenses (2) | [ ]% |
Total Annual Expenses | [ ]% |
(1) | Pursuant to the investment advisory agreement with the Trust, the Adviser is paid a fee of 0.80% of the Trust’s Managed Assets. Pursuant to its administration agreement with the Trust, the Administrator is paid a fee of 0.25% of the Trust’s Managed Assets. See “Investment Management and Other Service Providers — The Administrator.” |
(2) | Other Operating Expenses are based on estimated amounts for the current fiscal year which, in turn, are based on other operating expenses for the fiscal year ended February 28, 2011, and does not include the expenses of borrowing. During the fiscal year ended February 28, 2011, the Trust incurred a non-recurring Federal excise tax expense in the amount of $[ ] ([ ]% of average daily net assets) which has been fully reimbursed by the Adviser and excluded from expenses. |
To cover the annual interest and dividends on the borrowings and the Preferred Shares for the current fiscal year (assuming that the current interest and dividend rates remain in effect for the entire fiscal year and assuming that the Trust borrows an amount equal to 30% of its Managed Assets and the current Preferred Shares remain outstanding), the Trust would need to earn [ ]% on its amount of Managed Assets as of June 15, 2011.
The following table is designed to illustrate the effect on return to a holder of the Trust’s Common Shares of the leverage created by the Trust’s use of borrowing, using the average annual interest rate of [ ]% for the fiscal year ended February 28, 2011, assuming the Trust has used leverage by borrowing an amount equal to 30% of the Trust’s Managed Assets
RISK FACTORS AND SPECIAL CONSIDERATIONS (continued) and assuming hypothetical annual returns on the Trust’s portfolio of minus 10% to plus 10%. As can be seen, leverage generally increases the return to shareholders when portfolio return is positive and decreases return when the portfolio return is negative. Actual returns may be greater or less than those appearing in the table.Assumed Portfolio Return, net of expenses (1) | (10)% | (5)% | 0% | 5% | 10% |
Corresponding Return to Common Shareholders (2) | [ ]% | [ ]% | [ ]% | [ ]% | [ ]% |
(1) | The Assumed Portfolio Return is required by regulation of the SEC and is not a prediction of, and does not represent, the projected or actual performance of the Trust. |
(2) | In order to compute the Corresponding Return to Common Shareholders, the Assumed Portfolio Return is multiplied by the total value of the Trust’s assets at the beginning of the Trust’s fiscal year to obtain an assumed return to the Trust. From this amount, all interest accrued during the year is subtracted to determine the return available to shareholders. The return available to shareholders is then divided by the total value of the Trust’s net assets attributable to Common Shares as of the beginning of the fiscal year to determine the Corresponding Return to Common Shareholders. |
Limited Secondary Market for Loans. Although the resale, or secondary, market for loans has grown substantially over the past decade, both in overall size and number of market participants, there is no organized exchange or board of trade on which loans are traded. Instead, the secondary market for loans is a private, unregulated inter-dealer or inter-bank re-sale market. Loans usually trade in large denominations and trades can be infrequent and the market for loans may experience volatility. The market has limited transparency so that information about actual trades may be difficult to obtain. Accordingly, some or many of the loans in which the Trust invests will be relatively illiquid.
In addition, loans in which the Trust invests may require the consent of the borrower and/or the agent prior to sale or assignment. These consent requirements can delay or impede the Trust’s ability to sell loans and can adversely affect the price that can be obtained. The Trust may have difficulty disposing of loans if it needs cash to repay debt, to pay dividends, to pay expenses, or to take advantage of new investment opportunities. Although the Trust has not conducted a tender offer since 1992, if it determines to again conduct a tender offer, limitations of a secondary market may result in difficulty raising cash to purchase tendered Common Shares.
These considerations may cause the Trust to sell assets at lower prices than it would otherwise consider to meet cash needs or cause the Trust to maintain a greater portion of its assets in cash equivalents than it would otherwise, which could negatively impact performance. The Trust may seek to avoid the necessity of selling assets to meet such needs by the use of borrowings.
From time to time, the occurrence of one or more of the factors described above may create a cascading effect where the market for debt instruments (including the market for loans) first experiences volatility and then decreased liquidity. Such conditions, or other similar conditions, may then adversely affect the value of loans and other instruments, widening spreads against higher-quality debt instruments, and making it harder to sell loans at prices at which they have historically or recently traded, thereby further reducing liquidity. For example, during the global liquidity crisis in the second half of 2008, the average price of loans in the S&P/LSTA Leveraged Loan Index (which includes loans of the type in which the Trust invests) declined by 32%, prior to rebounding in 2009 and in early 2010.
The Trust values its assets daily. However, because the secondary market for loans is limited, it may be difficult to value loans. Reliable market value quotations may not be readily available for some loans and valuation of such loans may require more research than for liquid securities. In addition, elements of judgment may play a greater role in valuation of loans than for securities with a more developed secondary market because there is less reliable, objective market value data available. In addition, if the Trust purchases a relatively large portion of a loan to generate extra income sometimes paid to large lenders, the limitations of the secondary market may inhibit the Trust from selling a portion of the loan and reducing its exposure to a borrower when the Adviser or Sub-Adviser deems it advisable to do so.
Non-U.S. and Non-Canadian Issuers. Subject to the aggregate 20% limit on Other Investments, the Trust may invest up to 20% of its total assets in loans, secured or unsecured, to borrowers that are organized or located in countries outside the United States and outside U.S. territories and possessions or Canada. Investment in non-U.S. entities involves special risks, including that non-U.S. entities may be subject to less rigorous accounting and reporting requirements than U.S. entities, less rigorous regulatory requirements, differing legal systems and laws relating to creditors’ rights, the potential inability to enforce legal judgments, fluctuations in currency values, and the potential for political, social, and economic adversity. The Trust may invest up to 15% of its total assets in investments denominated in OECD currencies (including the euro), other than the U.S. dollar.
RISK FACTORS AND SPECIAL CONSIDERATIONS (continued)The Trust will engage in currency exchange transactions to seek to hedge, as closely as practicable, 100% of the economic impact to the Trust arising from foreign currency fluctuations.
Prepayment and Extension. Prepayment risk is the risk that principal on a debt obligation may be repaid earlier than anticipated. Loans typically do not have call protection and may be prepaid partially or in full at any time without penalty. If a loan is prepaid, the Trust may be forced to reinvest the proceeds in assets with lower yields than the loan that was repaid. For the Trust’s fixed rate investments, prepayment risk is the risk that principal on loan obligations underlying a security may be repaid prior to the stated maturity date, which may reduce the market value of the security and the anticipated yield-to-maturity. Extension risk is the risk that an issuer will exercise its right to repay principal on a fixed rate obligation held by the Trust later than expected, which may decrease the value of the obligation and may prevent the Trust from investing expected repayment proceeds in securities paying yields higher than the yields paid by the securities that were expected to be repaid.
Ranking of Senior Indebtedness. The rights of lenders to receive payments of interest and repayments of principal of any borrowings made by the Trust under the credit facility program are senior to the rights of holders of Common Shares and Preferred Shares with respect to the payment of dividends or upon liquidation.
Restrictive Covenants and 1940 Act Restrictions. The credit agreements governing the credit facility program (“Credit Agreements”) include usual and customary covenants for this type of transaction, including limits on the Trust’s ability to: (i) issue preferred shares; (ii) incur liens or pledge portfolio securities; (iii) change its investment objective or fundamental investment restrictions without the approval of lenders; (iv) make changes in any of its business objectives, purposes, or operations that could result in a material adverse effect; (v) make any changes in its capital structure; (vi) amend the Trust documents in a manner which could adversely affect the rights, interests, or obligations of any of the lenders; (vii) engage in any business other than the businesses currently engaged in; (viii) create, incur, assume, or permit to exist certain debt except for certain specified types of debt; and (ix) permit any of its Employee Retirement Security Act (“ERISA”) affiliates to cause or permit to occur an event that could result in the imposition of a lien under the Internal Revenue Code of 1986 or ERISA. In addition, the Credit Agreements do not permit the Trust’s asset coverage ratio (as defined in the Credit Agreements) to fall below 300% at any time (“Credit Agreement Asset Coverage Test”).
Under the requirements of the 1940 Act, the Trust must have asset coverage of at least 300% immediately after any borrowing under a credit facility program. For this purpose, asset coverage means the ratio which the value of the total assets of the Trust, less liabilities and indebtedness not represented by senior securities, bears to the aggregate amount of borrowings represented by senior securities issued by the Trust. The Credit Agreements limit the Trust’s ability to pay dividends or make other distributions on the Trust’s Common Shares, or purchase or redeem Common Shares, unless the Trust complies with the Credit Agreement Asset Coverage Test. In addition, the Credit Agreements do not permit the Trust to declare dividends or other distributions or purchase or redeem Common Shares or Preferred Shares: (i) at any time that an event of default under the credit agreement has occurred and is continuing; or (ii) if, after giving effect to such declaration, the Trust would not meet the Credit Agreement Asset Coverage Test set forth in the Credit Agreements.
Short-Term Debt Securities. Subject to the aggregate 20% limit on Other Investments, the Trust may invest in short-term debt securities. Short-term debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and also may be subject to price volatility due to such factors as interest rates, market perception of the creditworthiness of the issuer, and general market liquidity. Because short-term debt securities typically pay interest at a fixed-rate, when interest rates decline, the value of the Trust’s short-term debt securities can be expected to rise, and when interest rates rise, the value of those securities can be expected to decline.
Unsecured Debt Instruments and Subordinated Loans. Subject to the aggregate 20% limit on Other Investments, the Trust may invest up to 20% of its total assets in unsecured floating rate loans, notes, and other debt instruments and 5% of its total assets in floating rate subordinated loans. Unsecured loans and subordinated loans share the same credit risks as those discussed under “Credit Risk on Senior Loans” except that unsecured loans are not secured by any collateral of the borrower and subordinated loans are not the most senior debt in a borrower’s capital structure. Unsecured loans do not enjoy the security associated with collateralization and may pose a greater risk of nonpayment of interest or loss of principal than do secured loans. The primary additional risk in a subordinated loan is the potential loss in the event of default by the issuer of the loan. Subordinated loans in an insolvency bear an increased share, relative to senior secured lenders, of the ultimate risk that the borrower’s assets are insufficient to meet its obligations to its creditors.
The NAV per Common Share of each class of the Trust is determined each business day as of the close of regular trading (“Market Close”) on the NYSE (normally 4:00 p.m. Eastern time unless otherwise designated by the NYSE). The Trust is open for business every day the NYSE is open. The NYSE is closed on all weekends and on all national holidays and Good Friday. Trust shares will not be priced on those days. The NAV per Common Share of the Trust is calculated by dividing the value of the Trust’s loan assets plus all cash and other assets (including interest accrued but not collected) less all liabilities (including accrued expenses but excluding capital and less the liquidation preference of any outstanding Preferred Shares) by the number of Common Shares outstanding. The NAV per Common Shares is made available for publication.
Valuation of the Trust’s Assets
The assets in the Trust’s portfolio are valued daily in accordance with the Trust’s Loan Valuation Procedures and the ING Fund Valuation Procedures adopted by the Board. A majority of the Trust’s assets are valued using quotations supplied by a third party loan pricing service. However, the loans in which the Trust invests are not listed on any securities exchange or board of trade. Some loans are traded by institutional investors in an over-the-counter secondary market that has developed in the past several years. This secondary market generally has fewer trades and less liquidity than the secondary markets for other types of securities. Some loans have few or no trades. Accordingly, determinations of the value of loans may be based on infrequent and dated trades. Because there is less reliable, objective market value data available, elements of judgment may play a greater role in valuation of loans than for other types of securities. For further information, see “Risk Factors and Special Considerations — Limited Secondary Market for Loans.”
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 believed to be reliable. Loans for which reliable market value quotations are not readily available from a pricing service may be valued with reference to another loan or a group of loans for which reliable market value quotations are readily available and whose characteristics are comparable to the loan being valued. Under this approach, the comparable loan or loans serve as a proxy for changes in value of the loan being valued. The Trust has engaged independent pricing services to provide quotations from dealers in loans and to calculate values under this proxy procedure.
It is expected that most of the loans held by the Trust will be valued with reference to quotations from an independent pricing service or other sources believed to be reliable, or with reference to the proxy procedure described above. The Adviser or Sub-Adviser may believe that the price for a loan derived from 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 Adviser or Sub-Adviser that they believe may not be known to the pricing service or reflected in a price quote. In this event, the loan is valued at fair value under procedures approved by the Trust’s Board and in accordance with the provisions of the 1940 Act.
Under these procedures, fair value is determined by the Adviser or Sub-Adviser and monitored by the Trust’s Board through its Compliance Committee. In fair valuing a loan, consideration is given to several factors, which may include, among others, the following:
Securities for which the primary market is a national securities exchange are stated at the last reported sale price on the day of valuation. Securities reported by NASDAQ National Market System will be valued at the NASDAQ Official Closing Price on the valuation day. 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 as otherwise stated in the ING Fund Valuation Procedures. Valuation of short-term cash equivalent investments is at amortized cost. Securities maturing in 60 days or less are valued at amortized cost which, when combined with accrued interest, approximates market value.
Unless your Trust Common Shares are held through a third-party fiduciary or in an omnibus registration at your bank or brokerage firm, you may be able to access your account information over the Internet at www.ingfunds.com or via a touch tone telephone by calling 1-800-336-3436. Should you wish to speak with a Shareholder Services Representative, you may call the toll-free number listed above.
The Trust has adopted a policy concerning investor privacy. To review the privacy policy, contact a Shareholder Services Representative at 1-800-336-3436, obtain a policy over the Internet at www.ingfunds.com, or see the privacy promise that accompanies any Prospectus obtained by mail.
To reduce expenses, we may mail only one copy of the Trust’s Prospectus and each annual and semi-annual shareholder report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call a Shareholder Services Representative at 1-800-336-3436 or speak to your investment professional. We will begin sending you individual copies 30 days after receiving your request.
INVESTMENT MANAGEMENT AND OTHER SERVICE PROVIDERS
The business and affairs of the Trust, including supervision of the duties performed by the Trust’s Adviser and Sub-Adviser, are managed under the direction of the Board. The names and business addresses of the Trustees and Officers of the Trust and their principal occupations and other affiliations during the past five years are set forth under “Management of the Trust” in the SAI.
ING Investments, an Arizona limited liability company, serves as the investment adviser to the Trust. ING Investments has overall responsibility for the management of the Trust. ING Investments oversees all investment advisory and portfolio management services for the Trust.
ING Investments is registered with the SEC as an investment adviser. ING Investments is an indirect, wholly-owned subsidiary of ING Groep N.V. (“ING Groep”) (NYSE:ING). ING Groep is a global financial institution of Dutch origin offering banking, investments, life insurance and retirement services to over 85 million private, corporate and institutional clients in more than 40 countries. With a diverse workforce of about 105,000 people, ING Groep is dedicated to setting the standard in helping its clients manage their financial future. ING Investments became an investment management firm in April 1995.
ING Groep has adopted a formal restructuring plan that was approved by the European Commission in November 2009 under which the ING life insurance businesses, including the retirement services and investment management businesses, which include the Adviser and its affiliates, would be divested by ING Groep by the end of 2013. To achieve this goal, ING Groep announced in November 2010 that it plans to pursue two separate initial public offerings: one a U.S. focused offering that would include U.S. based insurance, retirement services, and investment management operations: and the other a European based offering for European and Asian based insurance and investment management operations. There can be no assurance that the restructuring plan will be carried out through two offerings or at all.
The restructuring plan and the uncertainty about its implementation, whether implemented through the planned initial public offerings or through other means, in whole or in part, may be disruptive to the businesses of ING entities, including the ING entities that service the Trust, and may cause, among other things, interruption or reduction of business and services, diversion of management’s attention from day-to-day operations, and loss of key employees or customers. A failure to complete the offerings or other means of implementation on favorable terms could have a material adverse impact on the operations of the businesses subject to the restructuring plan. The restructuring plan may result in the Adviser’s loss of access to services and resources of ING Groep, which could adversely affect its businesses and profitability. In addition, the divestment of ING businesses, including the Adviser, may potentially be deemed a “change of control” of the entity. A change of control would result in the termination of the Trust’s advisory and sub-advisory agreements, which would trigger the necessity for new agreements that would require approval of the Trust’s Board, and may trigger the need for shareholder approval. Currently, the Adviser does not anticipate that the restructuring will have a material adverse impact on the Trust or its operations and administration.
ING Investments’ principal office is located at 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258. As of March 31, 2011, ING Investments managed approximately $[ ] billion in assets.
The Trust and the Adviser have entered into an investment advisory agreement (“Investment Advisory Agreement”) that requires ING Investments to provide all investment advisory and portfolio management services for the Trust. The Investment Advisory Agreement with ING Investments may be canceled by the Board or by the vote of a majority of the outstanding voting securities of the Trust upon 60 days’ written notice.
The Adviser bears the expenses of providing the services described above. The Adviser currently receives from the Trust an annual fee of 0.80% of the Trust’s Managed Assets.
For information regarding the basis for the Board’s approval of the investment advisory and investment sub-advisory relationships (if applicable), please refer to the Trust’s annual shareholder report dated February 28, 2011.
INVESTMENT MANAGEMENT AND OTHER SERVICE PROVIDERS (continued)The Sub-Adviser and Portfolio Managers
The Adviser has engaged a sub-adviser to provide the day-to-day management of the Trust’s portfolio. The sub-adviser is an affiliate of ING Investments. ING Investments is responsible for monitoring the investment program and performance of the sub-adviser. Under the terms of the sub-advisory agreement, the agreement can be terminated by either ING Investments or the Board. In the event the sub-advisory agreement is terminated, the sub-adviser may be replaced subject to any regulatory requirements or ING Investments may assume day-to-day investment management of the Trust.
ING IM, a Connecticut corporation, was founded in 1972 and is registered with the SEC as an investment adviser. ING IM is an indirect, wholly-owned subsidiary of ING Groep and is an affiliate of ING Investments. ING IM has acted as adviser or sub-adviser to mutual funds since 1994 and has managed institutional accounts since 1972. ING IM’s principal office is located at 230 Park Avenue, New York, New York, 10169. As of March 31, 2011, ING IM managed approximately $[ ] billion in assets.
Portfolio Management. The following individuals jointly share responsibility for the day-to-day management of the Trust’s portfolio and have co-managed the Trust since 2000.
Jeffrey A. Bakalar, Senior Vice President and Group Head of the ING IM Senior Loan Group, since January 2000. Mr. Bakalar also serves as Senior Vice President of ING Prime Rate Trust and ING Senior Income Fund, both closed-end funds sub-advised by ING IM that invest primarily in Senior Loans.
Daniel A. Norman, Senior Vice President and Group Head of the ING IM Senior Loan Group, since January 2000. Mr. Norman also serves as Senior Vice President of ING Prime Rate Trust and ING Senior Income Fund, both closed-end funds sub-advised by ING IM that invest primarily in Senior Loans.
Additional Information Regarding the Portfolio Managers
The SAI provides additional information about each portfolio manager’s compensation, other accounts managed by each portfolio manager, and each portfolio manager’s ownership of securities in the Trust.
ING Funds Services, LLC (“Administrator”) serves as administrator to the Trust. Its principal office is located at 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258. The Administrator is a wholly-owned subsidiary of ING Groep and the immediate parent company of the Adviser.
Under an administration agreement between the Administrator and the Trust (“Administration Agreement”), the Administrator administers the Trust’s corporate affairs subject to the supervision of the Trust’s Board. In that connection, the Administrator monitors the provisions of the Senior Loan agreements and any agreements with respect to interests in Senior Loans and is responsible for recordkeeping with respect to the Senior Loans in the Trust’s repurchase offers portfolio. The Administrator also furnishes the Trust with office facilities and furnishes executive personnel together with clerical and certain recordkeeping and administrative services necessary to administer the Trust. These services include preparation of annual and other reports to shareholders and to the SEC. The Administrator also handles the filing of federal, state, and local income tax returns not being furnished by the Custodian or Transfer Agent (as defined herein). The Administration Agreement also requires the Administrator to assist in managing and supervising all aspects of the general day-to-day business activities and operations of the Trust, including custodial, transfer agency, dividend disbursing, accounting, auditing, compliance, and related services. The Administrator has authorized all of its officers and employees who have been elected as officers of the Trust to serve in such capacities. All services furnished by the Administrator under the Administration Agreement may be furnished by such officers or employees of the Administrator.
The Trust pays the Administrator an administration fee, computed daily and payable monthly. The Administration Agreement states that the Administrator is entitled to receive a fee at an annual rate of 0.25% of the Trust’s Managed Assets. The Administration Agreement may be cancelled by the Trust or the Administrator upon 60 days’ written notice.
The Transfer Agent, Dividend Disbursing Agent, and Registrar
BNY Mellon Investment Servicing (U.S.) Inc. (formerly, PNC Global Investment Servicing (U.S.) Inc.) (“Transfer Agent”) serves as the transfer agent, dividend disbursing agent, and registrar for the Common Shares of the Trust. Its principal office is located at 301 Bellevue Parkway, Wilmington, Delaware 19809.
INVESTMENT MANAGEMENT AND OTHER SERVICE PROVIDERS (continued)The Trust’s securities and cash are held and maintained under a Custody Agreement with State Street Bank and Trust Company (“Custodian”). Its principal office is located at 801 Pennsylvania Avenue, Kansas City, Missouri 64105.
Pursuant to the terms of a distribution agreement (“Distribution Agreement”), ING Investments Distributor, LLC will act as the Trust’s distributor for the optional cash investments under the Trust’s Shareholder Reinvestment Program and for privately negotiated transactions. The Distribution Agreement provides that the Distributor does not receive compensation or commissions from the Trust for such services. In addition, no fees or commissions will be paid by the Trust or its shareholders in connection with the reinvestment of dividends and capital gains distributions. It is a Delaware limited liability company with its principal offices at 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258. See “Plans of Distribution” in the SAI.
Effective July 30, 2010, ING Funds Distributor, LLC changed its name to ING Investments Distributor, LLC.
The Trust bears the expenses of issuing the Common Shares. These expenses include, but are not limited to, the expense of preparation and printing of the Prospectus and SAI, the expense of counsel and independent registered public accounting firm, and others.
The Distributor is a member of the Financial Industry Regulatory Authority (“FINRA”). To obtain information about FINRA member firms and their associated persons, you may contact FINRA at www.finra.org or the Public Disclosure Hotline at 800-289-9999.
Income dividends are declared and paid monthly. Income dividends consist of interest accrued and amortization of fees earned, less any amortization of premiums paid and the estimated expenses of the Trust, including fees payable to the Adviser. Income dividends are calculated monthly under guidelines approved by the Trustees. Each dividend is payable to shareholders of record on the 10th day of the following month (unless it is a holiday, in which case the next business day is the record date). Accrued amounts of fees received, including facility fees, will be taken in as income and passed on to shareholders as part of dividend distributions. Any fees or commissions paid to facilitate the sale of portfolio Senior Loans in connection with tender offers or other portfolio transactions may reduce the dividend yield.
Capital gains, if any, are declared and paid annually. Because the Trust currently has capital loss carryforwards, it is not anticipated that capital gains distributions will be made for the foreseeable future.
Unless you instruct the Trust to pay you dividends in cash, dividends and distributions paid by the Trust will be reinvested in additional Common Shares of the Trust. You may request to receive dividends in cash at any time by giving the Transfer Agent written notice or by contacting the ING’s Shareholder Services Department at 1-800-336-3436.
Shareholder Reinvestment Program
The following is a summary of the Shareholder Reinvestment Program (“Program”). Shareholders are advised to review a fuller explanation of the Program contained in the Trust’s SAI.
Common Shares are offered by the Trust through the Program. The Program allows participating shareholders to reinvest all dividends (“Dividends”) in additional Common Shares of the Trust and also allows participants to purchase additional Common Shares through optional cash investments in amounts ranging from a minimum of $100 to a maximum of $100,000 per month.
The Trust and the Distributor reserve the right to reject any purchase order. Please note that cash, traveler’s checks, third-party checks, money orders and checks drawn on non-U.S. banks (even if payment may be effected through a U.S. bank) generally will not be accepted.
Common Shares will be issued by the Trust under the Program when the Trust’s Common Shares are trading at a premium to NAV. If the Trust’s Common Shares are trading at a discount to NAV, Common Shares issued under the Program will be purchased on the open market. Common Shares issued under the Program directly from the Trust will be acquired at the greater of: (i) NAV at the close of business on the day preceding the relevant investment date; or (ii) the average of the daily market price of the Common Shares during the pricing period minus a discount of 5% for reinvested Dividends and 0% to 5% for optional cash investments. Common Shares issued under the Program, when shares are trading at a discount to NAV, will be purchased in the market by the Transfer Agent at market price. Shares issued by the Trust under the Program will be issued without a fee or a commission.
Shareholders may elect to participate in the Program by telephoning the Trust or submitting a completed Participation Form to the Transfer Agent, the Program administrator. The Transfer Agent will credit to each participant’s account funds it receives from: (i) Dividends paid on Trust shares registered in the participant’s name; and (ii) optional cash investments. The Transfer Agent will apply all Dividends and optional cash investments received to purchase Common Shares as soon as practicable beginning on the relevant investment date (as described below) and not later than six business days after the relevant investment date, except when necessary to comply with applicable provisions of the federal securities laws. For more information on the Trust’s distribution policy, see “Dividends and Distributions.”
In order for participants to purchase shares through the Program in any month, the Program administrator must receive from the participant any optional cash investment by the relevant investment date. The relevant investment date will be set in advance by the Trust, upon which optional cash investments are first applied by the Transfer Agent to the purchase of Common Shares. Participants may obtain a schedule of relevant dates, including investments dates, the dates by which optional cash investment payments must be received and the dates in which shares will be paid, by calling ING’s Shareholder Services Department at 1-800-336-3436.
Participants will pay a pro rata share of brokerage commissions with respect to the Transfer Agent’s open market purchases in connection with the reinvestment of Dividends or purchases made with optional cash investments.
The Program is intended for the benefit of investors in the Trust. The Trust reserves the right to exclude from participation, at any time: (i) persons or entities who attempt to circumvent the Program’s standard $100,000 maximum by accumulating accounts over which they have control; or (ii) any other persons or entities as determined in the sole discretion of the Trust.
Currently, persons who are not shareholders of the Trust may not participate in the Program. The Board may elect to change this policy at a future date and permit non-shareholders to participate in the Program. Shareholders may request to receive their Dividends in cash at any time by giving the Transfer Agent written notice or by contacting ING’s Shareholder Services Department at 1-800-336-3436. Shareholders may elect to close their account at any time by giving the Transfer Agent written notice. When a participant closes their account, the participant, upon request, will receive a certificate for full Common Shares in the account. Fractional Common Shares will be held and aggregated with other fractional Common Shares being liquidated by the Transfer Agent as agent of the Program and paid for by check when actually sold.
The automatic reinvestment of Dividends does not affect the tax characterization of the Dividends ( i.e., capital gains and income are realized even though cash is not received). If shares are issued pursuant to the Program’s dividend reinvestment provisions or cash purchase provisions at a discount from market price, participants may have income equal to the discount.
Additional information about the Program may be obtained by contacting ING’s Shareholder Services Department at 1-800-336-3436.
PLAN OF DISTRIBUTION (continued)Privately Negotiated Transactions
The Common Shares may also be offered pursuant to privately negotiated transactions between the Trust and the Distributor and specific investors. Generally, such investors will be sophisticated institutional investors. The terms of such privately negotiated transactions will be subject to the discretion of the management of the Trust. In determining whether to sell Common Shares pursuant to a privately negotiated transaction, the Trust will consider relevant factors including, but not limited to, the attractiveness of obtaining additional funds through the sale of Common Shares, the purchase price to apply to any such sale of Common Shares and the person seeking to purchase the Common Shares.
Common Shares issued by the Trust in connection with privately negotiated transactions will be issued at the greater of: (i) NAV per Common Share of the Trust’s Common Shares; or (ii) at a discount ranging from 0% to 5% of the average of the daily market price of the Trust’s Common Shares at the close of business on the two business days preceding the date upon which Common Shares are sold pursuant to the privately negotiated transaction. The discount to apply to such privately negotiated transactions will be determined by the Trust with regard to each specific transaction. The Trust will not pay any commissions with regard to privately negotiated transactions, but an investor may be subject to a front end sales load of up to 3% paid to or retained by a third party broker-dealer through which such transaction may be effected.
It is expected that 100% of the net proceeds of Common Shares issued pursuant to the Program and privately negotiated transactions will be invested in Senior Loans and other securities consistent with the Trust’s investment objective and policies. Pending investment in Senior Loans, the proceeds, which are expected to be used within three months, will be used to pay down the Trust’s outstanding borrowings under its credit facilities. See “Investment Objective and Policies — Policy on Borrowing.”
As of June 15, 2011, the Trust had $[ ] million in outstanding borrowings under one credit facility. By paying down the Trust’s borrowings, the Trust can avoid adverse impacts on yields pending investment of such proceeds in Senior Loans. As investment opportunities are subsequently identified, it is expected that the Trust will reborrow amounts previously repaid and invest such amounts in additional Senior Loans.
The Trust is an unincorporated business trust established under the laws of the Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated December 2, 1987, as amended (“Declaration of Trust”). The Board is responsible for protecting the interests of shareholders. The Trustees are experienced executives who oversee the Trust’s activities, review contractual arrangements with companies that provide services to the Trust, and review the Trust’s performance.
The Declaration of Trust provides that the Trustees of the Trust may authorize separate classes of shares of beneficial interest. The Trustees have authorized an unlimited number of shares of beneficial interest, without par value, all of which were initially classified as Common Shares. The Declaration of Trust also authorizes the creation of an unlimited number of shares of beneficial interest with preference rights, including preferred shares, without par value, in one or more series, with rights as determined by the Board, by action of the Board without the approval of the shareholders. The following table shows the number of: (i) shares authorized; (ii) shares held by the Trust for its own account; and (iii) shares outstanding, for each class of authorized securities of the Trust as of June 15, 2011.
The Common Shares outstanding are fully paid and nonassessable by the Trust. Holders of Common Shares are entitled to share equally in dividends declared by the Board payable to holders of Common Shares and in the net assets of the Trust available for distribution to holders of Common Shares after payment of the preferential amounts payable to holders of any outstanding Preferred Shares. Neither holders of Common Shares nor holders of Preferred Shares have pre-emptive or conversion rights and Common Shares are not redeemable. Upon liquidation of the Trust, after paying or adequately providing for the payment of all liabilities of the Trust and the liquidation preference with respect to any outstanding preferred shares and, upon receipt of such releases, indemnities and refunding agreements as they deem necessary for their protection, the Trustees may distribute the remaining assets of the Trust among the holders of the Common Shares. Under the rules of the NYSE applicable to listed companies, the Trust is required to hold an annual meeting of shareholders in each year. If the Trust is converted to an open-end investment company or if for any other reason Common Shares are no longer listed on the NYSE (or any other national securities exchange the rules of which require annual meetings of shareholders), the Trust does not intend to hold annual meetings of shareholders.
The Trust is responsible for paying the following expenses, among others: the fees payable to the Adviser; the fees payable to the Administrator; the fees and certain expenses of the Trust’s custodian and transfer agent, including the cost of providing records to the Administrator in connection with its obligation of maintaining required records of the Trust; the charges and expenses of the Trust’s legal counsel, legal counsel to the Trustees who are not “interested persons” of the Trust, as defined in the 1940 Act, and independent accountants; commissions and any issue or transfer taxes chargeable to the Trust in connection with its transactions; all taxes and corporate fees payable by the Trust to governmental agencies; the fees of any trade association of which the Trust is a member; the costs of share certificates representing Common Shares of the Trust; organizational and offering expenses of the Trust and the fees and expenses involved in registering and maintaining registration of the Trust and its Common Shares with the SEC, including the preparation and printing of the Trust’s registration statement and prospectuses for such purposes; allocable communications expenses with respect to investor services, and all expenses of shareholders’ and Trustees’ meetings and of preparing, printing, and mailing reports, proxy statements, and prospectuses to shareholders; fees for independent loan pricing services; the cost of insurance; and litigation and indemnification expenses and extraordinary expenses not incurred in the ordinary course of the Trust’s business.
Under Massachusetts law, shareholders, including holders of Preferred Shares could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification, out of Trust
DESCRIPTION OF THE TRUST (continued) property, for all loss and expense of any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust would be unable to meet its obligations.Holders of Common Shares are entitled to one vote for each share held and will vote with the holders of any outstanding Preferred Shares or any other preferred shares on each matter submitted to a vote of holders of Common Shares, except as described under “Description of the Capital Structure — Preferred Shares.”
Shareholders are entitled to one vote for each share held. The Common Shares, Preferred Shares, and any other preferred shares do not have cumulative voting rights, which means that the holders of more than 50% of the shares of Common Shares, Preferred Shares, and any other preferred shares voting for the election of Trustees can elect all of the Trustees standing for election by such holders and, in such event, the holders of the remaining shares of Common Shares, Preferred Shares, and any other preferred shares will not be able to elect any of such Trustees.
So long as any Preferred Shares or any other preferred shares are outstanding, holders of Common Shares will not be entitled to receive any dividends of, or other distributions from, the Trust, unless at the time of such declaration: (i) all accrued dividends on preferred shares or accrued interest on borrowings has been paid; and (ii) the value of the Trust’s total assets (determined after deducting the amount of such dividend or other distribution), less all liabilities and indebtedness of the Trust not represented by senior securities, is at least 300% of the aggregate amount of such securities representing indebtedness and at least 200% of the aggregate amount of securities representing indebtedness plus the aggregate liquidation value of the outstanding preferred shares (expected to equal the aggregate original purchase price of the outstanding preferred shares plus redemption premium, if any, together with any accrued and unpaid dividends thereon, whether or not earned or declared and on a cumulative basis). In addition to the requirements of the 1940 Act, the Trust is required to comply with other asset coverage requirements as a condition of the Trust obtaining a rating of the Preferred Shares from a rating agency. These requirements include an asset coverage test more stringent than under the 1940 Act.
The Trust will send unaudited reports at least semi-annually and audited financial statements annually to all of its shareholders.
The Declaration of Trust further provides that obligations of the Trust are not binding upon Trustees individually but only upon the property of the Trust and that the Trustees will not be liable for errors of judgment or mistakes of fact or law, but nothing in the Declaration of Trust protects a Trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office.
The Trustees may at any time propose conversion of the Trust to an open-end management investment company depending upon their judgment as to the advisability of such action in light of circumstances then prevailing. In considering whether to submit an open-ending proposal to shareholders, the Trustees might consider, among other factors, the differences in operating expenses between open-end and closed-end funds (due to the expenses of continuously selling shares and of standing ready to effect redemptions), the potentially adverse tax consequences to non-redeeming shareholders once a fund is open-ended, and the impact of open-ending on portfolio management policies. Such a conversion would require the approval of both a majority of the Trust’s outstanding Common Shares and Preferred Shares voting together as a single class and a majority of the outstanding Preferred Shares voting as a separate class on such conversion. Conversion of the Trust to an open-end investment company would require the redemption of all outstanding Preferred Shares, including the Preferred Shares, which would eliminate the leveraged capital structure of the Trust with respect to the Common Shares. A delay in conversion could result following shareholder approval due to the Trust’s inability to redeem the Preferred Shares. Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their next computed NAV less any redemption charge as might be in effect at the time of redemption. If the Trust is converted to an open-end management investment company, it could be required to liquidate portfolio securities to meet requests for redemption and its shares would no longer be listed on the NYSE. If the Trust were to experience significant redemptions as an open-end fund, the decrease in total assets could result in a higher expense ratio and inefficiencies in portfolio management. In this regard, the Trust could reserve the right to effect redemptions in-kind with portfolio securities, which would subject redeeming shareholders to transaction costs in liquidating those securities.
DESCRIPTION OF THE TRUST (continued)In recognition of the possibility that the Trust’s Common Shares may trade at a discount to their NAV, the Trust may, from time to time, take action to attempt to reduce or eliminate a market value discount from NAV by repurchasing its Common Shares in the open market or by tendering its Common Shares at NAV. So long as any Preferred Shares are outstanding, the Trust may not purchase, redeem, or otherwise acquire any Common Shares unless: (i) all accumulated dividends on the Preferred Shares have been paid or set aside for payment through the date of such purchase, redemption, or other acquisition; and (ii) at the time of such purchase, redemption, or acquisition, asset coverage requirements set forth in the Declaration of Trust and the Trust’s Certificate of Designation for Preferred Shares are met. Repurchases of Common Shares may result in the Trust being required to redeem Preferred Shares to satisfy asset coverage requirements.
Fundamental and Non-Fundamental Policies of the Trust
The investment objective of the Trust, certain policies of the Trust specified herein as fundamental, and the investment restrictions of the Trust described in the SAI are fundamental policies of the Trust and may not be changed without a majority vote of the shareholders of the Trust. The term majority vote means the affirmative vote of: (i) more than 50% of the outstanding shares of the Trust; or (ii) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares of the Trust are represented at the meeting in person or by proxy, whichever is less. All other policies of the Trust may be modified by resolution of the Board.
DESCRIPTION OF THE CAPITAL STRUCTURE
The Trust’s Declaration of Trust authorizes the issuance of an unlimited number of Common Shares of beneficial interest, without par value. All Common Shares have equal rights to the payment of dividends and the distribution of assets upon liquidation. Common Shares will, when issued, be fully paid and non-assessable and will have no pre-emptive or conversion rights or rights to cumulative voting.
Whenever preferred shares are outstanding, holders of Common Shares will not be entitled to receive any distributions from the Trust, unless at the time of such declaration: (i) all accrued dividends on preferred shares or accrued interest on borrowings have been paid; and (ii) the value of the Trust’s total assets (determined after deducting the amount of such dividend or other distribution), less all liabilities and indebtedness of the Trust not represented by senior securities, is at least 300% of the aggregate amount of such securities representing indebtedness and at least 200% of the aggregate amount of securities representing indebtedness plus the aggregate liquidation value of the outstanding preferred shares. In addition to the requirements of the 1940 Act, the Trust would be required to comply with other asset coverage requirements as a condition of the Trust obtaining a rating of the preferred shares from a rating agency. These requirements include asset coverage tests more stringent than under the 1940 Act. See “Description of the Capital Structure — Preferred Shares.”
The Trust’s Declaration of Trust authorizes the Trust, without the prior approval of holders of Common Shares, to borrow money. In this connection, the Trust may issue notes or other evidence of indebtedness (including bank borrowings or commercial paper) and may secure any such borrowings by mortgaging, pledging, or otherwise granting a security interest in the Trust’s assets. See “Risk Factors and Special Considerations.”
The Trust’s Declaration of Trust authorizes the issuance of a class of Preferred Shares (which class may be divided into two or more series) as the Trustees may, without shareholder approval, authorize. The number of shares of the preferred class or series authorized is unlimited and the shares authorized may be represented in part by fractional shares. Under the Trust’s Certificate of Designation, the Trustees have authorized the creation of 18,000 Auction Rate Cumulative Preferred Shares, without par value, with a liquidation preference of $25,000 per share, classified as Series M, T, W, Th and F Auction Rate Cumulative Preferred Shares. The Preferred Shares will have such preferences, voting powers, terms of redemption, if any, and special or relative rights or privileges (including conversion rights, if any) as the Board may determine and as are set forth in the Trust’s Certificate of Designation establishing the terms of the Preferred Shares.
Any decision to offer Preferred Shares is subject to market conditions and to the Board and the Adviser’s or Sub-Adviser’s continuing belief that leveraging the Trust’s capital structure through the issuance of Preferred Shares is likely to achieve the benefits to the Common Shares described in this Prospectus for long-term investors. The terms of the Preferred Shares will be determined by the Board in consultation with the Adviser or Sub-Advisor (subject to applicable law and the Trust’s Declaration of Trust) if and when it authorizes a Preferred Shares offering.
Under the 1940 Act, the Trust is permitted to have outstanding, more than one series of Preferred Shares as long as no single series has priority over another series nor holders of Preferred Shares have pre-emptive rights to purchase any other Preferred Shares that might be issued.
The Preferred Shares would have complete priority over the Common Shares as to distribution of assets. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Trust, holders of Preferred Shares would be entitled to receive a preferential liquidating distribution (expected to equal the original purchase price per share plus accumulated and unpaid dividends thereon, whether or not earned or declared) before any distribution of assets is made to holders of Common Shares.
Since early February 2008, the Trust has not received sufficient hold orders or any purchase requests for its Preferred Shares during their weekly auctions that equaled the full amount of such shares. As a result, under the terms of the Preferred Shares, the amounts sold, if any, by each selling shareholder are reduced pro rata or to zero. In addition, the dividend rate on such Preferred Shares, which is normally set by means of a Dutch auction procedure, automatically reset to the maximum rate permitted under the Preferred Shares program. That maximum rate is 150% of the applicable commercial paper base rate on the day of the auction. While it is possible that the dividend rate for the Preferred Shares will be set by means of an auction at some future time, there is no current expectation that this will be the case. On June 9, 2008, the Trust announced the approval by the Board of a partial redemption of its outstanding Preferred Shares. Since June 9, 2008, the Trust has announced the approval by the Board of a number of partial redemptions of its outstanding Preferred
DESCRIPTION OF THE CAPITAL STRUCTURE (continued) Shares. As of June 30, 2011, pursuant to these partial redemptions, the Trust has redeemed $375 million of its previously outstanding Preferred Shares and has $75 million of Preferred Shares still outstanding. The Preferred Shares were redeemed using proceeds available through the Trust’s existing bank loan facility and with cash held by the Trust. Redemption costs and the on-going costs of obtaining leverage through a bank loan facility may reduce returns to Common Shares and may be higher than the costs of leverage obtained through the Preferred Shares. The Trust will continue to monitor the situation and evaluate potential options to restore liquidity to and/or provide additional refinancing options for this market in the context of regulatory guidelines, as well as the economic and tax implications for both its Common and Preferred shareholders. There can be no assurance that any means for liquidity will be identified, and if they are, it is possible that the Trust’s leverage or its benefits from leverage will diminish.The following information is meant as a general summary for U.S. shareholders. Please see the SAI for additional information. Investors should rely on their own tax adviser for advice about the particular federal, state, and local tax consequences to them of investing in the Trust.
The federal income tax treatment of the Trust’s Preferred Shares is not entirely clear, but the Trust believes, based on the advice of its counsel, that the Preferred Shares will constitute stocks of the Trust. However, it is possible that the IRS might take a contrary position asserting, for example, that the Preferred Shares constitute debt of the Trust. The discussion below assumes that the Preferred Shares are stocks.
The Trust will distribute all or substantially all of its net investment income and net realized capital gains, if any, to its shareholders each year. Although the Trust will not be taxed on amounts it distributes, most shareholders will be taxed on amounts they receive. A particular distribution generally will be taxable as either ordinary income or long-term capital gain. The Trust will allocate a proportionate amount of each type of its income to the Common Shares and to the Preferred Shares. It generally does not matter how long a shareholder has held the Trust’s Common Shares or Preferred Shares or whether the shareholder elects to receive distributions in cash or reinvest them in additional Common Shares or Preferred Shares. For example, if the Trust designates a particular distribution as a long-term capital gains distribution, it will be taxable to a shareholder at his or her long-term capital gains rate.
Dividends from the Trust are not expected to be eligible for the reduced rate of tax that may apply to certain qualifying dividends on corporate stocks. Distributions of earnings from non-qualifying dividends interest income, other types of ordinary income, and short-term capital gains will be taxed at the ordinary income tax rate applicable to the taxpayer.
Dividends declared by the Trust in October, November, or December and paid during the following January may be treated as having been received by shareholders in the year the distributions were declared.
Each shareholder will receive an annual statement summarizing the shareholder’s dividend and capital gains distributions.
If a shareholder invests through a tax-deferred account such as a retirement plan, the shareholder generally will not have to pay tax on dividends until they are distributed from the account. These accounts are subject to complex tax rules and shareholders should consult a tax adviser about investment through a tax-deferred account.
There may be tax consequences to a shareholder if the shareholder sells the Trust’s Common Shares or Preferred Shares. A shareholder will generally have a capital gain or loss, which will be long-term or short-term, generally depending on how long the shareholder holds those Common Shares or Preferred Shares. If a shareholder exchanges shares, the shareholder may be treated as if he or she sold them. Shareholders are responsible for any tax liabilities generated by their own transactions.
As with all investment companies, the Trust may be required to withhold U.S. federal income tax at the current rate of 28% (currently scheduled to increase to 31% after 2012) of all taxable distributions payable to a shareholder if the shareholder fails to provide the Trust with his or her correct taxpayer identification number or to make required certifications, or if the shareholder has been notified by the IRS that he or she is subject to backup withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures it will collect taxes otherwise due. Any amounts withheld may be credited against a shareholder’s U.S. federal income tax liability.
MORE INFORMATION ABOUT THE TRUST
The validity of the Common Shares offered hereby will be passed upon for the Trust by Dechert LLP, 1775 I Street, NW, Washington, DC 20006, counsel to the Trust.
Independent Registered Public Accounting Firm
KPMG LLP serves as the independent registered public accounting firm for the Trust. The principal address of KPMG LLP is Two Financial Center, 60 South Street, Boston, Massachusetts 02111.
The Trust has filed with the SEC a Registration Statement under the Securities Act of 1933, relating to the Common Shares offered hereby. For further information with respect to the Trust and its Common Shares, reference is made to such Registration Statement and the exhibits filed therein.
STATEMENT OF ADDITIONAL INFORMATION - Table of Contents
TABLE OF CONTENTS | |
Page | |
Change of Name
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[ ] |
Investment
Objective
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[ ] |
Investment
Restrictions
|
[ ] |
Additional Information About Investments and Investment
Techniques
|
[ ] |
Management of the
Trust
|
[ ] |
Code of Ethics
|
[ ] |
Proxy Voting
Procedures
|
[ ] |
Control Persons and Principal Holders of
Securities
|
[ ] |
Investment Management and Other Service
Providers
|
[ ] |
Adviser
|
[ ] |
Sub-Adviser
|
[ ] |
Administrator
|
[ ] |
Distributor
|
[ ] |
Shareholder
Reinvestment
Program
|
[ ] |
Portfolio
Transactions
|
[ ] |
Portfolio Turnover
Rate
|
[ ] |
Net Asset Value
|
[ ] |
Federal
Taxation
|
[ ] |
Advertising and Performance
Data
|
[ ] |
General
Information
|
[ ] |
Custodian
|
[ ] |
Legal
Counsel
|
[ ] |
Independent Registered Public Accounting
Firm
|
[ ] |
Financial
Statements
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[ ] |
Appendix A
|
A-1 |
ING
Prime Rate Trust - 5,000,000 Common Shares of Beneficial
Interest
7337 East Doubletree
Ranch Road, Suite 100
Scottsdale, AZ
85258-2034
1-800-336-3436
TRUST ADVISORS AND AGENTS
Adviser
ING
Investments, LLC
7337 East
Doubletree Ranch Road, Suite 100
Scottsdale, AZ
85258
Sub-Adviser
ING
Investment Management Co.
230 Park Avenue
New York,
NY 10169
Administrator
ING
Funds Services, LLC
7337 East
Doubletree Ranch Road, Suite 100
Scottsdale, AZ
85258
Custodian
State
Street Bank and Trust Company
801 Pennsylvania
Avenue
Kansas City, MO
64105
Independent Registered Public Accounting Firm
KPMG
LLP
Two Financial Center
60 South
Street
Boston, MA
02111
Distributor
ING
Investments Distributor, LLC
7337 East Doubletree Ranch Road,
Suite 100
Scottsdale, AZ
85258
Transfer Agent
BNY Mellon
Investment Servicing (U.S.) Inc. (formerly, PNC Global Investment
Servicing (U.S.) Inc.)
301 Bellevue
Parkway
Wilmington, DE 19809
Legal Counsel
Dechert
LLP
1775 I Street,
NW
Washington, DC
20006
Institutional Investors and Analysts
Call 1-800-336-3436
The Trust has not authorized any person to provide you with any information or to make any representations other than those contained in this Prospectus in connection with this offer. You should rely only on the information in this Prospectus or other information to which we have referred you. This Prospectus is not an offer to sell, or the solicitation of any offer to buy, any security other than the Common shares offered by this Prospectus; nor does it constitute an offer to sell, or a solicitation of any offer to buy, the Common shares by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such an offer or solicitation. The delivery of this Prospectus or any sale made pursuant to this Prospectus does not imply that the information contained in this Prospectus is correct as of any time after the date of this Prospectus. However, if any material change occurs while this Prospectus is required by law to be delivered, this Prospectus will be amended or supplemented.
This information may also be reviewed or obtained from the SEC. In order to review the information in person, you will need to visit the SEC’s Public Reference Room in Washington, D.C. or call 202-551-8090 for information on the operation of the Public Reference Room. Otherwise, you may obtain the information for a fee, by contacting the SEC at:
U.S. Securities and Exchange Commission
Public
Reference Section
100 F Street, N.E.
Washington, D.C.
20549
or at the e-mail address: publicinfo@sec.gov
Or obtain the information at no cost by visiting the SEC’s Internet website at www.sec.gov.
When contacting the SEC, you will want to refer to the Trust’s SEC file number. The file number is as follows:
1940 Act File No. | 811-05410 |
PRPRO-UPRT5M (0611-063011) | |
|
|
STATEMENT OF ADDITIONAL INFORMATION
June 30, 2011
ING Prime Rate Trust
7337 East Doubletree Ranch Road, Suite 1001
Scottsdale, Arizona 85258-2034
(800) 336-3436
ING Prime Rate Trust (Trust) is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (1940 Act). The Trusts investment objective is to provide investors with as high a level of current income as is consistent with the preservation of capital. There is no assurance that the Trust will achieve its investment objective. The Trust is managed by ING Investments, LLC (ING Investments or Adviser) and sub-advised by ING Investment Management Co. (ING IM or Sub-Adviser).
This Statement of Additional Information (SAI) does not constitute a prospectus, but should be read in conjunction with the Prospectuses relating thereto dated June 30, 2011, copies of which may be obtained without charge from the Trust or the Trusts principal underwriter, ING Investments Distributor, LLC (ING Investments Distributor or Distributor) at the address and phone number listed above. This SAI does not include all the information that a prospective investor should consider before purchasing Common Shares in this offering, and investors should obtain and read the Prospectuses prior to purchasing such shares. In addition, the Trusts financial statements and the independent registered public accounting firms report thereon included in the annual shareholder report dated February 28, 2011, are incorporated herein by reference.
The Prospectuses and SAI omit certain information contained in the registration statement filed with the U.S. Securities and Exchange Commission (SEC). The registration statement may be obtained from the SEC upon payment of the fee prescribed, or inspected at the SECs office for no charge. The registration statement is also available on the SECs website (www.sec.gov). Capitalized terms used in this SAI have the same meaning as in the Prospectuses and some additional terms are defined particularly for this SAI.
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TABLE OF CONTENTS
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ADDITIONAL INFORMATION ABOUT INVESTMENTS AND INVESTMENT TECHNIQUES
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CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
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INVESTMENT MANAGEMENT AND OTHER SERVICE PROVIDERS
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SHAREHOLDER REINVESTMENT PROGRAM
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ADVERTISING AND PERFORMANCE DATA
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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The Trust changed its name from Pilgrim Prime Rate Trust to Pilgrim America Prime Rate Trust in April 12, 1996, and then changed its name back to Pilgrim Prime Rate Trust on November 16, 1998. Effective March 1, 2002, the Trust changed its name to ING Prime Rate Trust.
The Trusts investment objective is to obtain as high a level of current income as is consistent with the preservation of capital. The Trust seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its net assets (plus borrowings for investment purposes) in U.S. dollar-denominated floating rate secured senior loans (Senior Loans). Under normal market conditions, the Trust invests at least 80% of its assets in Senior Loans made to corporations or other business entities organized under U.S. or Canadian law and that are domiciled in the United States and in U.S. territories and possessions or Canada.
The Senior Loans in which the Trust invests either hold the most senior position in the capital structure of the borrower, hold an equal ranking with other senior debt, or have characteristics that the Adviser or Sub-Adviser believes justify treatment as senior debt. These Senior Loans are typically below investment-grade credit quality.
The Trust may also invest up to 20% of its total assets, measured at the time of investment, in a combination of one or more of the following types of investments: loans to borrowers organized or located in countries outside the United States and outside U.S. territories and possessions or Canada; unsecured floating rate loans, notes and other debt instruments; floating rate subordinated loans; tranches of floating rate asset-backed securities, including structured notes; short-term debt securities; and equity securities acquired in connection with investments in loans and other instruments. (See Additional Information About Investments and Investment Techniques later in this SAI.) During periods when, in the opinion of the Trusts Adviser or Sub-Adviser, a temporary defensive posture in the market is appropriate, the Trust may hold up to 100% of its assets in cash and/or in short-term debt instruments.
The Trust operates under a number of investment policies and restrictions. Certain investment restrictions of the Trust are designated as fundamental policies and as such may not be changed without the approval of a majority of the Trusts outstanding voting securities. In accordance with the 1940 Act, a majority of the Trusts outstanding securities means the lesser of: (i) 67% or more of the Trusts shares present at a meeting, if the holders of more than 50% of the Trusts shares are present or represented by proxy; or (ii) more than 50% of the Trusts shares. The following investment restrictions have been designated as fundamental policies.
The Trust will not:
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issue senior securities, except insofar as the Trust may be deemed to have issued a senior security by reason of: (i) entering into certain interest rate hedging transactions; (ii) entering into reverse repurchase agreements; (iii) borrowing money in an amount permitted under the 1940 Act, including the rules, regulations, interpretations thereunder, and any exemptive relief provided by the SEC; or (iv) issuing a class or classes of preferred shares in an amount not exceeding 50%, or such other percentage permitted by law, of the Trusts total assets less all liabilities and indebtedness not represented by senior securities;
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invest more than 25% of its total assets in any industry;
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invest in marketable warrants other than those acquired in conjunction with Senior Loans and such warrants will not constitute more than 5% of its assets;
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make investments in any one issuer other than U.S. government securities if, immediately after such purchase or acquisition, more than 5% of the value of the Trusts total assets would be invested in such issuer, or the Trust would own more than 25% of any outstanding issue, except that up to 25% of the Trusts total assets may be invested without regard to the foregoing restrictions. For the purpose of the foregoing restriction, the Trust will consider the borrower of a Senior Loan to be the issuer of such Senior Loan. In addition, with respect to a Senior Loan under which the Trust does not have privity with the borrower or would not have a direct cause of action against the borrower in the event of the failure of the borrower to pay scheduled principal or interest, the Trust will also separately meet the foregoing requirements and consider each interpositioned bank (a lender from which the Trust acquires a Senior Loan) to be an issuer of the Senior Loan;
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act as an underwriter of securities, except to the extent that it may be deemed to act as an underwriter in certain cases when disposing of its portfolio investments or acting as an agent or one of a group of co-agents in originating Senior Loans;
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purchase or sell equity securities (except that the Trust may, incidental to the purchase or ownership of an interest in a Senior Loan, or as part of a borrower reorganization, acquire, sell and exercise warrants and/or acquire or sell other equity securities), real estate, real estate mortgage loans, commodities, commodity futures contracts, or oil or gas exploration or development programs; or sell short, purchase or sell straddles, spreads, or combinations thereof, or write put or call options;
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make loans of money or property to any person, except that the Trust: (i) may make loans to corporations or other business entities, or enter into leases or other arrangements that have the characteristics of a loan; (ii) may lend portfolio instruments; and (iii) may acquire securities subject to repurchase agreements;
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purchase shares of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; or
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make investments on margin or hypothecate, mortgage, or pledge any of its assets except for the purpose of securing borrowings as described above in connection with the issuance of senior securities and then only in an amount up to 33 1/3% (50% in the case of the issuance of a preferred class of shares), or such other percentage permitted by law, of the value of the Trusts total assets (including, with respect to borrowings, the amount borrowed) less all liabilities other than borrowings (or, in the case of the issuance of senior securities, less all liabilities and indebtedness not represented by senior securities).
With regard to paragraph number 2 above, the Trust will consider the borrower on a loan, including a loan participation, to be the issuer of that loan. In addition, with respect to a loan under which the Trust does not have privity with the borrower or would not have a direct cause of action against the borrower in the event of the failure of the borrower to pay scheduled principal or interest, the Trust will also consider each interpositioned bank (a lender from which the Trust acquires a loan) to be an issuer of the loan.
If a percentage restriction is adhered to at the time of investment, a later increase or decrease in percentage resulting from a change in value of the Trusts investments or amount of total assets will not be considered a violation of any of the foregoing restrictions.
There is no limitation on the percentage of the Trusts total assets that may be invested in instruments which are not readily marketable or subject to restrictions on resale and to the extent the Trust invests in such instruments, the Trusts portfolio should be considered illiquid. The extent to which the Trust invests in such instruments may affect its ability to realize the net asset value (NAV) of the Trust in the event of the
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voluntary or involuntary liquidation of its assets.
The Trust has also adopted a non-fundamental policy as required by Rule 35d-1 under the 1940 Act to invest, under normal market conditions, at least 80% of its net assets (plus borrowings for investment purposes) in floating rate secured Senior Loans. The Trust has also adopted a policy to provide its shareholders with at least 60 days prior notice of any change in such investment policy. If, subsequent to an investment, the 80% requirement is no longer met, the Trusts future investments will be made in a manner that will bring the Trust into compliance with this policy.
ADDITIONAL INFORMATION ABOUT INVESTMENTS AND INVESTMENT TECHNIQUES
Some of the different types of securities in which the Trust may invest, subject to its investment objective, policies, and restrictions, are described in the Prospectuses under Investment Objective and Policies. Additional information concerning certain of the Trusts investments and investment techniques is set forth below.
Derivatives
Generally, derivatives can be characterized as financial instruments whose value is derived, at least in part, from the value of an underlying asset or assets. Types of derivatives include options, futures contracts, options on futures, and forward contracts. Derivative instruments may be used for a variety of reasons, including enhancing return, hedging certain market risks, or providing a substitute for purchasing or selling particular securities. Derivatives may provide a cheaper, quicker, or more specifically focused way for the Trust to invest than traditional securities would.
Derivatives can be volatile and involve various types and degrees of risk, depending upon the characteristics of the particular derivative and the portfolio as a whole. Derivatives permit the Trust to increase or decrease the level of risk, or change the character of the risk, to which its portfolio is exposed in much the same way as the Trust can increase or decrease the level of risk, or change the character of the risk, of its portfolio by making investments in specific securities.
Derivatives may be purchased on established exchanges or through privately negotiated transactions referred to as over-the-counter derivatives. Exchange-traded derivatives generally are guaranteed by the clearing agency, which is the issuer or counterparty to such derivatives. This guarantee usually is supported by a daily payment system (i.e., margin requirements) operated by the clearing agency in order to reduce overall credit risk. As a result, unless the clearing agency defaults, there is relatively little counterparty credit risk associated with derivatives purchased on an exchange. By contrast, no clearing agency guarantees over-the-counter derivatives. Therefore, each party to an over-the-counter derivative bears the risk that the counterparty will default. Accordingly, the Trust will consider the creditworthiness of counterparties to over-the-counter derivatives in the same manner as they would review the credit quality of a security to be purchased by the Trust. Over-the-counter derivatives are less liquid than exchange-traded derivatives since the other party to the transaction may be the only investor with sufficient understanding of the derivative to be interested in bidding for it.
Equity Securities
In connection with its purchase or holding of interests in loans, the Trust may acquire (and subsequently sell) equity securities or exercise warrants that it receives. The Trust will acquire such interests only as an incident to the intended purchase or ownership of loans or in connection with a reorganization of a borrower or its debt. The Trust normally will not hold more than 20% of its total assets in equity securities. Equity securities will not be treated as Senior Loans; therefore, an investment in such securities will not count toward the 80% of the Trusts net assets (plus borrowings for investment purposes) that normally will be invested in Senior Loans. Equity securities are subject to financial and market risks and can be expected to fluctuate in value.
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Interest Rates and Portfolio Maturity
Interest rates on loans in which the Trust invests adjust periodically. The interest rates are adjusted based on a base rate plus a premium or spread over the base rate. The base rate usually is London Inter-Bank Offered Rate (LIBOR), the Federal Reserve federal funds rate, the Prime Rate, or other base lending rates used by commercial lenders. LIBOR usually is an average of the interest rates quoted by several designated banks as the rates at which they pay interest to major depositors in the London interbank market on U.S. dollar-denominated deposits. The Adviser and Sub-Adviser believe that changes in short-term LIBOR rates are closely related to changes in the Federal Reserve federal funds rate, although the two are not technically linked. The Prime Rate quoted by a major U.S. bank is generally the interest rate at which that bank is willing to lend U.S. dollars to its most creditworthy borrowers, although it may not be the banks lowest available rate.
Loans in which the Trust invests typically have multiple reset periods at the same time, with each reset period applicable to a designated portion of the loan. The maximum duration of an interest rate reset on any loan in which the Trust can invest is one year. The maximum maturity on any loan in which the Trust can invest is ten years. The Trusts portfolio of loans will ordinarily have a dollar-weighted average time until the next interest rate adjustment of ninety (90) days or less, although the time may exceed 90 days. The Trust may find it possible and appropriate to use interest rate swaps and other investment practices to shorten the effective interest rate adjustment period of loans. If the Trust does so, it will consider the shortened period to be the adjustment period of the loan. As short-term interest rates rise, interest payable to the Trust should increase. As short-term interest rates decline, interest payable to the Trust should decrease. The amount of time that will pass before the Trust experiences the effects of changing short-term interest rates will depend on the dollar-weighted average time until the next interest rate adjustment on the Trusts portfolio of loans.
Loans usually have mandatory and optional prepayment provisions. Because of prepayments, the actual remaining maturity of a loan may be considerably less than its stated maturity. If a loan is prepaid, the Trust will have to reinvest the proceeds in other loans or securities which may have a lower fixed spread over its base rate. In such a case, the amount of interest paid to the Trust would likely decrease.
In the event of a change in the benchmark interest rate on a loan, the rate payable to lenders under the loan will, in turn, reset as the applicable reset period reaches its next scheduled reset date. If the benchmark rate goes up, the Trust as lender would earn interest at a higher rate, but only on and after such reset date. If the benchmark rate goes down, the Trust as lender would earn interest at a lower rate, but only on and after such reset date.
During normal market conditions, changes in market interest rates will affect the Trust in certain ways. The principal effect will be that the yield on the Trusts Common Shares will tend to rise or fall as market interest rates rise and fall. This is because almost all of the assets in which the Trust invests pay interest at rates which float in response to changes in market rates. However, because the interest rates on the Trusts assets reset over time, there will be an imperfect correlation between changes in market rates and changes to rates on the portfolio as a whole. This means that changes to the rate of interest paid on the portfolio as a whole, will tend to lag behind changes in market rates.
Market interest rate changes may also cause the Trusts NAV to experience moderate volatility. This is because the value of a loan asset in the Trust is partially a function of whether it is paying what the market perceives to be a market rate of interest for the particular loan given its individual credit and other characteristics. If market interest rates change, a loans value could be affected to the extent the interest rate paid on that loan does not reset at the same time. As discussed above, the rates of interest paid on the loans in which the Trust invests have a weighted average reset period that typically is less than 90 days. Therefore, the impact of the lag between a change in market interest rates and the change in the overall rate on the portfolio is expected to be minimal.
Finally, to the extent that changes in market rates of interest are reflected, not in a change to a base rate such as
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LIBOR, but in a change in the spread over the base rate which is payable on loans of the type and quality in which the Trust invests, the Trusts NAV could be adversely affected. Again, this is because the value of a loan asset in the Trust is partially a function of whether it is paying what the market perceives to be a market rate of interest for the particular loan given its individual credit and other characteristics. However, unlike changes in market rates of interest for which there is only a temporary lag before the portfolio reflects those changes, changes in a loans value based on changes in the market spread on loans in the Trusts portfolio may be of longer duration.
Interest Rate Hedging Transactions
The Trust has the ability, pursuant to its investment objective and policies, to engage in certain hedging transactions including interest rate swaps and the purchase or sale of interest rate caps and floors. The Trust may undertake these transactions primarily for the following reasons: to preserve a return on or value of a particular investment or portion of the Trusts portfolio; to protect against decreases in the anticipated rate of return on floating or variable rate financial instruments which the Trust owns or anticipates purchasing at a later date; or for other risk management strategies such as managing the effective dollar-weighted average duration of the Trusts portfolio. Market conditions will determine whether and in what circumstances the Trust would employ any of the hedging techniques described below.
Interest rate swaps involve the exchange by the Trust with another party of their respective commitments to pay or receive interest, e.g. , an exchange of an obligation to make floating rate payments on a specified dollar amount, referred to as the notional principal amount, for an obligation to make fixed-rate payments. For example, the Trust may seek to shorten the effective interest rate re-determination period of a Senior Loan in its portfolio that has an interest rate re-determination period of one year. The Trust could exchange its right to receive fixed income payments for one year from a borrower for the right to receive payments under an obligation that readjusts monthly. In such an event, the Trust would consider the interest rate re-determination period of such Senior Loan to be the shorter period.
The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate floor. The Trust will not enter into swaps, caps, or floors if, on a net basis, the aggregate notional principal amount with respect to such agreements exceeds the net assets of the Trust or to the extent the purchase of swaps, caps, or floors would be inconsistent with the Trusts other investment restrictions.
The Trust will usually enter into interest rate swaps on a net basis, i.e ., where the two parties make net payments with the Trust receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of the Trusts obligations over its entitlement with respect to each interest rate swap will be accrued and an amount of cash or liquid securities having an aggregate NAV at least equal to the accrued excess will be maintained in a segregated account. If the Trust enters into a swap on other than a net basis, the Trust will maintain in the segregated account the full amount of the Trusts obligations under each such swap. The Trust may enter into swaps, caps and floors with member banks of the Federal Reserve System, members of the New York Stock Exchange (NYSE) or other entities determined by ING Investments. If a default occurs by the other party to such transaction, the Trust will have contractual remedies pursuant to the agreements related to the transaction but such remedies may be subject to bankruptcy and insolvency laws which could materially and adversely affect the Trusts rights as a creditor. The Trust will not treat swaps covered in accordance with applicable regulatory guidance as senior securities.
The swap, cap, and floor market has grown substantially in recent years with a large number of banks and financial services firms acting both as principals and as agents utilizing standardized swap documentation. As a result, this market has become relatively liquid. There can be no assurance, however, that the Trust will be
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able to enter into interest rate swaps or to purchase interest rate caps or floors at prices or on terms the Adviser or Sub-Adviser believes are advantageous to the Trust. In addition, although the terms of interest rate swaps, caps and floors may provide for termination, there can be no assurance that the Trust will be able to terminate an interest rate swap or to sell or offset interest rate caps or floors that it has purchased.
The successful utilization of hedging and risk management transactions requires skills different from those needed in the selection of the Trusts portfolio securities and depends on the Advisers or Sub-Advisers ability to predict correctly the direction and degree of movements in interest rates. Although the Trust believes that use of the hedging and risk management techniques described above will benefit the Trust, if the Advisers or Sub-Advisers judgment about the direction or extent of the movement in interest rates is incorrect, the Trusts overall performance would be worse than if it had not entered into any such transactions. The Trust will incur brokerage and other costs in connection with its hedging transactions.
Lease Participations
Senior Loans that the Trust may acquire include participation interests in lease financings (Lease Participations) where the collateral quality, credit quality of the borrower, and the likelihood of payback are believed by the Adviser or Sub-Adviser to be the same as those applied to conventional Senior Loans. A Lease Participation is also required to have a floating interest rate that is indexed to a benchmark indicator of prevailing interest rates, such as LIBOR or the Prime Rate.
The credit quality standards and general requirements that the Trust applies to Lease Participations including collateral quality, the credit quality of the borrower and the likelihood of payback are substantially the same as those applied to conventional Senior Loans. A Lease Participation is also required to have a floating interest rate that is indexed to the federal funds rate, LIBOR, or Prime Rate in order to be eligible for investment.
The Office of the Comptroller of the Currency has established regulations which set forth circumstances under which national banks may engage in lease financings. Among other things, the regulation requires that a lease be a net-full payout lease representing the noncancelable obligation of the lessee and that the bank make certain determinations with respect to any estimated residual value of leased property relied upon by the bank to yield a full return on the lease. The Trust may invest in lease financings only if the Lease Participation meets these banking law requirements.
Lending Loan Interests and Other Portfolio Instruments
To generate additional income, the Trust may lend its portfolio securities, including interests in Senior Loans, in an amount equal to up to 33 1/3% of the Trusts total assets to broker-dealers, major banks, or other recognized domestic institutional borrowers of securities. No lending may be made to any companies affiliated with the Adviser or Sub-Adviser. During the time portfolio securities are on loan, the borrower pays the Trust any dividends or interest paid on such securities and the Trust may invest the cash collateral and earn additional income, or it may receive an agreed-upon amount of interest income from the borrower who has delivered equivalent collateral or a letter of credit. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower fail financially.
The Trust may seek to increase its income by lending financial instruments in its portfolio in accordance with present regulatory policies, including those of the Board of Governors of the Federal Reserve System and the SEC. The lending of financial instruments is a common practice in the securities industry. The loans are required to be secured continuously by collateral, consistent with the requirements of the 1940 Act discussed below, maintained on a current basis at an amount at least equal to the market value of the portfolio instruments loaned. The Trust has the right to call a loan and obtain the portfolio instruments loaned at any time on such notice as specified in the transaction documents. For the duration of the loan, the Trust will continue to receive the equivalent of the interest paid by the issuer on the portfolio instruments loaned and may also receive compensation for the loan of the financial instrument. Any gain or loss in the market price of the
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instruments loaned that may occur during the term of the loan will be for the account of the Trust.
The Trust may lend its portfolio instruments so long as the terms and the structure of such loans are not inconsistent with the requirements of the 1940 Act, which currently require that: (a) the borrower pledge and maintain with the Trust collateral consisting of cash, a letter of credit issued by a domestic U.S. bank, or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the value of the instruments loaned; (b) the borrowers add to such collateral whenever the price of the instruments loaned rises ( i.e. , the value of the loan is marked-to-market on a daily basis); (c) the loan be made subject to termination by the Trust at any time; and (d) the Trust receives reasonable interest on the loan (which may include the Trusts investing any cash collateral in interest bearing short-term investments), any distributions on the loaned instruments and increase in their market value. The Trust may lend its portfolio instruments to member banks of the Federal Reserve System, members of the NYSE or other entities determined by the Adviser or Sub-Adviser to be creditworthy. All relevant facts and circumstances, including the creditworthiness of the qualified institution, will be monitored by the Adviser or Sub-Adviser, and will be considered in making decisions with respect to the lending of portfolio instruments.
The Trust may pay reasonable negotiated fees in connection with loaned instruments. In addition, voting rights may pass with loaned securities but if a material event were to occur affecting such a loan, the Trust will retain the right to call the loan and vote the securities. If a default occurs by the other party to such transaction, the Trust will have contractual remedies pursuant to the agreements related to the transaction but such remedies may be subject to bankruptcy and insolvency laws which could materially and adversely affect the Trusts rights as a creditor. However, the loans will be made only to firms deemed by the Adviser or Sub-Adviser to be of good financial standing and when, in the judgment of the Adviser or Sub-Adviser, the consideration which can be earned currently from loans of this type justifies the attendant risk.
Originating Senior Loans Reliance on Agents
The Trust has the ability to act as an agent in originating and administering a loan on behalf of all lenders or as one of a group of co-agents in originating Senior Loans. However, the Trust has not acted as agent or co-agent on any loans, and has no present intention of doing so in the future. An agent for a loan is required to administer and manage the Senior Loan and to service or monitor the collateral. The agent is also responsible for the collection of principal, interest, and fee payments from the borrower and the apportionment of these payments to the credit of all lenders which are parties to the loan agreement. The agent is charged with the responsibility of monitoring compliance by the borrower with the restrictive covenants in the loan agreement and of notifying the lenders of any adverse change in the borrowers financial condition. In addition, the agent generally is responsible for determining that the lenders have obtained a perfected security interest in the collateral securing the Senior Loan.
Lenders generally rely on the agent to collect their portion of the payments on a Senior Loan and to use the appropriate creditor remedies against the borrower. Typically under loan agreements, the agent is given broad discretion in enforcing the loan agreement and is obligated to use the same care it would use in the management of its own property. The borrower compensates the agent for these services. Such compensation may include special fees paid on structuring and funding the Senior Loan and other fees on a continuing basis. The precise duties and rights of an agent are defined in the loan agreement.
When the Trust is an agent, it has as a party to the loan agreement, a direct contractual relationship with the borrower and, prior to allocating portions of the loan to lenders, if any, assumes all risks associated with the loan. The agent may enforce compliance by the borrower with the terms of the loan agreement. Agents also have voting and consent rights under the applicable loan agreement. Action subject to agent vote or consent generally requires the vote or consent of the holders of some specified percentage of the outstanding principal amount of the Senior Loan, which percentage varies depending on the relative loan agreement. Certain decisions, such as reducing the amount or increasing the time for payment of interest on or repayment of principal of a Senior Loan, or relating collateral therefore, frequently require the unanimous vote or consent of
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all lenders affected.
Pursuant to the terms of a loan agreement, the agent typically has sole responsibility for servicing and administering a loan on behalf of the other lenders. Each lender in a Senior Loan is generally responsible for performing its own credit analysis and its own investigation of the financial condition of the borrower. Generally, loan agreements will hold the agent liable for any action taken or omitted that amounts to gross negligence or willful misconduct. In the event of a borrowers default on a loan, the loan agreements provide that the lenders do not have recourse against the Trust for its activities as agent. Instead, lenders will be required to look to the borrower for recourse.
In a typical interest in a Senior Loan, the agent administers the loan and has the right to monitor the collateral. The agent is also required to segregate the principal and interest payments received from the borrower and to hold these payments for the benefit of the lenders. The Trust normally looks to the agent to collect and distribute principal of and interest on a Senior Loan. Furthermore, the Trust looks to the agent to use normal credit remedies, such as to foreclose on collateral, monitor credit loan covenants, and notify the lenders of any adverse changes in the borrowers financial condition or declarations of insolvency. At times the Trust may also negotiate with the agent regarding the agents exercise of credit remedies under a Senior Loan. The agent is compensated for these services by the borrower as set forth in the loan agreement. Such compensation may take the form of a fee or other amount paid upon the making of the Senior Loan and/or an ongoing fee or other amount.
The loan agreements in connection with Senior Loans set forth the standard of care to be exercised by the agents on behalf of the lenders and usually provide for the termination of the agents agency status in the event that it fails to act properly, becomes insolvent, enters Federal Deposit Insurance Corporation (FDIC) receivership, or if not FDIC insured, enters into bankruptcy or if the agent resigns. In the event an agent is unable to perform its obligations as agent, another lender would generally serve in that capacity.
Other Investment Companies
An investment company is a company engaged in the business of pooling investors money and trading in securities for them. Examples include face-amount certificate companies, unit investment trusts and management companies. When the Trust invests in other investment companies, shareholders of the Trust bear their proportionate share of the underlying investment companies fees and expenses.
The Trust may invest in other investment companies to the extent permitted under the 1940 Act and the rules, regulations, and exemptive orders thereunder. For so long as shares of the Trust are purchased by another fund in reliance on Section 12(d)(1)(G) of the 1940 Act, the Trust will not purchase securities of a registered open-end investment company or registered unit investment trust in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of the 1940 Act.
There are some potential disadvantages associated with investing in other investment companies. In addition to the advisory and operational fees, the Trust bears directly in connection with its own operation, the Trust would also bear its pro-rata portions of each other investment companys advisory and operational expenses. When the Trust invests in other investment companies, you indirectly pay a proportionate share of the expenses of that other investment company (including management fees, administration fees, and custodial fees) in addition to the expenses of the Trust.
Additional Information on Senior Loans
Senior Loans are direct obligations of corporations or other business entities and are arranged by banks or other commercial lending institutions and made generally to finance internal growth, mergers, acquisitions, stock repurchases, and leveraged buyouts. Senior Loans usually include restrictive covenants which must be maintained by the borrower. Such covenants, in addition to the timely payment of interest and principal, may
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include mandatory prepayment provisions arising from free cash flow and restrictions on dividend payments, and usually state that a borrower must maintain specific minimum financial ratios as well as establishing limits on total debt. A breach of covenant, which is not waived by the agent, is normally an event of acceleration, i.e. , the agent has the right to call the outstanding Senior Loan. In addition, loan covenants may include mandatory prepayment provisions stemming from free cash flow. Free cash flow is cash that is in excess of capital expenditures plus debt service requirements of principal and interest. The free cash flow shall be applied to prepay the Senior Loan in an order of maturity described in the loan documents. Under certain interests in Senior Loans, the Trust may have an obligation to make additional loans upon demand by the borrower. The Trust intends to ensure its ability to satisfy such demands by segregating sufficient assets in high-quality, short-term liquid investments or by sufficiently maintaining unused borrowing capacity.
The Trust believes that the principal credit risk associated with acquiring loans from another lender is the credit risk associated with the borrower of the underlying loan. The Trust may incur additional credit risk; however, when the Trust acquires a participation in a loan from another lender because the Trust must assume the risk of insolvency or bankruptcy of the other lender from which the loan was acquired. However, in acquiring loans, the Trust conducts an analysis and evaluation of the financial condition of each such lender. In this regard, if the lenders have a long-term debt rating, the long-term debt of all such participants is rated BBB or better by Standard & Poors Ratings Services (S&P) or Baa or better by Moodys Investors Services, Inc. (Moodys), or has received a comparable rating by another nationally recognized rating service. In the absence of rated long-term debt, the lenders or, with respect to a bank, the holding company of such lenders have commercial paper outstanding which is rated at least A-1 by S&P or P-1 by Moodys. In the absence of such rated long-term debt or rated commercial paper, the Trust may acquire participations in loans from lenders whose long-term debt and commercial paper is of comparable quality to the foregoing rating standards as determined by the Adviser under the supervision of the Trustees. The Trust also diversifies its portfolio with respect to lenders from which the Trust acquires loans. (See, Investment Restrictions.)
Senior Loans, unlike certain bonds, usually do not have call protection. This means that investments comprising the Trusts portfolio, while having a stated one to ten-year term, may be prepaid, often without penalty. The Trust generally holds Senior Loans to maturity unless it becomes necessary to sell them to adjust the Trusts portfolio in accordance with the Advisers or Sub-Advisers view of current or expected economic or specific industry or borrower conditions.
Senior Loans frequently require full or partial prepayment of a loan when there are asset sales or a securities issuance. Prepayments on Senior Loans may also be made by the borrower at its election. The rate of such prepayments may be affected by, among other things, general business and economic conditions, as well as the financial status of the borrower. Prepayment would cause the actual duration of a Senior Loan to be shorter than its stated maturity. Prepayment may be deferred by the Trust. This should, however, allow the Trust to reinvest in a new loan and recognize as income any unamortized loan fees. In many cases this will result in a new facility fee payable to the Trust.
Because interest rates paid on these Senior Loans fluctuate periodically with the market, it is expected that the prepayment and a subsequent purchase of a new Senior Loan by the Trust will not have a material adverse impact on the yield of the portfolio. (See, Portfolio Transactions.)
Under a Senior Loan, the borrower generally must pledge as collateral, assets which may include one or more of the following: cash, accounts receivable, inventory, property, plant and equipment, both common and preferred stocks in its subsidiaries, trademarks, copyrights, patent rights, and franchise value. The Trust may also receive guarantees as a form of collateral. In some instances, a Senior Loan may be secured only by stocks in a borrower or its affiliates. However, there is no assurance that the liquidation of the existing collateral would satisfy the borrowers obligation in the event of nonpayment of scheduled interest or principal, or that such collateral could be readily liquidated.
11
Loan Participation and Assignments
The Trusts investment in loan participations typically will result in the Trust having a contractual relationship only with the lender and not with the borrower. The Trust will have the right to receive payments of principal, interest, and any fees to which it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing participation, the Trust generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any right of set-off against the borrower, and the Trust may not directly benefit from any collateral supporting the loan in which it has purchased the participation. As a result, the Trust may be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, the Trust may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.
When the Trust purchases a loan assignment from lenders, it will acquire direct rights against the borrowers on the loan. Because assignments are arranged through private negotiations between potential assignees and potential assignors; however, the rights and obligations acquired by the Trust as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. Because there is no liquid market for such securities, the Trust anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such securities and the Trusts ability to dispose of particular assignments or participation when necessary to meet redemption of Trust shares, to meet the Trusts liquidity needs or when necessary in response to a specific economic event, such as deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for assignments and participation also may make it more difficult for the Trust to value these securities for purposes of calculating its NAV.
The Trust may be required to pay and receive various fees and commissions in the process of purchasing, selling and holding loans. The fee component may include any, or a combination of, the following elements: arrangement fees, assignment fees, non-use fees, facility fees, letter of credit fees, and ticking fees. Arrangement fees are paid at the commencement of a loan as compensation for the initiation of the transaction. A non-use fee is paid based upon the amount committed but not used under the loan. Facility fees are on-going annual fees paid in connection with a loan. Letter of credit fees are paid if a loan involves a letter of credit. Ticking fees are paid from the initial commitment indication until loan closing if for an extended period. The amount of fees is negotiated at the time of transaction.
Other Investments
Assets not invested in Senior Loans will generally consist of other instruments, including loans to borrowers organized or located in countries outside the United States and outside U.S. territories and possessions or Canada; unsecured floating rate loans, notes and other debt instruments; floating rate subordinated loans (up to a maximum of 5% of the Trusts total assets); tranches of floating rate asset-backed securities, including structured notes, short-term debt securities, with remaining maturities of 120 days or less (which may have yields tied to the Prime Rate, commercial paper rates, the federal funds rate or LIBOR); and equity securities acquired in connection with investments in loans. Short-term debt instruments may include: (i) commercial paper rated A-1 by S&P or P-1 by Moodys, or of comparable quality as determined by the Adviser or Sub-Adviser; (ii) certificates of deposit, bankers acceptances, and other bank deposits and obligations; and (iii) securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. Under normal circumstances, the Trust may invest in cash and/or short-term instruments. During periods when, in the judgment of the Adviser or Sub-Adviser, a temporary defensive posture in the market is appropriate, the Trust may hold up to 100% of its assets in cash and/or in short-term debt instruments.
Repurchase Agreements
The Trust has the ability, pursuant to its investment objective and policies, to enter into repurchase agreements.
12
A repurchase agreement is a contract under which the Trust may sell and simultaneously obtain the commitment of the purchaser to sell the security back to the Trust at an agreed upon price on an agreed upon date. Repurchase agreements will be considered borrowings by the Trust and as such, are subject to the restrictions on borrowing. Borrowings by the Trust create an opportunity for greater total return but at the same time increase exposure to capital risk. The Trust will maintain in a segregated account with its custodian cash or liquid high grade portfolio securities in an amount sufficient to cover its obligations with respect to the repurchase agreements. The Trust will receive payment for such securities only upon physical delivery or evidence of book entry transfer by its custodian. Regulations of the SEC require either that securities sold by the Trust under a repurchase agreement be segregated pending repurchase or that the proceeds be segregated on the Trusts books and records pending repurchase. Repurchase agreements may involve certain risks in the event of default or insolvency of the other party, including possible loss from delays or restrictions upon the Trusts ability to dispose of the underlying securities.
Reverse Repurchase Agreements
The Trust has the ability, pursuant to its investment objective and policies, to enter into repurchase agreements if the asset which is the subject of the repurchase is a loan. Such agreements may be considered to be loans by the Trust for purposes of the 1940 Act. Each reverse repurchase agreement must be collateralized fully, in accordance with the provisions of Rule 5b-3 under the 1940 Act, at all times. Pursuant to such reverse repurchase agreements, the Trust acquires securities from financial institutions such as brokers, dealers, and banks, subject to the sellers agreement to repurchase and the Trusts agreement to resell such securities at a mutually agreed upon date and price. The term of such an agreement is generally quite short, possibly overnight or for a few days, although it may extend over a number of months (up to one year) from the date of delivery. The repurchase price generally equals the price paid by the Trust plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on the underlying portfolio security). The securities underlying a reverse repurchase agreement will be marked-to-market every business day so that the value of the collateral is at least equal to the value of the loan, including the accrued interest thereon, and the Adviser or Sub-Adviser will monitor the value of the collateral. Securities subject to reverse repurchase agreements will be held by the custodian or in the Federal Reserve/Treasury Book-Entry System. If the seller defaults on its repurchase obligation, the Trust will suffer a loss to the extent that the proceeds from a sale of the underlying securities are less than the repurchase price under the agreement. Bankruptcy or insolvency of such a defaulting seller may cause the Trusts rights with respect to such securities to be delayed or limited. To mitigate this risk, the Trust only enters into reverse repurchase agreements with highly-rated, large financial institutions. The Trust may only enter into reverse repurchase agreements that qualify for an exclusion from any automatic stay of creditors rights against the counterparty under applicable insolvency law in the event of the counterpartys insolvency.
13
Information Regarding Individual Board Members of the Trust
The Trust is governed by its Board of Trustees
(Board). Set forth in the table below is information regarding each Trustee of the Trust.
Name, Address and Age
Position(s) Held With Trust
Term of Office and Length of Time Served
(1)
Principal Occupation(s)
During the Past 5 Years
Number of Funds in Fund Complex Overseen by Trustee
(2)
Other Board Positions Held by Trustee
Independent Trustees
Colleen D. Baldwin
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Age: 51
Trustee
October 2007Present
President, Glantuam Partners, LLC, a business consulting firm (January 2009
Present) and Consultant (January 2005 Present).
[ ]
None.
John V. Boyer
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Age: 57
Trustee
January 2005 Present
President and Chief Executive Officer, Bechtler Arts Foundation, an arts and
education foundation (January 2008 Present). Formerly, Consultant (July 2007 February 2008) and President and Chief
Executive Officer, Franklin and Eleanor Roosevelt Institute, a public policy foundation (March 2006 July 2007).
[ ]
None.
Patricia W. Chadwick
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Age: 62
Trustee
January 2006 Present
Consultant and President, Ravengate Partners LLC, a consulting firm that provides
advice regarding financial markets and the global economy (January 2000 Present).
[ ]
Wisconsin Energy Corp. (June 2006 Present) and The Royce Fund (December
2009 Present).
Peter S. Drotch
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Age: 69
Trustee
October 2007 Present
Retired. Formerly, Partner, PriceWaterhouseCoopers LLP, an accounting firm
(until July 2000).
[ ]
First Marblehead Corporation (September 2003 Present).
J. Michael Earley
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Age: 66
Trustee
February 2002 Present
Retired. Formerly, Banking President and Chief Executive Officer, Bankers
Trust Company, N.A., Des Moines (June 1992 December 2008).
[ ]
None.
Patrick W. Kenny
7337 East Doubletree Ranch Road, Suite 100
Scottsdale, Arizona 85258
Age: 68
Trustee
January 2005 Present
Retired. Formerly, President and Chief Executive Officer, International
Insurance Society (June 2001 June 2009).
[ ]
Assured Guaranty Ltd. (April 2004 Present).
14
Name, Address and Age |
Position(s) Held With Trust |
Term of Office and Length of Time Served (1) |
Principal Occupation(s) During the Past 5 Years |
Number of Funds in Fund Complex Overseen by Trustee (2) |
Other Board Positions Held by Trustee |
||
Sheryl K. Pressler 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 60 |
Trustee |
January 2006 Present |
Consultant (May 2001 Present). |
[ ] |
Stillwater Mining Company (May 2002 Present). |
||
Roger B. Vincent 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 65 |
Chairman and Trustee |
February 2002 Present |
President, Springwell Corporation, a corporate finance firm (March 1989 Present). |
[ ] |
UGI Corporation (February 2006 Present) and UGI Utilities, Inc. (February 2006 Present). |
||
Trustees who are Interested Persons |
|
|
|
||||
Robert W. Crispin (3) 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 64 |
Trustee |
October 2007 Present |
Retired. Formerly, Chairman and Chief Executive Officer, ING Investment Management Co. (July 2001 December 2007). |
[ ] |
Intact Financial Corp. (December 2004 Present) and PFM Group (November 2010 Present). |
||
Shaun P. Mathews (3) 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 55 |
Trustee |
June 2006 Present |
President and Chief Executive Officer, ING Investments, LLC (4) (November 2006 Present). Formerly, Head of ING Mutual Funds and Investment Products (November 2004 November 2006). |
[ ] |
ING Capital Corporation, LLC (December 2005 Present). |
(1)
Trustees are considered for election by shareholders on an annual basis and serve until their successors are duly elected and qualified. The tenure of each Trustee is subject to the Boards retirement policy, which states that each duly elected or appointed Trustee who is not an interested person of the Fund, as defined in the Investment Company Act of 1940, as amended (1940 Act) (Independent Trustees), shall retire from service as a Trustee at the conclusion of the first regularly scheduled meeting of the Board that is held after the Trustee reaches the age of 72. A unanimous vote of the Board may extend the retirement date of a Trustee for up to one year. An extension may be permitted if the retirement would trigger a requirement to hold a meeting of shareholders of the Fund under applicable law, whether for purposes of appointing a successor to the Trustee or if otherwise necessary under applicable law, in which case the extension would apply until such time as the shareholder meeting can be held or is no longer needed.
(2)
For the purposes of this table (except for Mr. Mathews), Fund Complex means the following investment companies: ING Asia Pacific High Dividend Equity Income Fund; ING Emerging Markets High Dividend Equity Fund; ING Emerging Markets Local Bond Fund; ING Equity Trust; ING Funds Trust; ING Global Advantage and Premium Opportunity Fund; ING Global Equity Dividend and Premium Opportunity Fund; ING Infrastructure, Industrials and Materials Fund; ING International High Dividend Equity Income Fund; ING Investors Trust; ING Mayflower Trust; ING Mutual Funds; ING Partners, Inc.; ING Prime Rate Trust; ING Risk Managed Natural Resources Fund; ING Senior Income Fund; ING Separate Portfolios Trust; ING Variable Insurance Trust and ING Variable Products Trust. For Mr. Mathews the Fund Complex also includes the following investment companies: ING Balanced Portfolio, Inc.; ING Intermediate Bond Portfolio; ING Money Market Portfolio; ING Series Fund, Inc.; ING Strategic Allocation Portfolios, Inc.; ING Variable Funds; and ING Variable Portfolios, Inc. The number of Funds in the Fund Complex is [ } as of May 31, 2011.
.
(3)
Messrs. Crispin and Mathews are deemed to be interested persons of the Trust as defined in the 1940 Act because of their current or prior relationship with ING Groep., N.V., the parent corporation of the Adviser, ING Investments, LLC, and the distributor, ING Investments Distributor, LLC.
(4)
ING Investments, LLC was previously named ING Pilgrim Investments, LLC. ING Pilgrim Investments, LLC is the successor in interest to ING Pilgrim Investments, Inc., which was previously known as Pilgrim Investments, Inc. and before that, was known as Pilgrim America Investments, Inc.
15
Information Regarding Officers of the Trust
Set forth in the table below is information regarding each Officer of the Trust:
16
Name, Address and Age |
Positions Held with the Trust |
Term of Office and Length of Time Served (1) |
Principal Occupation(s) During the Last Five Years |
||||
Elliot A. Rosen 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 58 |
Senior Vice President |
May 2002 Present |
Senior Vice President, ING Investment Management Co. (February 1999 Present). |
||||
Robert Terris 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 41 |
Senior Vice President |
May 2006 Present |
Senior Vice President, Head of Division Operations, ING Funds Services, LLC (3) (May 2006 Present). Formerly, Vice President of Administration, ING Funds Services, LLC (3) (October 2001 May 2006). |
||||
Maria M. Anderson 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 53 |
Vice President |
September 2004 Present |
Vice President, ING Funds Services, LLC (3) (September 2004 Present). |
||||
Lauren D. Bensinger 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 57 |
Vice President |
August 2003 Present |
Vice President, ING Investments, LLC (2) and ING Funds Services, LLC (3) (February 1996 Present); Director of Compliance, ING Investments, LLC (2) (October 2004 Present); and Vice President and Money Laundering Reporting Officer, ING Investments Distributor, LLC (5) (April 2010 Present). Formerly, Chief Compliance Officer, ING Investments Distributor, LLC (5) (August 1995 April 2010). |
||||
William Evans 10 State House Square Hartford, Connecticut 06103 Age: 39 |
Senior Vice President |
September 2007 Present |
Senior Vice President (March 2010 Present) and Head of Manager Research and Selection Group (April 2007 Present). Formerly, Vice President, U.S. Mutual Funds and Investment Products (May 2005 April 2007). |
||||
Robyn L. Ichilov 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 43 |
Vice President |
November 1997 Present |
Vice President and Treasurer, ING Funds Services, LLC (3) (November 1995 Present) and ING Investments, LLC (2) (August 1997 Present). |
||||
Denise Lewis 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 47 |
Vice President |
January 2007 Present |
Vice President, ING Funds Services, LLC (3) (December 2006 Present). Formerly, Senior Vice President, UMB Investment Services Group, LLC (November 2003 December 2006). |
||||
Kimberly K. Springer 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 54 |
Vice President |
March 2006 Present |
Vice President, ING Investment Management ING Funds (March 2010 Present); Vice President, ING Funds Services, LLC (3) (March 2006 Present) and Managing Paralegal, Registration Statements (June 2003 Present). |
17
Name, Address and Age |
Positions Held with the Trust |
Term of Office and Length of Time Served (1) |
Principal Occupation(s) During the Last Five Years |
||||
Craig Wheeler 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 42 |
Assistant Vice President |
May 2008 - Present |
Assistant Vice President Director of Tax, ING Funds Services, LLC (3) (March 2008 Present). Formerly, Tax Manager, ING Funds Services, LLC (3) (March 2005 March 2008). |
||||
Huey P. Falgout, Jr. 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 47 |
Secretary |
August 2003 Present |
Senior Vice President and Chief Counsel, ING Investment Management ING Funds (March 2010 Present). Formerly, Chief Counsel, ING Americas, U.S. Legal Services (October 2003 March 2010). |
||||
Paul Caldarelli 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 59 |
Assistant Secretary |
June 2010 Present |
Vice President and Senior Counsel, ING Investment Management ING Funds (March 2010 Present). Formerly, Senior Counsel, ING Americas, U.S. Legal Services (April 2008 March 2010) and Counsel, ING Americas, U.S. Legal Services (May 2005 April 2008). |
||||
Theresa K. Kelety 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 48 |
Assistant Secretary |
August 2003 Present |
Vice President and Senior Counsel, ING Investment Management ING Funds (March 2010 Present). Formerly, Senior Counsel, ING Americas, U.S. Legal Services (April 2008 March 2010) and Counsel, ING Americas, U.S. Legal Services (April 2003 April 2008). |
||||
Kathleen Nichols 7337 East Doubletree Ranch Road, Suite 100 Scottsdale, Arizona 85258 Age: 35 |
Assistant Secretary |
May 2008 - Present |
Vice President and Counsel, ING Investment Management ING Funds (March 2010 Present). Formerly, Counsel, ING Americas, U.S. Legal Services (February 2008 March 2010) and Associate, Ropes & Gray LLP (September 2005 February 2008). |
(1)
The Officers hold office until the next annual meeting of the Trustees and until their successors shall have been elected and qualified.
(2)
ING Investments, LLC was previously named ING Pilgrim Investments, LLC. ING Pilgrim Investments, LLC is the successor in interest to ING Pilgrim Investments, Inc., which was previously known as Pilgrim Investments, Inc. and before that, was known as Pilgrim America Investments, Inc.
(3)
ING Funds Services, LLC was previously named ING Pilgrim Group, LLC. ING Pilgrim Group, LLC is the successor in interest to ING Pilgrim Group, Inc., which was previously known as Pilgrim Group, Inc. and before that was known as Pilgrim America Group, Inc.
(4)
Directed Services LLC is the successor in interest to Directed Services, Inc.
(5)
ING Investments Distributor, LLC was previously named ING Funds Distributor, LLC. ING Funds Distributor, LLC is the successor in interest to ING Funds Distributor, Inc., which was previously known as ING Pilgrim Securities, Inc., and before that, was known as Pilgrim Securities, Inc., and before that was known as Pilgrim America Securities, Inc.
18
The Board of Trustees
The Trust is governed by the Trusts Board, which oversees the Trusts business and affairs. The Board delegates the day-to-day management of the Trust to the Trusts officers and to various service providers that have been contractually retained to provide such day-to-day services. The ING entities that render services to the Trust do so pursuant to contracts that have been approved by the Board. The Trustees are experienced executives who, among other duties, oversee the Trusts activities, review contractual arrangements with companies that provide services to the Trust, and review the Trusts investment performance.
The Board Leadership Structure and Related Matters
The Board is currently comprised of ten members, eight of whom are independent or disinterested persons, which means that they are not interested persons of the Trust as defined in Section 2(a)(19) of the 1940 Act (Independent Trustees). The Trust is one of [ ] registered investment companies (with a total of approximately [ ] separate series) and all of the Trustees serve as members of, as applicable, each investment companys Board of Trustees or Board of Directors. The Board employs substantially the same leadership structure with respect to each of these investment companies.
One of the Independent Trustees, currently Roger B. Vincent, serves as the Chairman of the Board of the Trust. The responsibilities of the Board Chairman include: coordinating with management in the preparation of agendas for Board meetings; presiding at Board meetings; between Board meetings, serving as a primary liaison with other Trustees, officers of the Trust, management personnel and legal counsel to the Independent Trustees; and such other duties as the Board periodically may determine. Mr. Vincent holds no position with any firm that is a sponsor of the Trust.
The Board performs many of its oversight and other activities through the committee structure described below in the Board Committees section. Each Committee operates pursuant to a written Charter approved by the Board. The Board currently conducts regular meetings eight (8) times a year. Six of these regular meetings consist of sessions held over a two-day period and two of these meetings consist of a one-day session. In addition, during the course of a year, the Board and many of its Committees typically hold special meetings by telephone or in person to discuss specific matters that require action prior to their next regular meetings.
The Board believes that its leadership structure is an effective means of empowering the Trustees to perform their fiduciary and other duties. For example, the Boards committee structure faciliates, as appropriate, the ability of individual Board members to receive detailed presentations on topics under their review and to develop increased familiarity with respect to such topics and with key personnel at relevant service providers. At least annually, with guidance from its Nominating and Governance Committee, the Board analyzes whether there are potential means to enhance the efficiency and effectiveness of the Boards operations.
Board Committees
Audit Committee. The Board has established an Audit Committee whose functions include, among other things, meeting with the independent registered public accounting firm of the Trust to review the scope of the Trusts audit, the Trusts financial statements and accounting controls, and meeting with management concerning these matters, internal audit activities and other matters. The Audit Committee currently consists of four (4) Independent Trustees. The following Trustees currently serve as members of the Audit Committee: Mses. Chadwick and Pressler, and Messrs. Drotch and Earley. Mr. Earley currently serves as Chairperson of the Audit Committee. Messrs. Drotch and Earley have each been designated as an Audit Committee Financial Experts under the Sarbanes-Oxley Act. The Audit Committee, which currently meets regularly four (4) times per year, held five (5) meetings during the fiscal year ended February 28, 2011.
Compliance Committee. The Board has established a Compliance Committee for the purpose of, among other things: (1) coordinating activities between the Board and the Chief Compliance Officer (CCO) of the Trust;
19
(2) facilitating information flow among Board members and the CCO between Board meetings; (3) working with the CCO and management to identify the types of reports to be submitted by the CCO to the Compliance Committee and the Board; (4) coordinating CCO oversight activities with other ING Funds boards; (5) making recommendations regarding the role, performance, and oversight of the CCO; (6) overseeing the implementation of the Trusts valuation procedures and the fair value determinations made with respect to securities held by the Trust for which market value quotations are not readily available; (7) overseeing managements administration of proxy voting; and (8) overseeing the effectiveness of brokerage usage by the Trusts Adviser or Sub-Adviser, as applicable, and compliance with regulations regarding the allocation of brokerage for services. The Compliance Committee currently consists of four (4) Independent Trustees: Messrs. Boyer, Kenny, and Vincent, and Ms. Baldwin. Mr. Kenny currently serves as Chairperson of the Compliance Committee. The Compliance Committee, which currently meets regularly four (4) times per year, held four (4) meetings during the fiscal year ended February 28, 2011.
Contracts Committee. The Board has established a Contracts Committee for the purpose of overseeing the annual renewal process relating to investment advisory and sub-advisory agreements and, at the discretion of the Board, other agreements or plans involving the Trust. The responsibilities of the Contracts Committee, among other things, include: (1) identifying the scope and format of information to be provided by service providers in connection with applicable contract approvals or renewals; (2) providing guidance to independent legal counsel regarding specific information requests to be made by such counsel on behalf of the Trustees; (3) evaluating regulatory and other developments that might have an impact on applicable approval and renewal processes; (4) reporting to the Trustees its recommendations and decisions regarding the foregoing matters; (5) assisting in the preparation of a written record of the factors considered by Trustees relating to the approval and renewal of advisory and sub-advisory agreements; (6) recommending to the Board specific steps to be taken by it regarding the contracts approval and renewal process, including, for example, proposed schedules of meetings by the Trustees; and (7) otherwise providing assistance in connection with Board decisions to renew, reject or modify agreements or plans. The Contracts Committee currently consists of five (5) Independent Trustees: Mses. Chadwick and Pressler, and Messrs. Boyer, Drotch, and Vincent. Ms. Pressler currently serves as Chairperson of the Contracts Committee. The Contracts Committee, which currently meets regularly seven (7) times per year, held ten (10) meetings during the fiscal year ended February 28, 2011.
Executive Committee . The Board has established an Executive Committee whose function is to act on behalf of the full Board between meetings when necessary. The Executive Committee currently consists of three (3) Independent Trustees and two (2) Trustees who are interested persons, as defined in the 1940 Act. The following Trustees currently serve as members of the Executive Committee: Ms. Pressler and Messrs. Boyer, Crispin, Mathews, and Vincent. Mr. Vincent, Chairman of the Board, currently serves as Chairperson of the Executive Committee. The Executive Committee, which meets on an as needed basis, held no meetings during the fiscal year ended February 28, 2011.
Investment Review Committees . The Board has established two Investment Review Committees to, among other things, monitor the investment performance of the Trust and make recommendations to the Board with respect to investment management activities performed by the Adviser and Sub-Adviser on behalf of the Trust, and to review and make recommendations regarding proposals by management to retain a new or additional sub-adviser for the Trust. The Investment Review Committee for the Domestic Equity Funds (the DE IRC) and the Investment Review Committee for the International/Balanced/Fixed-Income Funds (the IBF IRC) jointly monitor this Fund. Each committee is described below:
The DE IRC currently consists of four (4) Independent Trustees and one (1) Trustee who is an interested person, as defined in the 1940 Act. The following Trustees serve as members of the DE IRC: Ms. Chadwick, and Messrs. Crispin, Earley, Kenny, and Vincent. Ms. Chadwick currently serves as Chairperson of the DE IRC. The DE IRC, which currently meets regularly six (6) times per year, held eight (8) meetings during the fiscal year ended February 28, 2011.
20
The IBF IRC currently consists of four (4) Independent Trustees and one (1) Trustee who is an interested person, as defined in the 1940 Act. The following Trustees serve as members of the IBF IRC: Mses. Baldwin and Pressler, and Messrs. Boyer, Drotch, and Mathews. Mr. Boyer currently serves as Chairperson of the IBF IRC. The IBF IRC, which currently meets regularly six (6) times per year, held ten (10) meetings during the fiscal year ended February 28, 2011.
Nominating and Governance Committee. The Board has established a Nominating and Governance Committee for the purpose of, among other things: (1) identifying and recommending to the Board candidates it proposes for nomination to fill Independent Trustee vacancies on the Board; (2) reviewing workload and capabilities of Independent Trustees and recommending changes to the size or composition of the Board, as necessary; (3) monitoring regulatory developments and recommending modifications to the Committees responsibilities; (4) considering and, if appropriate, recommending the creation of additional committees or changes to Trustee policies and procedures based on rule changes and best practices in corporate governance; (5) conducting an annual review of the membership and chairpersons of all Board committees and of practices relating to such membership and chairpersons; (6) undertaking a periodic study of compensation paid to independent board members of investment companies and making recommendations for any compensation changes for the Independent Trustees; (7) overseeing the Boards annual self evaluation process; (8) developing (with assistance from management) an annual meeting calendar for the Board and its committees; and (9) overseeing actions to facilitate attendance by Independent Trustees at relevant educational seminars and similar programs.
In evaluating potential candidates to fill Independent Trustee vacancies on the Board, the Nominating and Governance Committee will consider a variety of factors, but it has not at this time set any specific minimum qualifications that must be met. Specific qualifications of candidates for Board membership will be based on the needs of the Board at the time of nomination. The Nominating and Governance Committee will consider nominations received from shareholders and shall assess shareholder nominees in the same manner as it reviews nominees that it identifies initially as potential candidates. A shareholder nominee for Trustee should be submitted in writing to the Trusts Secretary. Any such shareholder nomination should include, at least, the following information as to each individual proposed for nominations as Trustee: such persons written consent to be named in a proxy statement as a nominee (if nominated) and to serve as a Trustee (if elected), and all information relating to such individual that is required to be disclosed in the solicitation of proxies for election of Trustees, or is otherwise required, in each case under applicable federal securities laws, rules and regulations, including such information as the Board may reasonably deem necessary to satisfy its oversight and due diligence duties.
The Secretary shall submit all nominations received in a timely manner to the Nominating and Governance Committee. To be timely in connection with a shareholder meeting to elect Trustees, any such submission must be delivered to the Trusts Secretary not earlier than the 90 th day prior to such meeting and not later than the close of business on the later of the 60 th day prior to such meeting or the 10 th day following the day on which public announcement of the date of the meeting is first made, by either the disclosure in a press release or in a document publicly filed by the Trust with the SEC.
The Nominating and Governance Committee consists of four (4) Independent Trustees: Mses. Baldwin and Chadwick, and Messrs. Kenny and Vincent. Ms. Baldwin currently serves as Chairperson of the Nominating and Governance Committee. The Nominating and Governance Committee, which currently meets regularly four (4) times per year, held five (5) meetings during the fiscal year ended February 28, 2011.
The Boards Risk Oversight Role
The day-to-day management of various risks relating to the administration and operation of the Trust is the responsibility of management and other service providers retained by the Board or by management, most of whom employ professional personnel who have risk management responsibilities. The Board oversees this risk management function consistent with and as part of its oversight duties. The Board performs this risk
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management oversight function directly and, with respect to various matters, through its committees. The following description provides an overview of many, but not all, aspects of the Boards oversight of risk management for the Trust. In this connection, the Board has been advised that it is not practicable to identify all of the risks that may impact the Trust or to develop procedures or controls that are designed to eliminate all such risk exposures, and that applicable securities law regulations do not contemplate that all such risks be identified and addressed.
The Board, working with management personnel and other service providers, has endeavored to identify the primary risks that confront the Trust. In general, these risks include, among others, investment risks, credit risks, liquidity risks, valuation risks, operational risks, reputational risks, regulatory risks, risks related to potential legislative changes and the risk of conflicts of interest affecting ING affiliates in managing the Trust. The Board has adopted and periodically reviews various policies and procedures that are designed to address these and other risks confronting the Trust. In addition, many service providers to the Trust have adopted their own policies, procedures and controls designed to address particular risks to the Trust. The Board and persons retained to render advice and service to the Board periodically review and/or monitor changes to and developments relating to the effectiveness of these policies and procedures.
The Board oversees risk management activities in part through receipt and review by the Board or its committees of regular and special reports, presentations and other information from officers of the Trust, including the CCOs for the Trust and its Adviser and the Trusts Chief Investment Risk Officer (CIRO), and from other service providers. For example, management personnel and the other persons make regular reports and presentations to: (1) the Compliance Committee regarding compliance with regulatory requirements; (2) the Investment Review Committees regarding investment activities and strategies that may pose particular risks; (3) the Audit Committee with respect to financial reporting controls and internal audit activities; (4) the Nominating and Governance Committee regarding corporate governance and best practice developments; and (5) the Contracts Committee regarding regulatory and related developments that might impact the retention of service providers to the Trust. The CIRO oversees an Investment Risk Department (IRD) that provides an independent source of analysis and research for Board members in connection with their oversight of the investment process and performance of portfolio managers. Among its other duties, the IRD seeks to identify and, where practicable, measure the investment risks being taken by the Trusts portfolio managers. Although the IRD works closely with management of the Trust in performing its duties, the CIRO is directly accountable to and maintains an ongoing dialogue with the Independent Trustees.
Qualifications of the Trustees
The Board believes that each of the Trustees is qualified to serve as a Trustee of the Trust based on its review of the experience, qualifications, attributes and skills of each Trustee. The Board bases this conclusion on its consideration of various criteria, no one of which is controlling. Among others, the Board has considered the following factors with respect to each Trustee: strong character and high integrity; an ability to review, evaluate, analyze and discuss information provided; the ability to exercise effective business judgment in protecting shareholder interests while taking into account different points of views; a background in financial, investment, accounting, business, regulatory or other skills that would be relevant to the performance of a Trustees duties; the ability and willingness to commit the time necessary to perform his or her duties; and the ability to work in a collegial manner with other Board members. Each Trustees ability to perform his or her duties effectively is evidenced by his or her: experience in the investment management business; related consulting experience; other professional experience; experience serving on the boards of directors of other public companies; educational background and professional training; prior experience serving on the Board of Trustees of the Trust, as well as the boards of other investment companies in the ING Funds Complex and/or of other investment companies; and experience as attendees or participants in conferences and seminars that are focused on investment company matters and/or duties that are specific to board members of registered investment companies.
Information indicating certain of the specific experience and qualifications of each Trustee relevant to the
22
Boards belief that the Trustee should serve in this capacity is provided in the table above in the section entitled Information Regarding Individual Board Members of the Trust. That table includes, for each Trustee, positions held with the Trust, the length of such service, principal occupations during the past five years, the number of series within the ING Funds Complex for which the Trustee serves as a Board member and certain directorships held during the past five years. Set forth below are certain additional specific experiences, qualifications, attributes or skills that the Board believes support a conclusion that each Trustee should serve as a Board member in light of the Trusts business and structure.
Colleen D. Baldwin has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2007. She also has served as the Chairperson of the Boards Nominating and Governance Committee since 2009. Ms. Baldwin has been President of Glautaum Partners, LLC, a business consulting firm, since 2009. Prior to that, she served in senior positions at the following financial services firms: Chief Operating Officer for Ivy Asset Management, Inc. (2002-2004), a hedge fund manager; Chief Operating Officer and Head of Global Business and Product Development for AIG Global Investment Group (1995-2002), a global investment management firm; Senior Vice President at Bankers Trust Company (1994-1995); and Senior Managing Director at J.P. Morgan & Company (1987-1994). In addition to her undergraduate degree, Ms. Baldwin has an MBA degree from Pace University. These positions and experiences have provided Ms. Baldwin with a strong background in asset management matters and in the oversight of related service activities.
John V. Boyer has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2005. He also has served as Chairperson of the Trusts IBF IRC since 2006 and, prior to that, as Chairperson of the Trusts Compliance Committee. Since 2008, Mr. Boyer has been President of the Bechtler Arts Foundation for which, among his other duties, Mr. Boyer oversees all fiduciary aspects of the Foundation and assists in the oversight of the Foundations endowment portfolio. Previously, he served as President and Chief Executive Officer of the Franklin and Eleanor Roosevelt Institute (2006-2007) and as Executive Director of The Mark Twain House & Museum (1989-2006) where he was responsible for overseeing business operations, including endowment portfolios. He also served as a board member of certain predecessor mutual funds of the ING Fund Complex (1997-2005). In addition to his undergraduate degree, Mr. Boyer has an MFA degree from Princeton University. These positions and experiences have provided Mr. Boyer with a strong background in business management, asset management oversight and related service activities.
Patricia W. Chadwick has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2006. She also has served as Chairperson of the Trusts DE IRC since 2007. Since 2000, Ms. Chadwick has been the Founder and President of Ravengate Partners LLC, a consulting firm that provides advice regarding financial markets and the global economy. She also is a director of The Royce Fund (since 2009), Wisconsin Energy Corp. (since 2006) and AMICA Mutual Insurance Company (since 1992). Previously, she served in senior roles at several major financial services firms where her duties included the management of corporate pension funds, endowments and foundations, as well as management responsibilities for an asset management business. These positions and experiences have provided Ms. Chadwick with a strong background in asset management matters and in the oversight of related service providers.
Robert W. Crispin has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2007. He formerly served as Chairman and Chief Executive Officer of ING Investment Management Co. (2001-2007), an investment sub-adviser to many of the funds in the ING Fund Complex, and in other senior positions in financial service firms. These positions and experiences have provided Mr. Crispin with a strong background in investment management and distribution activities and related administrative oversight activities, as well as with extensive knowledge of many of the Trusts key service providers.
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Peter S. Drotch has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2007. Prior to his retirement in 2000, he was a partner at the accounting firm of PricewaterhouseCoopers LLP, where he was the leader of the firms asset management practice group and acquired extensive experience with respect to audits and other financial matters relating to registered investment companies. Since his retirement, he also has served on the boards of registered investment companies in other fund complexes (the State Street Research Funds and BlackRock Funds) from 2005 to 2007 and as a consultant with respect to investment company regulatory compliance matters. In addition to his undergraduate degree, Mr. Drotch is a Certified Public Accountant. These positions and experiences have provided Mr. Drotch with a strong background in financial reporting, compliance and internal control matters relating to registered investment companies.
J. Michael Earley has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2002. He also has served as Chairperson of the Trusts Audit Committee since 2003. Mr. Earley retired in 2008 as President and Chief Executive Officer of Bankers Trust Company, N.A. (Des Moines, Iowa), where he had worked since 1992. He also has served on the boards of directors of that company (1992-2009) and of Midamerica Financial Corporation (2002-2009), and as a board member of certain predecessor mutual funds of the ING Fund Complex (1997-2002). In addition to his undergraduate degree, Mr. Earley has a JD degree from the University of Iowa. These positions and experiences have provided Mr. Earley with a strong background in management matters relating to financial institutions and with respect to financial reporting and internal controls matters.
Patrick W. Kenny has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2005. He also has served as the Chairperson of the Trusts Compliance Committee since 2006. He previously served as President and Chief Executive Officer (2001-2009) of the International Insurance Society (insurance trade association), Executive Vice President (1998-2001) of Frontier Insurance Group (property and casualty insurance company), Senior Vice President (1995-1998) of SS&C Technologies (software and technology company), Chief Financial Officer (1988-1994) of Aetna Life & Casualty Company (multi-line insurance company), and as Partner (until 1988) of KPMG (accounting firm). Mr. Kenny currently serves (since 2004) on the board of directors of Assured Guaranty Ltd. (provider of financial guaranty insurance) and previously served on the boards of Odyssey Re Holdings Corporation (multi-line reinsurance company) (2006-2009) and of certain predecessor mutual funds of the ING Fund Complex (2002-2005). In addition to his undergraduate degree, Mr. Kenny has an MS degree from the University of Missouri and is a Certified Public Accountant. These positions and experiences have provided Mr. Kenny with a strong background in financial, accounting, insurance and management matters.
Shaun P. Mathews has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2007. He also is President and Chief Executive Officer of ING Investments, LLC (2006 to present). Mr. Mathews previously served as President of ING Mutual Funds and Investment Products (2004-2006) and several other senior management positions in various aspects of the financial services business. These positions and experiences have provided Mr. Mathews with extensive investment management, distribution and oversight experience, as well as with extensive direct knowledge of many of the Trusts key service providers.
Sheryl K. Pressler has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2006. She also has served as Chairperson of the Trusts Contracts Committee since 2007. Ms. Pressler has served as a consultant on financial matters since 2001. Previously, she held various senior positions involving financial services, including as Chief Executive Officer (2000-2001) of Lend Lease Real Estate Investments, Inc. (real estate investment management and mortgage servicing firm), Chief Investment Officer (1994-2000) of California Public Employees Retirement System (state pension fund), and Director of Retirement Funds Management (1981-1994) of McDonnell Douglas Corporation (aircraft manufacturer). In addition to her undergraduate degree, Ms. Pressler has an MBA degree from Washington University. These positions and experiences have provided Ms. Pressler with extensive experience in asset management and retirement service matters, as well as management oversight of such operations.
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Roger B. Vincent has been a Trustee of the Trust and a board member of other investment companies in the ING Fund Complex since 2002. He also has served as Chairman of the Board of Trustees since 2007 and he previously served as Chairperson of the Contracts Committee and the DE IRC. Mr. Vincent currently is President (since 1989) of Springwell Corporation (corporate finance firm) and a Director of UGI Corporation and UGI Utilities, Inc. (since 2006). He previously worked for 20 years at Bankers Trust Company. He also previously served as a Director of AmeriGas Partners, L.P. (1998-2006), Tatham Offshore, Inc. (1996-2000) and Petrolane, Inc. (1993-1995), and as a board member of certain predecessor funds of the ING Fund Complex (1994-2002). Mr. Vincent is a frequent speaker or panelist at mutual fund industry conferences and seminars. In addition to his undergraduate degree, Mr. Vincent has an MBA degree from Harvard University. These positions and experiences have provided Mr. Vincent with extensive experience in financial management and oversight matters.
Trustee Ownership of Securities
In order to further align the interests of the Independent Trustees with shareholders, it is the policy of the Board for Independent Trustees to own, beneficially, shares of one or more funds in the ING Fund Complex at all times (Ownership Policy). For this purpose, beneficial ownership of ING Fund shares includes, in addition to direct ownership of ING Fund shares, ownership of a variable annuity contract or a variable life insurance policy whose proceeds are invested in an ING Fund within the ING Fund Complex, as well as deferred compensation payments under the Boards deferred compensation arrangements pursuant to which the future value of such payments is based on the notional value of designated ING Funds within the ING Fund Complex.
Under this Ownership Policy, the initial value of investments in the ING Fund Complex that are beneficially owned by a Trustee must equal at least $100,000. Existing Trustees were provided with a reasonable amount of time, not to exceed three years, from the date upon which the minimum ownership requirement was set at $100,000 (in July 2007) in order to satisfy the foregoing requirements. The Ownership Policy provides that a new Trustee shall satisfy the foregoing requirements within a reasonable amount of time, not to exceed three years, after becoming a Trustee. A decline in the value of any ING Fund investments will not cause a Trustee to have to make any additional investments under this Ownership Policy. Currently, all Independent Trustees are in compliance with this ownership policy.
Investment in mutual funds of the ING Funds Complex by the Trustees pursuant to this Ownership Policy are subject to: (1) policies, applied by the mutual funds of the ING Funds Complex to other similar investors, that are designed to prevent inappropriate market timing trading practices; and (2) to any provisions of the ING Funds Code of Ethics that otherwise apply to the Trustees.
Set forth below is the dollar range of equity securities owned by each Trustee as of the calendar year ended December 31, 2010:
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(1)
Funds held in a 401k/Deferred Compensation Account.
Independent Trustee Ownership of Securities
Set forth in the table below is information regarding each Independent Trustees (and his or her immediate family members) share ownership in securities of the Trusts investment adviser or principal underwriter, and the ownership of securities in an entity controlling, controlled by or under common control with the investment adviser or principal underwriter of the Trust (not including registered investment companies) as of December 31, 2010.
Name of Trustee |
Name of Owners and Relationship to Trustee |
Company |
Title of Class |
Value of Securities |
Percentage of Class |
Colleen D. Baldwin |
N/A |
N/A |
N/A |
$0 |
N/A |
John V. Boyer |
N/A |
N/A |
N/A |
$0 |
N/A |
Patricia W. Chadwick |
N/A |
N/A |
N/A |
$0 |
N/A |
Peter S. Drotch |
N/A |
N/A |
N/A |
$0 |
N/A |
J. Michael Earley |
N/A |
N/A |
N/A |
$0 |
N/A |
Patrick W. Kenny |
N/A |
N/A |
N/A |
$0 |
N/A |
Sheryl K. Pressler |
N/A |
N/A |
N/A |
$0 |
N/A |
Roger B. Vincent |
N/A |
N/A |
N/A |
$0 |
N/A |
Compensation of Trustees
Each Trustee is reimbursed for reasonable expenses incurred in connection with each meeting of the Board or any of its Committee meetings attended. Each Independent Trustee is compensated for his or her services, on a quarterly basis, according to a fee schedule adopted by the Board. The current fee schedule consists of an annual retainer, compensation for Board and Committee Chairpersons, and additional compensation for attendance at regularly scheduled meetings. The Board may from time to time designate other meetings as subject to compensation.
Effective January 1, 2010, the Trust pays each Trustee who is not an interested person of the Trust a pro rata share, as described below, of: (i) an annual retainer of $200,000; (ii) Mr. Vincent, as Chairman of the Board, receives an additional annual retainer of $80,000; (iii) Mses. Baldwin, Chadwick and Pressler and Messrs. Earley, Boyer and Kenny, as Chairpersons of Committees of the Board, each receive an additional annual retainer of $25,000, $30,000, $65,000, $25,000, $30,000 and $25,000, respectively; (iv) $8,000 per attendance at any of the regularly scheduled meetings (four (4) quarterly meetings, two (2) auxiliary meetings, and two (2) annual contract review meetings; and (v) out-of-pocket expenses. The Board at its discretion may from time to time designate other special meetings as subject to an attendance fee in the amount of $4,000. The pro rata share paid by the Trust is based on the Trusts average net assets as a percentage of the average net assets of all the funds managed by the Adviser or its affiliate, Directed Services LLC for which the Trustees serve in common as Trustees.
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Future Compensation Payment
Each non-interested Director who was a Director on or before May 9, 2007, and who will have served as a non-interested Director for five or more years for one or more ING Funds is entitled to a future payment (Future Payment), if such Director: (a) retires in accordance with the Boards retirement policy; (b) dies; or (c) becomes disabled. The Future Payment shall be made promptly to, as applicable, the Director or the Directors estate, in an amount equal to two times the annual compensation payable to such Director, as in effect at the time of his or her retirement, death or disability if the Director had served as Director for at least five years as of May 9, 2007, or in a lesser amount calculated based on the proportion of time served by such Director (as compared to five years) as of May 9, 2007. The annual compensation determination shall be based upon the annual Board membership retainer fee in effect at the time of that Trustees retirement, death or disability (but not any separate annual retainer fees for chairpersons of committees and of the Board), provided that the annual compensation used for this purpose shall not exceed the annual retainer fees as of May 9, 2007. This amount shall be paid by the ING Fund or ING Funds on whose Board the Director was serving at the time of his or her retirement, death or disability. Each applicable Director may elect to receive payment of his or her benefit in a lump sum or in three substantially equal payments.
The following table sets forth information provided by the Trusts Adviser regarding compensation of the Trustees by the Trust and other funds managed by the Adviser and its affiliates for the fiscal year ended February 28, 2011. Trustees and Officers of the Trust who are also directors, officers or employees of ING and its affiliates do not receive any compensation from the Trust or any other funds managed by the Adviser or its affiliates.
Compensation Table
Name of Trustee |
Aggregate Compensation from the Trust |
Total Compensation from the Trust and Fund Complex Paid to Trustees (1)(2) |
Colleen D. Baldwin (3) |
$[] |
$[ ] (4) |
John V. Boyer |
$[ ] |
$[ ] |
Patricia W. Chadwick |
$[ ] |
$[ ] |
Robert W. Crispin (5) |
N/A |
N/A |
Peter S. Drotch |
$[ ] |
$[ ] |
J. Michael Earley |
$[ ] |
$[ ] |
Patrick W. Kenny (3) |
$[ ] |
$[ ] |
Shaun P. Mathews (5) |
N/A |
N/A |
Sheryl K. Pressler |
$[ ] |
$[ ] |
Roger B. Vincent (3) |
$[ ] |
$[ ] |
(1)
Trustee compensation includes compensation paid by funds that are not discussed in the Prospectuses or SAI.
(2)
Represents compensation from 133 funds (total in complex as of February 28, 2011).
(3)
For the fiscal year ended February 28, 2011, Ms. Baldwin, Mr. Kenny, and Mr. Vincent deferred $[ ], $[ ], and $[ ] respectively, of their compensation from the Fund Complex.
(4)
December 2009 includes a one-time payment for Nominating & Governance Chair services in the amount of $25,000.
(5)
Mr. Crispin and Mr. Mathews are Interested Persons, as defined by the 1940 Act, because of their affiliation with ING Groep N.V., the parent corporation of the Adviser, ING Investments, LLC and the Distributor, ING Investments Distributor, LLC. Officers and Trustees who are interested persons do not receive any compensation from the Trust.
The Distributor, the Adviser, the Sub-Adviser and the Trust have each adopted a code of ethics (Code of Ethics or written supervisory procedures) governing personal trading activities of all Trustees, officers of the Trust and the Distributor and persons who, in connection with their regular functions, play a role in the recommendation of any purchase or sale of a security by the Trust or obtain information pertaining to such purchase or sale. The Code of Ethics is intended to prohibit fraud against the Trust that may arise from personal trading of securities that may be purchased or held by the Trust or of Trust shares. The Code of Ethics also prohibits short-term trading of the Trust by persons subject to the Code of Ethics. Personal trading is permitted by such persons subject to certain restrictions; however such persons are generally required to pre-
27
clear all security transactions with the Trusts Compliance Department and to report all transactions on a regular basis. The Sub-Adviser has adopted its own Code of Ethics to govern the personal trading activities of its personnel.
The Code of Ethics can be reviewed and copied at the SECs Public Reference Room located at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. The Code of Ethics is available on the SECs website (www.sec.gov) and copies may also be obtained at prescribed rates by electronic request at publicinfo@sec.gov, or by writing the SECs Public Reference Section at the address listed above.
The Board has adopted proxy voting procedures and guidelines to govern the voting of proxies relating to the Trusts portfolio securities. The Trusts procedures delegate to ING Investments the authority to vote proxies relating to portfolio securities and provide a method for responding to potential conflicts of interest. In delegating voting authority to ING Investments, the Board has also approved ING Investments proxy voting procedures, which require ING Investments to vote proxies in accordance with the Trusts proxy voting procedures and guidelines. An independent proxy voting service has been retained to assist in the voting of Trust proxies through the provision of vote analysis, implementation and recordkeeping and disclosure services. In addition, the Compliance Committee oversees the implementation of the Trusts proxy voting procedures. A copy of the proxy voting procedures and guidelines of the Trust, including the proxy voting procedures of ING Investments, is attached hereto as Appendix A. Information regarding how the Trust voted proxies relating to portfolio securities for the one-year period ending June 30 th is available no later than August 31 st of each year through the ING Funds website (www.ingfunds.com) or by accessing the SECs EDGAR database (www.sec.gov).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Control is defined by the 1940 Act as the beneficial ownership, either directly or through one or more controlled companies, of more than 25% of the voting securities of a company. A control person may be able to take action regarding the Trust without the consent or approval of other shareholders. As of June [ ], 2011 no person owned beneficially, or of record, more than 25% of the Trust.
As of June [ ], 2011, the Trustees and Officers of the Trust as a group owned beneficially less than 1% of the Trusts Common Shares.
As of June [ ], 2011, the Trustees and Officers of the Trust as a group owned beneficially less than 1% of the Trusts Preferred Shares.
As of June [ ], 2011, no person to the knowledge of the Trust, owned beneficially or of record more than 5% of the outstanding Common Shares or Preferred Shares of the Trust except as set forth below:
Name and Address |
Class and Type of Ownership |
Percentage of Class |
Percentage of Trust |
|
|
|
|
|
|
|
|
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INVESTMENT MANAGEMENT AND OTHER SERVICE PROVIDERS
The investment adviser for the Trust is ING Investments, which is registered with the SEC as an investment adviser and serves as an investment adviser to registered investment companies (or series thereof), as well as structured finance vehicles. ING Investments, subject to the authority of the Board, has the overall responsibility for the management of the Trusts portfolio subject to delegation of certain responsibilities to ING IM. ING Investments and ING IM are indirect, wholly-owned subsidiaries of ING Groep N.V. (ING Groep) (NYSE: ING). ING Groep is a global financial institution of Dutch origin offering banking, investments, life insurance and retirement services to over 75 million private, corporate and institutional clients in more than 50 countries. With a diverse workforce of about 125,000 people, ING Groep comprises a broad spectrum of prominent companies that increasingly serve their clients under the ING brand.
ING Groep has adopted a formal restructuring plan that was approved by the European Commission in November 2009 under which the ING life insurance businesses, including the retirement services and investment management businesses, which include the Adviser and its immediate affiliates, would be divested by ING Groep by the end of 2013. To achieve this goal, ING Groep announced in November 2010 that it plans to pursue two separate initial public offerings: one a U.S. focused offering that would include U.S. based insurance, retirement services, and investment management operations; and the other a European based offering for European and Asian based insurance and investment management operations. There can be no assurance that the restructuring plan will be carried out through two offerings or at all.
The restructuring plan and the uncertainty about its implementation, whether implemented through the planned initial public offerings or through other means, in whole or in part, may be disruptive to the businesses of ING entities, including the ING entities that service the Trust, and may cause, among other things, interruption or reduction of business and services, diversion of managements attention from day-to-day operations, and loss of key employees or customers. A failure to complete the offerings or other means of implementation on favorable terms could have a material adverse impact on the operations of the businesses subject to the restructuring plan. The restructuring plan may result in the Advisers loss of access to services and resources of ING Groep, which could adversely affect their businesses and profitability. In addition, the divestment of ING businesses, including the Adviser, may potentially be deemed a change of control of the entity. A change of control would result in the termination of the Trusts advisory and sub-advisory agreements, which would trigger the necessity for new agreements that would require approval of the Trusts Board, and may trigger the need for shareholder approval. Currently, the Adviser does not anticipate that the restructuring will have a material adverse impact on the Trust or its operations and administration.
On February 26, 2001, the name of the Adviser changed from ING Pilgrim Investments, Inc. to ING Pilgrim Investments, LLC. On March 1, 2002, the name of the Adviser was changed from ING Pilgrim Investments, LLC to ING Investments, LLC.
ING Investments serves pursuant to an investment management agreement (Investment Advisory Agreement) between ING Investments and the Trust. The Investment Advisory Agreement requires ING Investments to oversee the provisions of all investment advisory and portfolio management services of the Trust. Pursuant to a sub-advisory agreement (Sub-Advisory Agreement) ING Investments has delegated certain management responsibilities to the Sub-Adviser of the Trust. ING Investments oversees the investment management of the Sub-Adviser.
The Investment Advisory Agreement requires ING Investments to provide, subject to the supervision of the Board, investment advice and investment services to the Trust and to furnish advice and recommendations with respect to investment of the Trusts assets and the purchase or sale of its portfolio securities. ING Investments also provides investment research and analysis. The Investment Advisory Agreement provides that ING Investments is not subject to liability to the Trust for any act or omission in the course of, or
29
connected with, rendering services under the Agreement, except by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations and duties under the Investment Advisory Agreement.
On August 1, 2003, ING underwent an internal reorganization plan that, among other things, integrated certain of its portfolio management professionals across the United States under a common management structure known as ING Investment Management Americas, which includes ING IM. One of the primary purposes of the integration plan was to promote consistently high levels of performance in terms of investment standards, research, policies and procedures in the portfolio management functions related to the Trust. As a result of this integration plan, the operational and supervisory functions of the Trusts Investment Advisory Agreement were separated from the portfolio management functions related to the Trust, with the former continuing to be provided by ING Investments and the latter provided by ING IM. The portfolio management personnel currently employed by ING Investments became employees of ING IM, which assumed primary responsibility for all portfolio management issues, including the purchase, retention, or sale of portfolio securities.
After an initial term of two years, the Investment Advisory Agreement and Sub-Advisory Agreement continue in effect from year to year so long as such continuance is specifically approved at least annually by: (a) the Board; or (b) the vote of a majority (as defined in the 1940 Act) of the Trusts outstanding shares voting as a single class; provided that in either event the continuance is also approved by at least a majority of the Board who are not interested persons (as defined in the 1940 Act) of the Adviser or Sub-Adviser, as the case may be, by vote cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement is terminable without penalty with not less than sixty (60) days notice by the Board or by a vote of the holders of a majority of the Trusts outstanding shares voting as a single class, or upon not less than sixty (60) days notice by the Investment Manager. The Investment Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
For information regarding the basis for the Boards approval of the investment advisory and investment sub-advisory relationships for the Trust, please refer to the Trusts annual shareholder report dated February 28, 2011.
Advisory Fees
The Adviser receives an annual fee, payable monthly, in an amount equal to 0.80% of the Trusts average daily gross asset value, minus the sum of the Trusts accrued and unpaid dividends on any outstanding preferred shares and accrued liabilities (other than liabilities for the principal amount of any borrowings incurred, commercial paper or notes issued by the Trust and the liquidation preference of any outstanding preferred shares) (Managed Assets).This definition includes the assets acquired through the Trusts use of leverage.
For the fiscal years ended February 28, 2011, February 28, 2010, and February 28, 2009, ING Investments was paid $[ ]; $7,991,127; and $10,457,618, respectively, for services rendered to the Trust.
The Investment Advisory Agreement for the Trust provides that ING Investments, with the approval of the Trusts Board, may select and employ an investment adviser to serve as a Sub-Adviser to the Trust, shall monitor the Sub-Advisers investment programs and results, and shall coordinate the investment activities of the Sub-Adviser to ensure compliance with regulatory restrictions. ING Investments pays all of its expenses arising from the performance of its obligations under the Investment Advisory Agreement, including all fees payable to the Sub-Adviser, and executive salaries and expenses of the officers of the Trust who are employees of ING Investments. The Sub-Adviser pays all of its expenses arising from the performance of its obligations under the Sub-Advisory Agreement.
ING IM serves as Sub-Adviser to the Trust pursuant to the Sub-Advisory Agreement between ING
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Investments and ING IM. The Sub-Advisory Agreement requires ING IM to provide, subject to the supervision of the Board and ING Investments, a continuous investment program for the Trust and to determine the composition of the assets of the Trust, including determination of the purchase, retention or sale of the securities, cash and other investments for the Trust, in accordance with the Trusts investment objective, policies and restrictions and applicable laws and regulations. The Sub-Advisory Agreement also requires ING IM to use reasonable compliance techniques as the Sub-Adviser or the Board may reasonably adopt, including any written compliance procedures.
The Sub-Advisory Agreement may be terminated at any time by the Trust by a vote of the majority of the Board or by a vote of a majority of the outstanding securities. The Sub-Advisory Agreement also may be terminated by: (i) ING Investments at any time, upon sixty (60) days written notice to the Trust and the Sub-Adviser; (ii) at any time, without payment of any penalty by the Trust, by the Trusts Board or a majority of the outstanding voting securities of the Trust upon sixty (60) days written notice to ING Investments and the Sub-Adviser; or (iii) by the Sub-Adviser upon three (3) months written notice unless the Trust or ING Investments requests additional time to find a replacement for the Sub-Adviser, in which case, the Sub-Adviser shall allow the additional time, requested by the Trust or ING Investments, not to exceed three (3) additional months beyond the initial three (3) month notice period provided; however, that the Sub-Adviser may terminate the Sub-Advisory Agreement at any time without penalty, effective upon written notice to ING Investments and the Trust, in the event either the Sub-Adviser (acting in good faith) or ING Investments ceases to be registered as an investment adviser under the Investment Advisers Act of 1940, as amended or otherwise becomes legally incapable of providing investment management services pursuant to its respective contract with the Trust, or in the event ING Investments becomes bankrupt or otherwise incapable of carrying out its obligations under the Sub-Advisory Agreement, or in the event that the Sub-Adviser does not receive compensation for its services from ING Investments or the Trust as required by the terms of the Sub-Advisory Agreement. Otherwise, the Sub-Advisory Agreement will remain in effect for two years and will, thereafter, continue in effect from year to year, subject to the annual approval of the Board, on behalf of the Trust, or the vote of a majority of the outstanding voting securities, and the vote, cast in person at a meeting duly called and held, of a majority of the Trustees, on behalf of the Trust, who are not parties to the Sub-Advisory Agreement or interested persons (as defined in the 1940 Act) of any such party. The Sub-Advisory Agreement will terminate automatically in the event of an assignment (as defined in the 1940 Act).
In this capacity, ING IM, subject to the supervision and control of ING Investments and the Trustees of the Trust, will manage the Trusts portfolio investments, consistently with its investment objective, and execute any of the Trusts investment policies that it deems appropriate to utilize from time to time.
Sub-Advisory Fee
For its services, ING IM is entitled to receive a sub-advisory fee of 0.3600%, expressed as an annual rate based on the average daily Managed Assets of the Trust, and paid by ING Investments.
Total Sub-Advisory Fees Paid
For the fiscal years ended February 28, 2011, February 28, 2010, and February 28, 2009, ING Investments paid ING IM, in its capacity as Sub-Adviser; $[ ]; $3,596,007; and $4,694,428, respectively, in sub-advisory fees.
PORTFOLIO MANAGERS
Other Accounts Managed
The following table shows the number of accounts and total assets in the accounts managed by each Portfolio Manager as of February 28, 2011:
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Portfolio Manager |
Registered Investment Companies |
Other Pooled Investment Vehicles* |
Other Accounts |
|||
Number of Accounts |
Total Assets |
Number of Accounts |
Total Assets |
Number of Accounts |
Total Assets |
|
Daniel A. Norman |
3 |
$2,510,000,000 |
11 |
$7,010,000,000 |
1 |
$200,000,000 |
Jeffrey A. Bakalar |
3 |
$2,510,000,000 |
11 |
$7,010,000,000 |
1 |
$200,000,000 |
*Eight of these accounts, with assets totaling $3.82 billion, have management fees that are partially based upon performance.
Potential Material Conflicts of Interest
A portfolio manager may be subject to potential conflicts of interest because the portfolio manager is responsible for other accounts in addition to the Trust. These other accounts may include, among others, other mutual funds, separately managed advisory accounts, commingled trust accounts, insurance separate accounts, wrap fee programs and hedge funds. Potential conflicts may arise out of the implementation of differing investment strategies for the portfolio managers various accounts, the allocation of investment opportunities among those accounts or differences in the advisory fees paid by the portfolio managers accounts.
A potential conflict of interest may arise as a result of the portfolio managers responsibility for multiple accounts with similar investment guidelines. Under these circumstances, a potential investment may be suitable for more than one of the portfolio managers accounts but the quantity of the investment available for purchase is less than the aggregate amount the accounts would ideally devote to the opportunity. Similar conflicts may arise when multiple accounts seek to dispose of the same investment.
A portfolio manager may also manage accounts whose objectives and policies differ from those of the Trust. These differences may be such that under certain circumstances, trading activity appropriate for one account managed by the portfolio manager may have adverse consequences for another account managed by the portfolio manager. For example, if an account were to sell a significant position in a security which could cause the market price of that security to decrease, while the Trust maintained its position in that security.
A potential conflict may arise when a portfolio manager is responsible for accounts that have different advisory fees the difference in the fees may create an incentive for the portfolio manager to favor one account over another, for example, in terms of access to particularly appealing investment opportunities. This conflict may be heightened where an account is subject to a performance-based fee.
As part of its compliance program, ING IM has adopted policies and procedures reasonably designed to address the potential conflicts of interest described above.
Finally, a potential conflict of interest may arise because the investment mandates for certain other accounts, such as hedge funds, may allow extensive use of short sales which, in theory, could allow them to enter into short positions in securities where other accounts hold long positions. ING IM has policies and procedures reasonably designed to limit and monitor short sales by the other accounts to avoid harm to the Trust.
Compensation
Compensation consists of: (a) fixed base salary; (b) bonus which is based on ING IMs performance, one- and three-year pre-tax performance of the accounts the portfolio managers are primarily and jointly responsible for relative to account benchmarks and peer universe performance, and revenue growth of the accounts they are responsible for; and (c) long-term equity awards tied to the performance of our parent company, ING Groep.
Portfolio managers are also eligible to participate in an annual cash incentive plan. The overall design of the ING IM annual incentive plan was developed to closely tie pay to performance, structured in such a way as to drive performance and promote retention of top talent. As with base salary compensation, individual target awards are determined and set based on external market data and internal comparators. Investment
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performance is measured on both relative and absolute performance in all areas. ING IM has a defined index, the Standard & Poors LSTA Leveraged Loan Index and, where applicable, peer groups including, but not limited to, Russell, Morningstar, Inc. (Morningstar), Lipper Analytical Services, Inc. (Lipper) and Barclays Capital, and set performance goals to appropriately reflect requirements for the investment team. The measures for the team are outlined on a scorecard that is reviewed on an annual basis. These scorecards reflect a comprehensive approach to measuring investment performance versus both benchmarks and peer groups over one- and three-year periods and year-to-date net cash flow (changes in the accounts net assets not attributable to changes in the value of the accounts investments) for all accounts managed by the team. The results for overall ING IM scorecards are calculated on an asset weighted performance basis of the individual team scorecards.
Investment professionals performance measures for bonus determinations are weighted by 25% being attributable to the overall ING IM performance and 75% attributable to their specific team results (60% investment performance and 15% net cash revenue).
Based on job function, internal comparators and external market data, portfolio managers participate in the ING Long-Term Incentive Plan. Plan awards are based on the current years performance as defined by the ING IM component of the annual incentive plan. The awards vest in three years and are paid in a combination of ING restricted stock, stock options and restricted performance units.
Portfolio managers whose base salary compensation exceeds a particular threshold may participate in INGs deferred compensation plan. The plan provides an opportunity to invest deferred amounts of compensation in mutual funds, ING stock or at an annual fixed interest rate. Deferral elections are done on an annual basis and the amount of compensation deferred is irrevocable.
Ownership of Securities
The following table shows the dollar range of shares of the Trust owned by each portfolio manager as of February 28, 2011, including investments by their immediate family members and amounts invested through retirement and deferred compensation plans.
Portfolio Manager |
Dollar Range of Trust Shares Owned |
Daniel A. Norman |
Over $100,000 |
Jeffrey A. Bakalar |
$50,001 - $100,000 |
ING Funds Services, LLC (Administrator or ING Funds Services), an affiliate of the Adviser, serves as Administrator for the Trust pursuant to an administration agreement (Administration Agreement). In connection with its administration of the corporate affairs of the Trust, the Administrator bears the following expenses: the salaries and expenses of all personnel of the Trust and the Administrator except for the fees and expenses of Trustees not affiliated with the Administrator or ING Investments; costs to prepare information; determination of daily NAV by the recordkeeping and accounting agent; expenses to maintain certain of the Trusts books and records that are not maintained by ING Investments, the custodian, or transfer agent; costs incurred to assist in the preparation of financial information for the Trusts income tax returns, proxy statements, quarterly, semi-annual, and annual shareholder reports; costs of providing shareholder services in connection with any tender offers or to shareholders proposing to transfer their shares to a third party; providing shareholder services in connection with the dividend reinvestment plan; and all expenses incurred by the Administrator or by the Trust in connection with administering the ordinary course of the Trusts business other than those assumed by the Trust, as described below.
Except as indicated immediately above and under the section entitled Adviser, the Trust is responsible for the payment of its expenses including: the fees payable to ING Investments; the fees payable to the
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Administrator; the fees and certain expenses of the Trusts custodian and transfer agent, including the cost of providing records to the Administrator in connection with its obligation of maintaining required records of the Trust; the charges and expenses of the Trusts legal counsel, legal counsel to the Trustees who are not interested persons as defined in the 1940 Act and independent accountants; commissions and any issue or transfer taxes chargeable to the Trust in connection with its transactions; all taxes and corporate fees payable by the Trust to governmental agencies; the fees of any trade association of which the Trust is a member; the costs of share certificates representing Common Shares of the Trust; organizational and offering expenses of the Trust and the fees and expenses involved in registering and maintaining registration of the Trust and its Common Shares with SEC, including the preparation and printing of the Trusts registration statement and prospectuses for such purposes; allocable communications expenses with respect to investor services, and all expenses of shareholders and Trustees meetings and of preparing, printing and mailing reports, proxy statements and prospectuses to shareholders; the cost of insurance; and litigation and indemnification expenses and extraordinary expenses not incurred in the ordinary course of the Trusts business.
For its services, the Administrator is entitled to receive from the Trust a fee at an annual rate of 0.25% of the Trusts Managed Assets.
Administrative fees paid by the Trust for the fiscal years ended February 28, 2011, February 28, 2010, and February 28, 2009, were $[ ], $2,497,227, and $3,268,006, respectively, for services rendered to the Trust.
Shares of the Trust are distributed by ING Investments Distributor. Pursuant to an Amended and Restated Distribution Agreement (Distribution Agreement), the Distributor, an affiliate of ING Investments and ING Funds Services, is the principal underwriter and distributor for the shares of the Trust and acts as agent of the Trust in the continuous offering of its shares. The Distributor bears all of its expenses of providing services pursuant to the Distribution Agreement. The Trust pays the cost for the prospectus and shareholder reports to be set in type and printed for existing shareholders and the Trust pays for the printing and distribution of copies thereof used in connection with the offering of shares to prospective investors. The Trust also pays for supplementary sales literature and advertising costs.
The Distribution Agreement continues in effect from year to year so long as such continuance is approved at least annually by a vote of the Board, including the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the Distribution Agreement. The Distribution Agreement automatically terminates in the event of its assignment and may be terminated at any time without penalty by the Trust or by the Distributor upon sixty (60) days written notice. Termination by the Trust may be by vote of a majority of the Board, and a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the Distribution Agreement, or a majority of the outstanding voting securities of the Trust, as defined under the 1940 Act.
The Common Shares will only be sold on such days as shall be agreed to by the Trust and ING Investments Distributor. The Common Shares will be sold at market prices, which shall be determined with reference to trades on the NYSE, subject to a minimum price to be established each day by the Trust. The minimum price on any day will not be less than the current NAV per Common Share. The Trust and ING Investments Distributor will suspend the sale of Common Shares if the per share price of the Common Shares is less than the minimum price.
Settlements of sales of Common Shares will occur on the third business day following the date on which any such sales are made. Unless otherwise indicated in a further prospectus supplement, ING Investments Distributor as underwriter will act as underwriter on a reasonable efforts basis.
In connection with the sale of the Common Shares on behalf of the Trust, ING Investments Distributor may be deemed to be an underwriter within the meaning of the 1940 Act. As described below, ING Investments
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Distributor also serves as distributor for the Trust in connection with the sale of Common Shares of the Trust pursuant to privately negotiated transactions and pursuant to optional cash investments. In addition, ING Investments Distributor provides administrative services in connection with a separate at-the-market offering of Common Shares of the Trust. The offering of Common Shares pursuant to the Distribution Agreement will terminate upon the earlier of: (i) the sale of all Common Shares subject thereto; or (ii) termination of the Distribution Agreement.
SHAREHOLDER REINVESTMENT PROGRAM
The Trust maintains a Shareholder Reinvestment Program (Program), which allows participating shareholders to reinvest all dividends and capital gain distributions (Dividends) in additional Common Shares of the Trust. The Program also allows participants to purchase additional Common Shares through optional cash investments in amounts ranging from a minimum of $100 to a maximum of $100,000 per month. Common Shares may be issued by the Trust under the Program only if the Trusts Common Shares are trading at a premium to NAV. If the Trusts Common Shares are trading at a discount to NAV, Common Shares purchased under the Program will be purchased on the open market.
If the market price (the volume-weighted average sales price, per share, as reported on the New York Stock Exchange Composite Transaction Tape as shown daily on Bloombergs AQR screen) plus estimated commissions for Common Shares of the Trust is less than the NAV on the Valuation Date (defined below), BNY Mellon Investment Servicing (U.S.) Inc. (formerly, PNC Global Investment Servicing (U.S.) Inc.) (Transfer Agent) will purchase Common Shares on the open market through a bank or securities broker as provided herein. Open market purchases may be effected on any securities exchange on which Common Shares of the Trust trade or in the over-the-counter market. If the Market Price, plus estimated commissions, exceeds the NAV before the Transfer Agent has completed its purchases, the Transfer Agent will use reasonable efforts to cease purchasing Common Shares, and the Trust shall issue the remaining Common Shares. If the Market Price, plus estimated commissions, is equal to or exceeds the NAV on the Valuation Date, the Trust will issue the Common Shares to be acquired by the Program. The Valuation Date is a date preceding the DRIP Investment Date and OCI Investment Date, on which it is determined, based on the Market Price and NAV of Common Shares of the Trust, whether the Transfer Agent will purchase Common Shares on the open market or the Trust will issue the Common Shares for the Program. The Trust may, without prior notice to participants, determine that it will not issue new Common Shares for purchase pursuant to the Program, even when the Market Price plus estimated commissions equals or exceeds NAV, in which case the Transfer Agent will purchase Common Shares on the open market.
Common Shares issued by the Trust under the Program will be issued without incurring a fee. Common Shares purchased for the Program directly from the Trust in connection with the reinvestment of Dividends will be acquired on the DRIP Investment Date at the greater of: (i) NAV at the close of business on the Valuation Date; or (ii) the average of the daily Market Price of the shares during the DRIP Pricing Period, minus a discount of 5%. The DRIP Pricing Period for a dividend reinvestment is the Valuation Date and the prior Trading Day. A Trading Day means any day on which trades of the Common Shares of the Trust are reported on the NYSE.
Common Shares purchased directly from the Trust pursuant to optional cash investments will be acquired on an OCI Investment Date at the greater of: (i) NAV at the close of business on the Valuation Date; or (ii) the average of the daily Market Price of the shares during the OCI Pricing Period minus a discount, determined at the sole discretion of the Trust and announced in advance, ranging from 0% to 5%. The OCI Pricing Period for an OCI Investment Date means the period beginning four Trading Days prior to the Valuation Date through and including the Valuation Date. The discount for optional cash investments is set by the Trust and may be changed or eliminated by the Trust without prior notice to participants at any time. The discount for optional cash investments is determined on the last business day of each month. In all instances, however, the discount on Common Shares issued directly by the Trust shall not exceed 5% of the market price, and Common Shares may not be issued at a price less than NAV without prior specific approval of shareholders or of the
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Commission. Optional cash investments received by the Transfer Agent no later than 4:00 p.m. Eastern time on the OCI payment Due Date to be invested on the relevant OCI Investment Date.
Subject to the availability of Common Shares registered for issuance under the Program, there is no total maximum number of Common Shares that can be issued pursuant to the Program.
See Federal Taxation - Distributions for a discussion of the federal income tax ramifications of obtaining Common Shares under the Program.
Privately Negotiated Transactions
The Common Shares may also be offered pursuant to privately negotiated transactions between the Trust and specific investors. The terms of such privately negotiated transactions will be subject to the discretion of the management of the Trust. In determining whether to sell Common Shares pursuant to a privately negotiated transaction, the Trust will consider relevant factors including, but not limited to, the attractiveness of obtaining additional funds through the sale of Common Shares, the purchase price to apply to any such sale of Common Shares and the person seeking to purchase the Common Shares.
Common Shares issued by the Trust in connection with privately negotiated transactions will be issued at the greater of: (i) NAV per Common Share of the Trusts Common Shares; or (ii) at a discount ranging from 0% to 5% of the average of the daily market price of the Trusts Common Shares at the close of business on the two business days preceding the date upon which Common Shares are sold pursuant to the privately negotiated transaction. The discount to apply to such privately negotiated transactions will be determined by the Trust with regard to each specific transaction. The Trust will not pay any commissions with regard to privately negotiated transactions, but an investor may be subject to a front end sales load of up to 3% paid to or retained by a third party broker-dealer through which such transaction may be effected.
The Trust will generally have at least 80% of its net assets (plus borrowings for investment purposes) invested in Senior Loans. The remaining assets of the Trust will generally consist of loans to borrowers organized or located in countries outside the United States and outside U.S. territories and possessions or Canada, loans denominated in currencies other than the U.S. dollar, short-term debt instruments with remaining maturities of 120 days or less, longer-term debt securities, certain other instruments such as unsecured loans, subordinated loans up to a maximum of 5% of the Trusts net assets, interest rate swaps, caps and floors, repurchase agreements, reverse repurchase agreements, and equity securities acquired in connection with investments in loans. The Trust will acquire Senior Loans from and sell Senior Loans to commercial and investment banks, insurance companies, finance companies, and other investment companies and private investment funds. The Trusts interest in a particular Senior Loan will terminate when the Trust receives full payment on the loan or sells a Senior Loan in the secondary market. Costs associated with purchasing or selling investments in the secondary market include processing fees paid to agents. These costs are allocated between the purchaser and seller as agreed between the parties.
The Adviser or Sub-Adviser for the Trust places orders for the purchase and sale of investment securities for the Trust, pursuant to authority granted in the relevant Investment Advisory Agreement or Sub-Advisory Agreement. Subject to policies and procedures approved by the Trusts Board, the Adviser, or Sub-Adviser has discretion to make decisions relating to placing these orders, including, where applicable, selecting the brokers or dealers that will execute the purchase and sale of investment securities, negotiating the commission or other compensation paid to the broker or dealer executing the trade, or using an electronic trading network (ECN) or alternative trading system (ATS).
In a situation where the Sub-Adviser resigns or the Adviser otherwise assumes day to day management of the Trust pursuant to its Investment Advisory Agreement with the Trust, the Adviser will perform the services
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described herein as being performed by the Sub-Adviser.
How Securities Transactions are Effected
Purchases and sales of securities on a securities exchange (which include most equity securities) are effected through brokers who charge a commission for their services. In transactions on securities exchanges in the United States, these commissions are negotiated, while on many foreign securities exchanges commissions are fixed. Securities traded in the over-the-counter markets (such as fixed-income securities and some equity securities) are generally traded on a net basis with market makers acting as dealers; in these transactions, the dealers act as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. Transactions in certain over-the-counter securities also may be effected on an agency basis when, in the Advisers or Sub-Advisers opinion, the total price paid (including commission) is equal to or better than the best total price available from a market maker. In underwritten offerings, securities are usually purchased at a fixed price, which includes an amount of compensation to the underwriter, generally referred to as the underwriters concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid. The Adviser or Sub-Adviser may also place trades using an ECN or ATS.
How the Adviser or Sub-Adviser Selects Broker-Dealers
The Adviser or Sub-Adviser has a duty to seek to obtain best execution of the Trusts orders, taking into consideration a full range of factors designed to produce the most favorable overall terms reasonably available under the circumstances. In selecting brokers and dealers to execute trades, the Adviser or Sub-Adviser may consider both the characteristics of the trade and the full range and quality of the brokerage services available from eligible broker-dealers. This consideration often involves qualitative as well as quantitative judgments. Factors relevant to the nature of the trade may include, among others, price (including the applicable brokerage commission or dollar spread), the size of the order, the nature and characteristics (including liquidity) of the market for the security, the difficulty of execution, the timing of the order, potential market impact, and the need for confidentiality, speed, and certainty of execution. Factors relevant to the range and quality of brokerage services available from eligible brokers and dealers may include, among others, the firms execution, clearance, settlement, and other operational facilities; willingness and ability to commit capital or take risk in positioning a block of securities, where necessary; special expertise in particular securities or markets; ability to provide liquidity, speed and anonymity; the nature and quality of other brokerage and research services provided to the Adviser or Sub-Adviser (consistent with the safe harbor described below); and the firms general reputation, financial condition and responsiveness to the Adviser or Sub-Adviser, as demonstrated in the particular transaction or other transactions. Subject to its duty to seek best execution of the Trusts orders, the Adviser or Sub-Adviser may select broker-dealers that participate in commission recapture programs that have been established for the benefit of the Trust. Under these programs, the participating broker-dealers will return to the Trust (in the form of a credit to the Trust) a portion of the brokerage commissions paid to the broker-dealers by the Trust. These credits are used to pay certain expenses of the Trust. These commission recapture payments benefit the Trust, and not the Adviser or Sub-Adviser.
The Safe Harbor for Soft Dollar Practices
In selecting broker-dealers to execute a trade for the Trust, the Adviser or Sub-Adviser may consider the nature and quality of brokerage and research services provided to the Adviser or Sub-Adviser as a factor in evaluating the most favorable overall terms reasonably available under the circumstances . As permitted by Section 28(e) of the Securities Exchange Act 1934, the Adviser or Sub-Adviser may cause the Trust to pay a broker-dealer a commission for effecting a securities transaction for the Trust that is in excess of the commission which another broker-dealer would have charged for effecting the transaction, if the Adviser or Sub-Adviser makes a good faith determination that the brokers commission paid by the Trust is reasonable in relation to the value of the brokerage and research services provided by the broker-dealer, viewed in terms of either the particular transaction or the Advisers or Sub-Advisers overall responsibilities to the Trust and its other investment
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advisory clients. The practice of using a portion of the Trusts commission dollars to pay for brokerage and research services provided to the Sub-Adviser is sometimes referred to as soft dollars. Section 28(e) is sometimes referred to as a safe harbor, because it permits this practice, subject to a number of restrictions, including the Advisers or Sub-Advisers compliance with certain procedural requirements and limitations on the type of brokerage and research services that qualify for the safe harbor.
Brokerage and Research Products and Services Under the Safe Harbor Research products and services may include, but are not limited to, general economic, political, business and market information and reviews, industry and company information and reviews, evaluations of securities and recommendations as to the purchase and sale of securities, financial data on a company or companies, performance and risk measuring services and analysis, stock price quotation services, computerized historical financial databases and related software, credit rating services, analysis of corporate responsibility issues, brokerage analysts earning estimates, computerized links to current market data, software dedicated to research, and portfolio modeling. Research services may be provided in the form of reports, computer-generated data feeds and other services, telephone contacts, and personal meetings with securities analysts, as well as in the form of meetings arranged with corporate officers and industry spokespersons, economists, academics, and governmental representatives.
Brokerage products and services assist in the execution, clearance and settlement of securities transactions, as well as functions incidental thereto, including but not limited to related communication and connectivity services and equipment, software related to order routing, market access, algorithmic trading, and other trading activities. On occasion, a broker-dealer may furnish the Adviser or Sub-Adviser with a service that has a mixed use (that is, the service is used both for brokerage and research activities that are within the safe harbor and for other activities). In this case, the Adviser or Sub-Adviser is required to reasonably allocate the cost of the service, so that any portion of the service that does not qualify for the safe harbor is paid for by the Adviser or Sub-Adviser from its own funds, and not by portfolio commissions paid by the Trust.
Benefits to the Adviser or Sub-Adviser - Research products and services provided to the Adviser or Sub-Adviser by broker-dealers that effect securities transactions for the Trust may be used by the Adviser or Sub-Adviser in servicing all of its accounts. Accordingly, not all of these services may be used by the Adviser or Sub-Adviser in connection with the Trust. Some of these products and services are also available to the Adviser or Sub-Adviser for cash, and some do not have an explicit cost or determinable value. The research received does not reduce the advisory fees paid to the Adviser or sub-advisory fees payable to the Sub-Adviser for services provided to the Trust. The Advisers or Sub-Advisers expenses would likely increase if the Adviser or Sub-Adviser had to generate these research products and services through its own efforts, or if it paid for these products or services itself.
Broker-Dealers that are Affiliated with the Adviser or the Sub-Adviser
Portfolio transactions may be executed by brokers affiliated with the ING Groep, the Adviser, or the Sub-Adviser, so long as the commission paid to the affiliated broker is reasonable and fair compared to the commission that would be charged by an unaffiliated broker in a comparable transaction.
Prohibition on Use of Brokerage Commissions for Sales or Promotional Activities
The placement of portfolio brokerage with broker-dealers who have sold shares of the Trust is subject to rules adopted by the SEC and the Financial Industry Regulatory Authority (FINRA). Under these rules, the Sub-Adviser may not consider a brokers promotional or sales efforts on behalf of the Trust when selecting a broker-dealer for Trust portfolio transactions, and neither the Trust nor the Sub-Adviser may enter into an agreement under which the Trust directs brokerage transactions (or revenue generated from such transactions) to a broker-dealer to pay for distribution of Trust shares. The Trust has adopted policies and procedures, approved by the Board, that are designed to attain compliance with these prohibitions.
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Principal Trades and Research
Purchases of securities for the Trust also may be made directly from issuers or from underwriters. Purchase and sale transactions may be effected through dealers which specialize in the types of securities which the Trust will be holding. Dealers and underwriters usually act as principals for their own account. Purchases from underwriters will include a concession paid by the issuer to the underwriter and purchases from dealers will include the spread between the bid and the asked price. If the execution and price offered by more than one dealer or underwriter are comparable, the order may be allocated to a dealer or underwriter which has provided such research or other services as mentioned above.
More Information about trading in Fixed-Income Securities
Purchases and sales of fixed-income securities will usually be principal transactions. Such securities often will be purchased or sold from or to dealers serving as market makers for the securities at a net price. The Trust may also purchase such securities in underwritten offerings and will, on occasion, purchase securities directly from the issuer. Generally, fixed-income securities are traded on a net basis and do not involve brokerage commissions. The cost of executing fixed-income securities transactions consists primarily of dealer spreads and underwriting commissions.
In purchasing and selling fixed-income securities, it is the policy of the Trust to obtain the best results, while taking into account the dealers general execution and operational facilities, the type of transaction involved and other factors, such as the dealers risk in positioning the securities involved. While the Sub-Adviser generally seeks reasonably competitive spreads or commissions, the Trust will not necessarily pay the lowest spread or commission available.
Transition Management
Changes in the Sub-Adviser, investment personnel, reorganizations or a merger of the Trust may result in the sale of a significant portion or even all of the Trusts portfolio securities. This type of change generally will increase trading costs and the portfolio turnover for the Trust. The Trust, the Adviser, or the Sub-Adviser may engage a broker-dealer to provide transition management services in connection with a change in the Sub-Adviser, a reorganization, or other changes.
Allocation of Trades
Some securities considered for investment by the Trust may also be appropriate for other clients served by the Trusts Sub-Adviser. If the purchase or sale of securities consistent with the investment policies of the Trust and one or more of these other clients is considered at or about the same time, transactions in such securities will be placed on an aggregate basis and allocated among the Trust and such other clients in a manner deemed fair and equitable, over time, by the Sub-Adviser and consistent with the Sub-Advisers written policies and procedures. The Sub-Adviser may use different methods of allocating the results aggregated trades. The Sub-Advisers relevant policies and procedures and the results of aggregated trades in which the Trust participated are subject to periodic review by the Board. To the extent the Trust seeks to acquire (or dispose of) the same security at the same time, the Trust may not be able to acquire (or dispose of) as large a position in such security as it desires, or it may have to pay a higher (or receive a lower) price for such security. It is recognized that in some cases, this system could have a detrimental effect on the price or value of the security insofar as the Trust is concerned. However, over time, the Trusts ability to participate in aggregate trades is expected to provide better execution for the Trust.
Cross-Transactions
The Board has adopted a policy allowing trades to be made between affiliated registered investment companies
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or series thereof provided they meet the condition of Rule 17a-7 under the 1940 Act and conditions of the policy.
No brokerage commissions were paid by the Trust for the fiscal years ended February 28, 2011, February 28, 2010, and February 28, 2009.
No brokerage commissions were paid by the Trust during the fiscal years ended February 28, 2011, February 28, 2010, and February 28, 2009, to firms which provided research, statistical or other services to the Adviser.
A change in securities held in the portfolio of the Trust is known as portfolio turnover and may involve the payment by the Trust of dealer mark-ups or brokerage or underwriting commissions and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Portfolio turnover rate for a fiscal year is the percentage determined by dividing the lesser of the cost of purchases or proceeds from sales of portfolio securities by average of the value of portfolio securities during such year, all excluding securities whose maturities at acquisition were one year or less. The Trust cannot accurately predict its turnover rate; however, the rate will be higher when the Trust finds it necessary to significantly change its portfolio to adopt a temporary defensive position or respond to economic or market events. A high turnover rate would increase expenses and may involve realization of capital gains by the Trust. The Trusts historical turnover rates are included in the Financial Highlights table in the Prospectuses.
The annual rate of the Trusts total portfolio turnover for the years ended February 28, 2011 and February 28, 2010 was [ ]% and 38%, respectively. The annual turnover rate of the Trust is generally expected to be between 50% and 100%, although as part of its investment policies, the Trust places no restrictions on portfolio turnover and the Trust may sell any portfolio security without regard to the period of time it has been held. The annual turnover rate of the Trust also includes Senior Loans on which the Trust has received full or partial payment. The Adviser believes that full and partial payments on loans generally comprise approximately 25% to 75% of the Trusts total portfolio turnover each year.
The NAV per Common Share of the Trust is determined each business day as of the close of regular trading on the NYSE (usually 4:00 p.m. Eastern time unless otherwise designated by the NYSE). The Trust is open for business every day the NYSE is open. As of the date of this SAI, the NYSE is closed on the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV per Common Share is determined by dividing the value of the Trusts loan assets plus all cash and other assets (including interest accrued but not collected) less all liabilities (including accrued expenses but excluding capital and surplus) by the number of Common Shares outstanding. The NAV per Common Share is made available for publication.
The following is only a summary of certain U.S. federal income tax considerations generally affecting the Trust and its shareholders. No attempt is made to present a detailed explanation of the tax treatment of the Trust or its shareholders, and the following discussion is not intended as a substitute for careful tax planning. Shareholders should consult with their own tax advisers regarding the specific federal, state, local, foreign and other tax consequences of investing in the Trust.
Qualification as a Regulated Investment Company
The Trust will elect each year to be taxed as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986 (Code). As a RIC, the Trust generally will not be subject to federal
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income tax on the portion of its investment company taxable income ( i.e. , taxable interest, dividends and other taxable ordinary income, net of expenses, and net short-term capital gains in excess of long-term capital losses) and net capital gain ( i.e. , the excess of net long-term capital gains over the sum of net short-term capital losses and capital loss carryovers from prior years) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income for the taxable year (Distribution Requirement), and satisfies certain other requirements of the Code that are described below.
In addition to satisfying the Distribution Requirement and an asset diversification requirement discussed below, a RIC must derive at least 90% of its gross income for each taxable year from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies, net income derived from an interest in a qualified publicly traded partnership and other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies.
In addition to satisfying the requirements described above, the Trust must satisfy an asset diversification test in order to qualify as a RIC. Under this test, at the close of each quarter of the Trusts taxable year, at least 50% of the value of the Trusts assets must consist of cash and cash items (including receivables), U.S. government securities, securities of other regulated investment companies, and securities of other issuers (as to which the Trust has not invested more than 5% of the value of the Trusts total assets in securities of any such issuer and as to which the Trust does not hold more than 10% of the outstanding voting securities of any such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. government securities and securities of other regulated investment companies), in two or more issuers which the Trust controls and which are engaged in the same or similar trades or businesses, or of one or more qualified publicly-traded partnerships.
In general, gain or loss recognized by the Trust on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by the Trust at a market discount (generally at a price less than its principal amount) other than at the original issue will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Trust held the debt obligation.
In general, investments by the Trust in zero-coupon or other original issue discount securities will result in income to the Trust equal to a portion of the excess of the face value of the securities over their issue price (original issue discount) each year that the Trust holds the securities, even though the Trust receives no cash interest payments. This income is included in determining the amount of income which the Trust must distribute to maintain its status as a RIC and to avoid federal income and excise taxes.
If for any taxable year the Trust does not qualify as a RIC, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable as ordinary dividends to the extent of the Trusts current and accumulated earnings and profits. Such distributions generally would be eligible for the dividends-received deduction in the case of corporate shareholders.
If the Trust fails to qualify as a RIC in any year, it must pay out its earnings and profits accumulated in that year in order to qualify again as a RIC. Moreover, if the Trust failed to qualify as a RIC for a period greater than one taxable year, the Trust may be required to recognize any net built-in gains with respect to certain of its assets (the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized if the Trust had been liquidated) in order to qualify as a RIC in a subsequent year.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a RIC that fails to distribute in each calendar year an amount equal to the sum of: (1) 98% of its ordinary taxable income for the calendar year; (2) 98% of its capital gain
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net income ( i.e. , capital gains in excess of capital losses) for the one-year period ended on October 31 of such calendar year; and (3) any ordinary taxable income and capital gain net income for previous years that was not distributed or taxed to the RIC during those years.
The Trust intends to make sufficient distributions or deemed distributions (discussed below) of its ordinary taxable income and capital gain net income to avoid liability for the excise tax.
Hedging Transactions
The Trust has the ability, pursuant to its investment objective and policies, to hedge its investments in a variety of transactions, including interest rate swaps and the purchase or sale of interest rate caps and floors. The treatment of these transactions for federal income tax purposes may in some instances be unclear, and the RIC qualification requirements may limit the extent to which the Trust can engage in hedging transactions.
Under certain circumstances, the Trust may recognize gain from a constructive sale of an appreciated financial position. If the Trust enters into certain transactions in property while holding substantially identical property, the Trust would be treated as if it had sold and immediately repurchased the property and would be taxed on any gain (but not loss) from the constructive sale. The character of gain from a constructive sale would depend upon the Trusts holding period in the property. Loss from a constructive sale would be recognized when the property was subsequently disposed of, and its character would depend on the Trusts holding period and the application of various loss deferral provisions in the Code. Constructive sale treatment does not apply to transactions closed in the 90-day period ending with the 30th day after the close of the taxable year, if certain conditions are met.
Capital Loss Carryforwards
Capital loss carryforwards were the following as of February 28, 2011:
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Distributions
The Trust anticipates distributing all or substantially all of its investment company taxable income for the taxable year. Such distributions will be taxable to shareholders as ordinary income. If a portion of the Trusts income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Trust may be eligible for the corporate dividends received deduction.
The Trust may either retain or distribute to shareholders its net capital gain for each taxable year. The Trust currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will generally be taxable to shareholders at a maximum federal tax rate of 15%. Distributions are subject to these capital gains rates regardless of the length of time the shareholder has held his shares. Conversely, if the Trust elects to retain its net capital gain, the Trust will be taxed thereon (except to the extent of any available capital loss carryovers) at the applicable corporate tax rate. In such event, it is expected that the Trust also will elect to treat such gain as having been distributed to shareholders. As a result, each shareholder will be required to report his pro rata share of such gain on his tax return as long-term capital gain, will be entitled to claim a tax credit for his pro rata share of tax paid by the Trust on the gain, and will increase
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the tax basis for his shares by an amount equal to the deemed distribution less the tax credit.
Current tax law generally provides for a maximum tax rate for individual taxpayers of 15% on long-term capital gains from sales and on certain qualifying dividend income. The rate reductions do not apply to corporate taxpayers. The Trust will be able to separately report distributions of any qualifying long-term capital gains or qualifying dividends earned by the Trust that would be eligible for the lower maximum rate, although it does not expect to distribute a material amount of qualifying dividends. A shareholder would also have to satisfy more than a 60-day holding period with respect to any distributions of qualifying dividend in order to obtain the benefit of the lower rate. Distributions from funds, such as the Trust, investing in debt instruments will not generally qualify for the lower rate. The 15% rate on long-term capital gains is currently scheduled to increase to 20% after 2010 and qualifying dividend income is currently scheduled to be taxed as ordinary income after 2010.
Distributions by the Trust in excess of the Trusts earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholders tax basis in his shares; any such return of capital distributions in excess of the shareholders tax basis will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Trust will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Trust. If the NAV at the time a shareholder purchases shares of the Trust reflects undistributed income or gain, distributions of such amounts will be taxable to the shareholder in the manner described above, even though such distributions economically constitute a return of capital to the shareholder.
A distribution will be treated as paid on December 31 of the current calendar year if it is declared by the Trust in October, November or December with a record date in such a month and paid by the Trust during January of the following calendar year. Such distributions will be taxed to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.
The Trust will be required in certain cases to withhold and remit to the U.S. Treasury at the current rate of 28% (currently scheduled to increase to 31% after 2010) of all dividends and redemption proceeds payable to any shareholder if: (1) the shareholder fails to provide the Trust with a certified, correct identification number or other required certifications; (2) the IRS notifies the Trust that the taxpayer identification number furnished by the shareholder is incorrect; (3) the IRS notifies the Trust that the shareholder failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect; or (4) when required to do so, the shareholder fails to certify that he or she is not subject to backup withholding. Corporate shareholders and other shareholders specified in the Code are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholders U.S. federal income tax liability if the appropriate information is provided to the IRS.
For taxable years beginning after December 31, 2012, an additional 3.8% Medicare tax will be imposed on certain net investment income (including ordinary dividends and capital gain distributions received from the Fund and net gains from redemptions or other taxable dispositions of Fund shares) of US individuals, estates and trusts to the extent that such persons modified adjusted gross income (in the case of an individual) or adjusted gross income (in the case of an estate or trust) exceeds a threshold amount. In the case of an estate or trust, the amount subject to the 3.8% Medicare tax will not exceed the undistributed net investment income of the trust or estate for such taxable year.
Sale of Common Shares
A shareholder will recognize gain or loss on the sale or exchange of shares of the Trust in an amount generally equal to the difference between the proceeds of the sale and the shareholders adjusted tax basis in the shares. In general, any such gain or loss will be considered capital gain or loss if the shares are held as capital assets, and gain or loss will be long-term or short-term, depending upon the shareholders holding period for the
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shares. However, any capital loss arising from the sale of shares held for six months or less will be treated as a long-term capital loss to the extent of any long-term capital gains distributed (or deemed distributed) with respect to such shares. Also, any loss realized on a sale or exchange of shares will be disallowed to the extent the shares disposed of are replaced (including shares acquired through the Shareholder Reinvestment Program) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such case, the tax basis of the acquired shares will be adjusted to reflect the disallowed loss.
Repurchases of Shares
As noted above, the Trust may take action to repurchase its shares. If a shareholder tenders all shares of the Trust that he or she owns or is considered to own, the shareholder will realize a taxable sale or exchange (see Sale of Common Shares above). If a shareholder tenders less than all of the shares of the Trust that he or she owns or is considered to own, the repurchase may not qualify as an exchange, and the proceeds received may be treated as a dividend, return of capital or capital gain, depending on the Trusts earnings and profits and the shareholders basis in the tendered shares. If that occurs, there is a risk that non-tendering shareholders may be considered to have received a deemed distribution as a result of the Trusts purchase of tendered shares, and all or a portion of that deemed distribution may be taxable as a dividend.
Foreign Shareholders
U.S. taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership (foreign shareholder) depends, in part, on whether the shareholders income from the Trust is effectively connected with a U.S. trade or business carried on by such shareholder.
If the income from the Trust is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, distributions of investment company taxable income will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate). Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale or exchange of shares of the Trust, capital gain dividends, and amounts retained by the Trust that are designated as undistributed capital gains. However, subject to certain limitations and the receipt of further guidance form the U.S. Treasury, dividends paid to certain foreign shareholders may be exempt from U.S. tax through February 2010 (or a later date if extended by the U.S. Congress) to the extent such dividends are attributable to qualified interest and/or net short-term capital gains, provided that the Trust elects to follow certain procedures. The Trust may choose to not follow such procedures and there can be no assurance as to the amount, if any, of dividends that would not be subject to withholding. Congress is considering whether to extend the exemption from withholding for properly designated interest and short-term capital gains for one year. However, there is no assurance that they will extend the exemption.
If the income from the Trust is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then distributions of investment company taxable income, capital gain dividends, amounts retained by the Trust that are designated as undistributed capital gains and any gains realized upon the sale or exchange of shares of the Trust will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. Such shareholders that are classified as corporations for U.S. tax purposes also may be subject to a branch profits tax.
In the case of foreign non-corporate shareholders, the Trust may be required to withhold U.S. federal income tax at a rate of 28% (currently scheduled to increase to 31% after 2010) on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Trust with proper notification of their foreign status. (See, Distributions.)
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with
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respect to the particular tax consequences to them of an investment in the Trust, including the applicability of foreign taxes.
Effect of Future Legislation; Other Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the U.S. Treasury Regulations issued thereunder as in effect on the date of this SAI. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein.
Income received by the Trust from foreign sources may be subject to withholding and other taxes imposed by such foreign jurisdictions, absent treaty relief. Distributions to shareholders also may be subject to state, local, and foreign taxes, depending upon each shareholders particular situation. Shareholders are urged to consult their tax advisers as to the particular consequences to them of an investment in the Trust.
ADVERTISING AND PERFORMANCE DATA
Advertising
From time to time, advertisements and other sales materials for the Trust may include information concerning the historical performance of the Trust. Any such information may include trading volume of the Trusts Common Shares, the number of Senior Loan investments, annual total return, aggregate total return, distribution rate, average compounded distribution rates, and yields of the Trust for specified periods of time, and diversification statistics. Such information may also include rankings, ratings and other information from independent organizations such as Lipper; Morningstar; Value Line, Inc.; CDA Technology, Inc.; S&Ps Portfolio Management Data (a division of S&P); Moodys; Bloomberg; or other industry publications. These rankings will typically compare the Trust to all closed-end funds, to other Senior Loan funds, and/or also to taxable closed-end fixed-income funds. Any such use of rankings and ratings in advertisements and sales literature will conform with the guidelines of FINRA approved by the SEC. Ranking comparisons and ratings should not be considered representative of the Trusts relative performance for any future period.
Reports and promotional literature may also contain the following information: (i) number of shareholders; (ii) average account size; (iii) identification of street and registered account holdings; (iv) lists or statistics of certain of the Trusts holdings including, but not limited to, portfolio composition, sector weightings, portfolio turnover rates, number of holdings, average market capitalization, and modern portfolio theory statistics alone or in comparison with itself (over time) and with its peers and industry group; (v) public information about the assets class; and (vi) discussions concerning coverage of the Trust by analysts.
In addition, reports and promotional literature may contain information concerning the Adviser, the Sub-Adviser, ING Groep, the portfolio managers, the Administrator, or affiliates of the Trust including: (i) performance rankings of other funds managed by the Adviser or Sub-Adviser, or the individuals employed by the Adviser or Sub-Adviser who exercise responsibility for the day-to-day management of the Trust, including rankings and ratings of investment companies published by Lipper, Morningstar, Value Line, Inc., CDA Technologies, Inc., or other rating services, companies, publications or other persons who rank or rate investment companies or other investment products on overall performance or other criteria; (ii) lists of clients, the number of clients, or assets under management; (iii) information regarding the acquisition of the ING Funds by ING Capital Corporation LLC (ING Capital); (iv) the past performance of ING Capital and ING Funds Services; (v) the past performance of other funds managed by the Adviser or Sub-Adviser; (vi) quotes from a portfolio manager of the Trust or industry specialists; and (vii) information regarding rights offerings conducted by closed-end funds managed by the Adviser or Sub-Adviser.
The Trust may compare the frequency of its reset period to the frequency which LIBOR changes. Further, the Trust may compare its yield to: (i) LIBOR; (ii) the federal funds rate; (iii) the Prime Rate, quoted daily in the
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Wall Street Journal as the base rate on corporate loans at large U.S. money center commercial banks; (iv) the average yield reported by the Bank Rate Monitor National Index for money market deposit accounts offered by the 100 leading banks and thrift institutions in the ten largest standard metropolitan statistical areas, (v) yield data published by Lipper, Bloomberg, or other industry sources; or (vi) the yield on an investment in 90-day Treasury bills on a rolling basis, assuming quarterly compounding. Further, the Trust may compare such other yield data described above to each other. The Trust may also compare its total return, NAV stability and yield to fixed-income investments. As with yield and total return calculations, yield comparisons should not be considered representative of the Trusts yield or relative performance for any future period.
The Trust may provide information designed to help individuals understand their investment goals and explore various financial strategies. Such information may include information about current economic, market, and political conditions; materials that describe general principles of investing, such as asset allocation, diversification, risk tolerance, and goal setting; worksheets used to project savings needs based on assumed rates of inflation and hypothetical rates of return; and action plans offering investment alternatives. Materials may also include discussion of other investment companies in the ING Funds, products and services, and descriptions of the benefits of working with investment professionals in selecting investments.
Performance Data
The Trust may quote annual total return and aggregate total return performance data. Total return quotations for the specified periods will be computed by finding the rate of return (based on net investment income and any capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the value of such investment at the end of the period. On occasion, the Trust may quote total return calculations published by Lipper, a widely recognized independent publication that monitors the performance of both open-end and closed-end investment companies.
The Trusts distribution rate is calculated on a monthly basis by annualizing the dividend declared in the month and dividing the resulting annualized dividend amount by the Trusts corresponding month-end NAV (in the case of NAV) or the last reported market 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.
Total return and distribution rate and compounded distribution rate figures utilized by the Trust are based on historical performance and are not intended to indicate future performance. Distribution rate, compounded distribution rate and NAV per share can be expected to fluctuate over time. Total return will vary depending on market conditions, the Senior Loans, and other securities comprising the Trusts portfolio, the Trusts operating expenses and the amount of net realized and unrealized capital gains or losses during the period.
State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City, Missouri 64105 has been retained to act as the custodian for the Trust. State Street Bank and Trust Company does not have any part in determining the investment policies of the Trust or in determining which portfolio securities are to be purchased or sold by the Trust or in the declaration of dividends and distributions.
Legal matters for the Trust are passed upon by Dechert LLP, 1775 I Street, NW, Washington, DC 20006.
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Independent Registered Public Accounting Firm
KPMG LLP serves as the independent registered public accounting firm for the Trust. KPMG LLP provides audit services, tax return preparation and assistance and consultation in connection with review of SEC filings. KPMG LLP is located at Two Financial Center, 60 South Street, Boston, Massachusetts 02111.
The financial statements and the independent registered public accounting firms report thereon, appearing in the Trusts annual shareholder report for the year ended February 28, 2010 are incorporated by reference in this SAI. The Trusts annual and semi-annual (unaudited) shareholder reports are available at 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258, upon request and without charge by calling (800) 992-0180.
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ING FUNDS
PROXY VOTING PROCEDURES AND GUIDELINES
Effective Date: July 10, 2003
Revision Date: March 3, 2011
I.
INTRODUCTION
The following are the Proxy Voting Procedures and Guidelines (the Procedures and Guidelines) of the ING Funds set forth on Exhibit 1 attached hereto and each portfolio or series thereof, except for any Sub-Adviser-Voted Series identified on Exhibit 1 and further described in Section III below (each non-Sub-Adviser-Voted Series hereinafter referred to as a Fund and collectively, the Funds). The purpose of these Procedures and Guidelines is to set forth the process by which each Fund subject to these Procedures and Guidelines will vote proxies related to the equity assets in its investment portfolio (the portfolio securities). The term proxies as used herein shall include votes in connection with annual and special meetings of equity stockholders but not those regarding bankruptcy matters and/or related plans of reorganization. The Procedures and Guidelines have been approved by the Funds Boards of Trustees/Directors 1 (each a Board and collectively, the Boards), including a majority of the independent Trustees/Directors 2 of the Board. These Procedures and Guidelines may be amended only by the Board. The Board shall review these Procedures and Guidelines at its discretion, and make any revisions thereto as deemed appropriate by the Board.
II.
COMPLIANCE COMMITTEE
The Boards hereby delegate to the Compliance Committee of each Board (each a Committee and collectively, the Committees) the authority and responsibility to oversee the implementation of these Procedures and Guidelines, and where applicable, to make determinations on behalf of the Board with respect to the voting of proxies on behalf of each Fund. Furthermore, the Boards hereby delegate to each Committee the authority to review and approve material changes to proxy voting procedures of any Funds investment adviser (the Adviser). The Proxy Voting Procedures of the Adviser (the Adviser Procedures) are attached hereto as Exhibit 2 . Any determination regarding the voting of proxies of each Fund
1
Reference in these Procedures to one or more Funds shall, as applicable, mean those Funds that are under the jurisdiction of the particular Board or Compliance Committee at issue. No provision in these Procedures is intended to impose any duty upon the particular Board or Compliance Committee with respect to any other Fund.
2
The independent Trustees/Directors are those Board members who are not interested persons of the Funds within the meaning of Section 2(a)(19) of the Investment Company Act of 1940.
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that is made by a Committee, or any member thereof, as permitted herein, shall be deemed to be a good faith determination regarding the voting of proxies by the full Board. Each Committee may rely on the Adviser through the Agent, Proxy Coordinator and/or Proxy Group (as such terms are defined for purposes of the Adviser Procedures) to deal in the first instance with the application of these Procedures and Guidelines. Each Committee shall conduct itself in accordance with its charter.
III.
DELEGATION OF VOTING AUTHORITY
Except as otherwise provided for herein, the Board hereby delegates to the Adviser to each Fund the authority and responsibility to vote all proxies with respect to all portfolio securities of the Fund in accordance with then current proxy voting procedures and guidelines that have been approved by the Board. The Board may revoke such delegation with respect to any proxy or proposal, and assume the responsibility of voting any Fund proxy or proxies as it deems appropriate. Non-material amendments to the Procedures and Guidelines may be approved for immediate implementation by the President or Chief Financial Officer of a Fund, subject to ratification at the next regularly scheduled meeting of the Compliance Committee.
A Board may elect to delegate the voting of proxies to the Sub-Adviser of a portfolio or series of the ING Funds. In so doing, the Board shall also approve the Sub-Advisers proxy policies for implementation on behalf of such portfolio or series (a Sub-Adviser-Voted Series). Sub-Adviser-Voted Series shall not be covered under these Procedures and Guidelines but rather shall be covered by such Sub-Advisers proxy policies, provided that the Board, including a majority of the independent Trustees/Directors 3 , has approved them on behalf of such Sub-Adviser-Voted Series, and ratifies any subsequent changes at the next regularly scheduled meeting of the Compliance Committee and the Board.
When a Fund participates in the lending of its securities and the securities are on loan at record date, proxies related to such securities will not be forwarded to the Adviser by the Funds custodian and therefore will not be voted. However, the Adviser shall use best efforts to recall or restrict specific securities from loan for the purpose of facilitating a material vote as described in the Adviser Procedures.
Funds that are funds-of-funds will echo vote their interests in underlying mutual funds, which may include ING Funds (or portfolios or series thereof) other than those set forth on Exhibit 1 attached hereto. This means that, if the fund-of-funds must vote on a proposal with respect to an underlying investment company, the fund-of-funds will vote its interest in that underlying fund in the same proportion all other shareholders in the investment company voted their interests.
A fund that is a feeder fund in a master-feeder structure does not echo vote. Rather, it passes votes requested by the underlying master fund to its shareholders. This means that, if the feeder fund is solicited by the master fund, it will request instructions from its own shareholders, either
1
The independent Trustees/Directors are those Board members who are not interested persons of the Funds within the meaning of Section 2(a)(19) of the Investment Company Act of 1940.
A-2
directly or, in the case of an insurance-dedicated Fund, through an insurance product or retirement plan, as to the manner in which to vote its interest in an underlying master fund.
When a Fund is a feeder in a master-feeder structure, proxies for the portfolio securities owned by the master fund will be voted pursuant to the master funds proxy voting policies and procedures. As such, and except as otherwise noted herein with respect to vote reporting requirements, feeder Funds shall not be subject to these Procedures and Guidelines.
IV.
APPROVAL AND REVIEW OF PROCEDURES
Each Funds Adviser has adopted proxy voting procedures in connection with the voting of portfolio securities for the Funds as attached hereto in Exhibit 2 . The Board hereby approves such procedures. All material changes to the Adviser Procedures must be approved by the Board or the Compliance Committee prior to implementation; however, the President or Chief Financial Officer of a Fund may make such non-material changes as they deem appropriate, subject to ratification by the Board or the Compliance Committee at its next regularly scheduled meeting.
V.
VOTING PROCEDURES AND GUIDELINES
The Guidelines that are set forth in Exhibit 3 hereto specify the manner in which the Funds generally will vote with respect to the proposals discussed therein.
Unless otherwise noted, the defined terms used hereafter shall have the same meaning as defined in the Adviser Procedures
A.
Routine Matters
The Agent shall be instructed to submit a vote in accordance with the Guidelines where such Guidelines provide a clear policy ( e.g. , For, Against, Withhold or Abstain) on a proposal. However, the Agent shall be directed to refer any proxy proposal to the Proxy Coordinator for instructions as if it were a matter requiring case-by-case consideration under circumstances where the application of the Guidelines is unclear, it appears to involve unusual or controversial issues, or an Investment Professional (as such term is defined for purposes of the Adviser Procedures) recommends a vote contrary to the Guidelines.
B.
Matters Requiring Case-by-Case Consideration
The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Coordinator where the Guidelines have noted case-by-case consideration.
Upon receipt of a referral from the Agent, the Proxy Coordinator may solicit additional research from the Agent, Investment Professional(s), as well as from any other source or service.
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Except in cases in which the Proxy Group has previously provided the Proxy Coordinator with standing instructions to vote in accordance with the Agents recommendation, the Proxy Coordinator will forward the Agents analysis and recommendation and/or any research obtained from the Investment Professional(s), the Agent or any other source to the Proxy Group. The Proxy Group may consult with the Agent and/or Investment Professional(s), as it deems necessary.
The Proxy Coordinator shall use best efforts to convene the Proxy Group with respect to all matters requiring its consideration. In the event quorum requirements cannot be timely met in connection with a voting deadline, it shall be the policy of the Funds to vote in accordance with the Agents recommendation, unless the Agents recommendation is deemed to be conflicted as provided for under the Adviser Procedures, in which case no action shall be taken on such matter ( i.e. , a Non-Vote).
1.
Within-Guidelines Votes: Votes in Accordance with a Funds Guidelines and/or, where applicable, Agent Recommendation
In the event the Proxy Group, and where applicable, any Investment Professional participating in the voting process, recommend a vote Within Guidelines, the Proxy Group will instruct the Agent, through the Proxy Coordinator, to vote in this manner. Except as provided for herein, no Conflicts Report (as such term is defined for purposes of the Adviser Procedures) is required in connection with Within-Guidelines Votes.
2.
Non-Votes: Votes in Which No Action is Taken
The Proxy Group may recommend that a Fund refrain from voting under circumstances including, but not limited to, the following: (1) if the economic effect on shareholders interests or the value of the portfolio holding is indeterminable or insignificant, e.g. , proxies in connection with fractional shares, securities no longer held in the portfolio of an ING Fund or proxies being considered on behalf of a Fund that is no longer in existence; or (2) if the cost of voting a proxy outweighs the benefits, e.g. , certain international proxies, particularly in cases in which share blocking practices may impose trading restrictions on the relevant portfolio security. In such instances, the Proxy Group may instruct the Agent, through the Proxy Coordinator, not to vote such proxy. The Proxy Group may provide the Proxy Coordinator with standing instructions on parameters that would dictate a Non-Vote without the Proxy Groups review of a specific proxy.
Reasonable efforts shall be made to secure and vote all other proxies for the Funds, but, particularly in markets in which shareholders rights are limited, Non-Votes may also occur in connection with a Funds related inability to timely access ballots or other proxy information in connection with its portfolio securities.
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Non-Votes may also result in certain cases in which the Agents recommendation has been deemed to be conflicted, as described in V.B. above and V.B.4. below.
3.
Out-of-Guidelines Votes: Votes Contrary to Procedures and Guidelines, or Agent Recommendation, where applicable, Where No Recommendation is Provided by Agent, or Where Agents Recommendation is Conflicted
If the Proxy Group recommends that a Fund vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, if the Agent has made no recommendation on a matter and the Procedures and Guidelines are silent, or the Agents recommendation on a matter is deemed to be conflicted as provided for under the Adviser Procedures, the Proxy Coordinator will then request that all members of the Proxy Group, including any members who abstained from voting on the matter or were not in attendance at the meeting at which the relevant proxy is being considered, and each Investment Professional participating in the voting process complete a Conflicts Report (as such term is defined for purposes of the Adviser Procedures). As provided for in the Adviser Procedures, the Proxy Coordinator shall be responsible for identifying to Counsel potential conflicts of interest with respect to the Agent.
If Counsel determines that a conflict of interest appears to exist with respect to the Agent, any member of the Proxy Group or the participating Investment Professional(s), the Proxy Coordinator will then contact the Compliance Committee(s) and forward to such Committee(s) all information relevant to their review, including the following materials or a summary thereof: the applicable Procedures and Guidelines, the recommendation of the Agent, where applicable, the recommendation of the Investment Professional(s), where applicable, any resources used by the Proxy Group in arriving at its recommendation, the Conflicts Report and any other written materials establishing whether a conflict of interest exists, and findings of Counsel (as such term is defined for purposes of the Adviser Procedures). Upon Counsels finding that a conflict of interest exists with respect to one or more members of the Proxy Group or the Advisers generally, the remaining members of the Proxy Group shall not be required to complete a Conflicts Report in connection with the proxy.
If Counsel determines that there does not appear to be a conflict of interest with respect to the Agent, any member of the Proxy Group or the participating Investment Professional(s), the Proxy Coordinator will instruct the Agent to vote the proxy as recommended by the Proxy Group.
4.
Referrals to a Funds Compliance Committee
A Funds Compliance Committee may consider all recommendations, analysis, research and Conflicts Reports provided to it by the Agent, Proxy Group and/or Investment Professional(s), and any other written materials used to establish whether a conflict of interest exists, in determining how to vote the proxies
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referred to the Committee. The Committee will instruct the Agent through the Proxy Coordinator how to vote such referred proposals.
The Proxy Coordinator shall use best efforts to timely refer matters to a Funds Committee for its consideration. In the event any such matter cannot be timely referred to or considered by the Committee, it shall be the policy of the Funds to vote in accordance with the Agents recommendation, unless the Agents recommendation is conflicted on a matter, in which case no action shall be taken on such matter ( i.e. , a Non-Vote).
The Proxy Coordinator will maintain a record of all proxy questions that have been referred to a Funds Committee, as well as all applicable recommendations, analysis, research and Conflicts Reports.
VI.
CONFLICTS OF INTEREST
In all cases in which a vote has not been clearly determined in advance by the Procedures and Guidelines or for which the Proxy Group recommends an Out-of-Guidelines Vote, and Counsel has determined that a conflict of interest appears to exist with respect to the Agent, any member of the Proxy Group, or any Investment Professional participating in the voting process, the proposal shall be referred to the Funds Committee for determination so that the Adviser shall have no opportunity to vote a Funds proxy in a situation in which it or the Agent may be deemed to have a conflict of interest. In the event a member of a Funds Committee believes he/she has a conflict of interest that would preclude him/her from making a voting determination in the best interests of the beneficial owners of the applicable Fund, such Committee member shall so advise the Proxy Coordinator and recuse himself/herself with respect to determinations regarding the relevant proxy.
VII.
REPORTING AND RECORD RETENTION
Annually in August, each Fund will post its proxy voting record, or a link thereto, for the prior one-year period ending on June 30 th on the ING Funds website. The proxy voting record for each Fund will also be available on Form N-PX in the EDGAR database on the SECs website. For any Fund that is a feeder in a master/feeder structure, no proxy voting record related to the portfolio securities owned by the master fund will be posted on the ING Funds website or included in the Funds Form N-PX; however, a cross-reference to the master funds proxy voting record as filed in the SECs EDGAR database will be included in the Funds Form N-PX and posted on the ING Funds website. If any feeder fund was solicited for vote by its underlying master fund during the reporting period, a record of the votes cast by means of the pass-through process described in Section III above will be included on the ING Funds website and in the Funds Form N-PX.
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EXHIBIT 1
to the
ING Funds
Proxy Voting Procedures
ING ASIA PACIFIC HIGH DIVIDEND EQUITY INCOME FUND
ING EMERGING MARKETS HIGH DIVIDEND EQUITY FUND
ING EMERGING MARKETS LOCAL BOND FUND
ING EQUITY TRUST
ING FUNDS TRUST
ING GLOBAL ADVANTAGE AND PREMIUM OPPORTUNITY FUND
ING GLOBAL EQUITY DIVIDEND AND PREMIUM OPPORTUNITY FUND
ING INFRASTRUCTURE, INDUSTRIALS AND MATERIALS FUND
ING INTERNATIONAL HIGH DIVIDEND EQUITY INCOME FUND
ING INVESTORS TRUST 1
ING MAYFLOWER TRUST
ING MUTUAL FUNDS
ING PARTNERS, INC.
ING PRIME RATE TRUST
ING RISK MANAGED NATURAL RESOURCES FUND
ING SENIOR INCOME FUND
ING SEPARATE PORTFOLIOS TRUST
ING VARIABLE INSURANCE TRUST
ING VARIABLE PRODUCTS TRUST
1
Sub-Adviser-Voted Series: ING Franklin Mutual Shares Portfolio
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EXHIBIT 2
to the
ING Funds
Proxy Voting Procedures
ING INVESTMENTS, LLC,
ING INVESTMENT MANAGEMENT CO.
AND
DIRECTED SERVICES LLC
PROXY VOTING PROCEDURES
I.
INTRODUCTION
ING Investments, LLC, ING Investment Management Co. and Directed Services LLC (each an Adviser and collectively, the Advisers) are the investment advisers for the registered investment companies and each series or portfolio thereof (each a Fund and collectively, the Funds) comprising the ING family of funds. As such, the Advisers have been delegated the authority to vote proxies with respect to securities for certain Funds over which they have day-to-day portfolio management responsibility.
The Advisers will abide by the proxy voting guidelines adopted by a Funds respective Board of Directors or Trustees (each a Board and collectively, the Boards) with regard to the voting of proxies unless otherwise provided in the proxy voting procedures adopted by a Funds Board.
In voting proxies, the Advisers are guided by general fiduciary principles. Each must act prudently, solely in the interest of the beneficial owners of the Funds it manages. The Advisers will not subordinate the interest of beneficial owners to unrelated objectives. Each Adviser will vote proxies in the manner that it believes will do the most to maximize shareholder value.
The following are the Proxy Voting Procedures of ING Investments, LLC, ING Investment Management Co. and Directed Services LLC (the Adviser Procedures) with respect to the voting of proxies on behalf of their client Funds as approved by the respective Board of each Fund.
Unless otherwise noted, best efforts shall be used to vote proxies in all instances.
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II.
ROLES AND RESPONSIBILITIES
A.
Proxy Coordinator
The Proxy Coordinator identified in Appendix 1 will assist in the coordination of the voting of each Funds proxies in accordance with the ING Funds Proxy Voting Procedures and Guidelines (the Procedures or Guidelines and collectively the Procedures and Guidelines). The Proxy Coordinator is authorized to direct the Agent to vote a Funds proxy in accordance with the Procedures and Guidelines unless the Proxy Coordinator receives a recommendation from an Investment Professional (as described below) to vote contrary to the Guidelines. In such event, and in connection with proxy proposals requiring case-by-case consideration (except in cases in which the Proxy Group has previously provided the Proxy Coordinator with standing instructions to vote in accordance with the Agents recommendation), the Proxy Coordinator will call a meeting of the Proxy Group (as described below).
Responsibilities assigned herein to the Proxy Coordinator, or activities in support thereof, may be performed by such members of the Proxy Group or employees of the Advisers affiliates as are deemed appropriate by the Proxy Group.
Unless specified otherwise, information provided to the Proxy Coordinator in connection with duties of the parties described herein shall be deemed delivered to the Advisers.
B.
Agent
An independent proxy voting service (the Agent), as approved by the Board of each Fund, shall be engaged to assist in the voting of Fund proxies for publicly traded securities through the provision of vote analysis, implementation, recordkeeping and disclosure services. The Agent is Institutional Shareholder Services Inc., a subsidiary of MSCI Inc. The Agent is responsible for coordinating with the Funds custodians to ensure that all proxy materials received by the custodians relating to the portfolio securities are processed in a timely fashion. To the extent applicable, the Agent is required to vote and/or refer all proxies in accordance with these Adviser Procedures. The Agent will retain a record of all proxy votes handled by the Agent. Such record must reflect all the information required to be disclosed in a Funds Form N-PX pursuant to Rule 30b1-4 under the Investment Company Act. In addition, the Agent is responsible for maintaining copies of all proxy statements received by issuers and to promptly provide such materials to the Adviser upon request.
The Agent shall be instructed to vote all proxies in accordance with a Funds Guidelines, except as otherwise instructed through the Proxy Coordinator by the Advisers Proxy Group or a Funds Compliance Committee (Committee).
The Agent shall be instructed to obtain all proxies from the Funds custodians and to review each proxy proposal against the Guidelines. The Agent also shall be requested to
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call the Proxy Coordinators attention to specific proxy proposals that although governed by the Guidelines appear to involve unusual or controversial issues.
Subject to the oversight of the Advisers, the Agent shall establish and maintain adequate internal controls and policies in connection with the provision of proxy voting services voting to the Advisers, including methods to reasonably ensure that its analysis and recommendations are not influenced by conflict of interest, and shall disclose such controls and policies to the Advisers when and as provided for herein. Unless otherwise specified, references herein to recommendations of the Agent shall refer to those in which no conflict of interest has been identified.
C.
Proxy Group
The Adviser shall establish a Proxy Group (the Group or Proxy Group) which shall assist in the review of the Agents recommendations when a proxy voting issue is referred to the Group through the Proxy Coordinator. The members of the Proxy Group, which may include employees of the Advisers affiliates, are identified in Appendix 1 , as may be amended from time at the Advisers discretion.
A minimum of four (4) members of the Proxy Group (or three (3) if one member of the quorum is either the Funds Chief Investment Risk Officer or Chief Financial Officer) shall constitute a quorum for purposes of taking action at any meeting of the Group. The vote of a simple majority of the members present and voting shall determine any matter submitted to a vote. Tie votes shall be broken by securing the vote of members not present at the meeting; provided, however, that the Proxy Coordinator shall ensure compliance with all applicable voting and conflict of interest procedures and shall use best efforts to secure votes from all or as many absent members as may reasonably be accomplished. A member of the Proxy Group may abstain from voting on any given matter, provided that quorum is not lost for purposes of taking action and that the abstaining member still participates in any conflict of interest processes required in connection with the matter. The Proxy Group may meet in person or by telephone. The Proxy Group also may take action via electronic mail in lieu of a meeting, provided that each Group member has received a copy of any relevant electronic mail transmissions circulated by each other participating Group member prior to voting and provided that the Proxy Coordinator follows the directions of a majority of a quorum (as defined above) responding via electronic mail. For all votes taken in person or by telephone or teleconference, the vote shall be taken outside the presence of any person other than the members of the Proxy Group and such other persons whose attendance may be deemed appropriate by the Proxy Group from time to time in furtherance of its duties or the day-to-day administration of the Funds. In its discretion, the Proxy Group may provide the Proxy Coordinator with standing instructions to perform responsibilities assigned herein to the Proxy Group, or activities in support thereof, on its behalf, provided that such instructions do not contravene any requirements of these Adviser Procedures or a Funds Procedures and Guidelines.
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A meeting of the Proxy Group will be held whenever (1) the Proxy Coordinator receives a recommendation from an Investment Professional to vote a Funds proxy contrary to the Guidelines, or the recommendation of the Agent, where applicable, (2) the Agent has made no recommendation with respect to a vote on a proposal, or (3) a matter requires case-by-case consideration, including those in which the Agents recommendation is deemed to be conflicted as provided for under these Adviser Procedures, provided that, if the Proxy Group has previously provided the Proxy Coordinator with standing instructions to vote in accordance with the Agents recommendation and no issue of conflict must be considered, the Proxy Coordinator may implement the instructions without calling a meeting of the Proxy Group.
For each proposal referred to the Proxy Group, it will review (1) the relevant Procedures and Guidelines, (2) the recommendation of the Agent, if any, (3) the recommendation of the Investment Professional(s), if any, and (4) any other resources that any member of the Proxy Group deems appropriate to aid in a determination of a recommendation.
If the Proxy Group recommends that a Fund vote in accordance with the Procedures and Guidelines, or the recommendation of the Agent, where applicable, it shall instruct the Proxy Coordinator to so advise the Agent.
If the Proxy Group recommends that a Fund vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, or if the Agents recommendation on a matter is deemed to be conflicted, it shall follow the procedures for such voting as established by a Funds Board.
The Proxy Coordinator shall use best efforts to convene the Proxy Group with respect to all matters requiring its consideration. In the event quorum requirements cannot be timely met in connection with a voting deadline, the Proxy Coordinator shall follow the procedures for such voting as established by a Funds Board.
D.
Investment Professionals
The Funds Advisers, sub-advisers and/or portfolio managers (each referred to herein as an Investment Professional and collectively, Investment Professionals) may submit, or be asked to submit, a recommendation to the Proxy Group regarding the voting of proxies related to the portfolio securities over which they have day-to-day portfolio management responsibility. The Investment Professionals may accompany their recommendation with any other research materials that they deem appropriate or with a request that the vote be deemed material in the context of the portfolio(s) they manage, such that lending activity on behalf of such portfolio(s) with respect to the relevant security should be reviewed by the Proxy Group and considered for recall and/or restriction. Input from the relevant sub-advisers and/or portfolio managers shall be given primary consideration in the Proxy Groups determination of whether a given proxy vote is to be deemed material and the associated security accordingly restricted from lending. The determination that a vote is material in the context of a Funds portfolio shall not mean that such vote is considered material across all Funds voting that meeting. In order
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to recall or restrict shares timely for material voting purposes, the Proxy Group shall use best efforts to consider, and when deemed appropriate, to act upon, such requests timely, and requests to review lending activity in connection with a potentially material vote may be initiated by any relevant Investment Professional and submitted for the Proxy Groups consideration at any time.
III.
VOTING PROCEDURES
A.
In all cases, the Adviser shall follow the voting procedures as set forth in the Procedures and Guidelines of the Fund on whose behalf the Adviser is exercising delegated authority to vote.
B.
Routine Matters
The Agent shall be instructed to submit a vote in accordance with the Guidelines where such Guidelines provide a clear policy ( e.g. , For, Against, Withhold or Abstain) on a proposal. However, the Agent shall be directed to refer any proxy proposal to the Proxy Coordinator for instructions as if it were a matter requiring case-by-case consideration under circumstances where the application of the Guidelines is unclear, it appears to involve unusual or controversial issues, or an Investment Professional recommends a vote contrary to the Guidelines.
C.
Matters Requiring Case-by-Case Consideration
The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Coordinator where the Guidelines have noted case-by-case consideration.
Upon receipt of a referral from the Agent, the Proxy Coordinator may solicit additional research from the Agent, Investment Professional(s), as well as from any other source or service.
Except in cases in which the Proxy Group has previously provided the Proxy Coordinator with standing instructions to vote in accordance with the Agents recommendation, the Proxy Coordinator will forward the Agents analysis and recommendation and/or any research obtained from the Investment Professional(s), the Agent or any other source to the Proxy Group. The Proxy Group may consult with the Agent and/or Investment Professional(s), as it deems necessary.
1.
Within-Guidelines Votes: Votes in Accordance with a Funds Guidelines and/or, where applicable, Agent Recommendation
In the event the Proxy Group, and where applicable, any Investment Professional participating in the voting process, recommend a vote Within Guidelines, the Proxy Group will instruct the Agent, through the Proxy Coordinator, to vote in
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this manner. Except as provided for herein, no Conflicts Report (as such term is defined herein) is required in connection with Within-Guidelines Votes.
2.
Non-Votes: Votes in Which No Action is Taken
The Proxy Group may recommend that a Fund refrain from voting under circumstances including, but not limited to, the following: (1) if the economic effect on shareholders interests or the value of the portfolio holding is indeterminable or insignificant, e.g. , proxies in connection with fractional shares, securities no longer held in the portfolio of an ING Fund or proxies being considered on behalf of a Fund that is no longer in existence; or (2) if the cost of voting a proxy outweighs the benefits, e.g. , certain international proxies, particularly in cases in which share blocking practices may impose trading restrictions on the relevant portfolio security. In such instances, the Proxy Group may instruct the Agent, through the Proxy Coordinator, not to vote such proxy. The Proxy Group may provide the Proxy Coordinator with standing instructions on parameters that would dictate a Non-Vote without the Proxy Groups review of a specific proxy.
Reasonable efforts shall be made to secure and vote all other proxies for the Funds, but, particularly in markets in which shareholders rights are limited, Non-Votes may also occur in connection with a Funds related inability to timely access ballots or other proxy information in connection with its portfolio securities.
Non-Votes may also result in certain cases in which the Agents recommendation has been deemed to be conflicted, as provided for in the Funds Procedures.
3.
Out-of-Guidelines Votes: Votes Contrary to Procedures and Guidelines, or Agent Recommendation, where applicable, Where No Recommendation is Provided by Agent, or Where Agents Recommendation is Conflicted
If the Proxy Group recommends that a Fund vote contrary to the Guidelines, or the recommendation of the Agent, where applicable, if the Agent has made no recommendation on a matter and the Procedures and Guidelines are silent, or the Agents recommendation on a matter is deemed to be conflicted as provided for under these Adviser Procedures, the Proxy Coordinator will then implement the procedures for handling such votes as adopted by the Funds Board.
4.
The Proxy Coordinator will maintain a record of all proxy questions that have been referred to a Funds Compliance Committee, as well as all applicable recommendations, analysis, research and Conflicts Reports.
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IV.
ASSESSMENT OF THE AGENT AND CONFLICTS OF INTEREST
In furtherance of the Advisers fiduciary duty to the Funds and their beneficial owners, the Advisers shall establish the following:
A.
Assessment of the Agent
The Advisers shall establish that the Agent (1) is independent from the Advisers, (2) has resources that indicate it can competently provide analysis of proxy issues and (3) can make recommendations in an impartial manner and in the best interests of the Funds and their beneficial owners. The Advisers shall utilize, and the Agent shall comply with, such methods for establishing the foregoing as the Advisers may deem reasonably appropriate and shall do so not less than annually as well as prior to engaging the services of any new proxy service. The Agent shall also notify the Advisers in writing within fifteen (15) calendar days of any material change to information previously provided to an Adviser in connection with establishing the Agents independence, competence or impartiality.
Information provided in connection with assessment of the Agent shall be forwarded to a member of the mutual funds practice group of ING Investment Management (Counsel) for review. Counsel shall review such information and advise the Proxy Coordinator as to whether a material concern exists and if so, determine the most appropriate course of action to eliminate such concern.
B.
Conflicts of Interest
The Advisers shall establish and maintain procedures to identify and address conflicts that may arise from time to time concerning the Agent. Upon the Advisers request, which shall be not less than annually, and within fifteen (15) calendar days of any material change to such information previously provided to an Adviser, the Agent shall provide the Advisers with such information as the Advisers deem reasonable and appropriate for use in determining material relationships of the Agent that may pose a conflict of interest with respect to the Agents proxy analysis or recommendations. The Proxy Coordinator shall forward all such information to Counsel for review. Counsel shall review such information and provide the Proxy Coordinator with a brief statement regarding whether or not a material conflict of interest is present. Matters as to which a material conflict of interest is deemed to be present shall be handled as provided in the Funds Procedures and Guidelines.
In connection with their participation in the voting process for portfolio securities, each member of the Proxy Group, and each Investment Professional participating in the voting process, must act solely in the best interests of the beneficial owners of the applicable Fund. The members of the Proxy Group may not subordinate the interests of the Funds beneficial owners to unrelated objectives, including
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taking steps to reasonably insulate the voting process from any conflict of interest that may exist in connection with the Agents services or utilization thereof.
For all matters for which the Proxy Group recommends an Out-of-Guidelines Vote, or for which a recommendation contrary to that of the Agent or the Guidelines has been received from an Investment Professional and is to be utilized, the Proxy Coordinator will implement the procedures for handling such votes as adopted by the Funds Board, including completion of such Conflicts Reports as may be required under the Funds Procedures. Completed Conflicts Reports should be provided to the Proxy Coordinator within two (2) business days and may be submitted to the Proxy Coordinator verbally, provided the Proxy Coordinator documents the Conflicts Report in writing. Such Conflicts Report should describe any known conflicts of either a business or personal nature, and set forth any contacts with respect to the referral item with non-investment personnel in its organization or with outside parties (except for routine communications from proxy solicitors). The Conflicts Report should also include written confirmation that any recommendation from an Investment Professional provided in connection with an Out-of-Guidelines Vote or under circumstances where a conflict of interest exists was made solely on the investment merits and without regard to any other consideration.
The Proxy Coordinator shall forward all Conflicts Reports to Counsel for review. Counsel shall review each report and provide the Proxy Coordinator with a brief statement regarding whether or not a material conflict of interest is present. Matters as to which a material conflict of interest is deemed to be present shall be handled as provided in the Funds Procedures and Guidelines.
V.
REPORTING AND RECORD RETENTION
The Adviser shall maintain the records required by Rule 204-2(c)(2), as may be amended from time to time, including the following: (1) A copy of each proxy statement received regarding a Funds portfolio securities. Such proxy statements received from issuers are available either in the SECs EDGAR database or are kept by the Agent and are available upon request. (2) A record of each vote cast on behalf of a Fund. (3) A copy of any document created by the Adviser that was material to making a decision how to vote a proxy, or that memorializes the basis for that decision. (4) A copy of written requests for Fund proxy voting information and any written response thereto or to any oral request for information on how the Adviser voted proxies on behalf of a Fund. All proxy voting materials and supporting documentation will be retained for a minimum of six (6) years, the first two years in the Advisers office.
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APPENDIX 1
to the
Advisers Proxy Voting Procedures
Proxy Group for registered investment company clients of ING Investments, LLC, ING Investment Management Co. and Directed Services LLC:
Name |
Title or Affiliation |
Stanley D. Vyner |
Chief Investment Risk Officer and Executive Vice President, ING Investments, LLC |
Todd Modic |
Senior Vice President, ING Funds Services, LLC and ING Investments, LLC; and Chief Financial Officer of the ING Funds |
Maria Anderson |
Vice President of Fund Compliance, ING Funds Services, LLC |
Karla J. Bos |
Proxy Coordinator for the ING Funds and Assistant Vice President Proxy Voting, ING Funds Services, LLC |
Julius A. Drelick III, CFA |
Vice President, Platform Product Management and Project Management, ING Funds Services, LLC |
Harley Eisner |
Vice President of Financial Analysis, ING Funds Services, LLC |
Theresa K. Kelety, Esq. |
Vice President and Senior Counsel, ING Funds |
Effective as of January 1, 2010
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EXHIBIT 3
to the
ING Funds
Proxy Voting Procedures
PROXY VOTING GUIDELINES OF THE ING FUNDS
I.
INTRODUCTION
The following is a statement of the Proxy Voting Guidelines (Guidelines) that have been adopted by the respective Boards of Directors or Trustees of each Fund. Unless otherwise provided for herein, any defined term used herein shall have the meaning assigned to it in the Funds and Advisers Proxy Voting Procedures (the Procedures).
Proxies must be voted in the best interest of the Fund(s). The Guidelines summarize the Funds positions on various issues of concern to investors, and give a general indication of how Fund portfolio securities will be voted on proposals dealing with particular issues. The Guidelines are not exhaustive and do not include all potential voting issues.
The Advisers, in exercising their delegated authority, will abide by the Guidelines as outlined below with regard to the voting of proxies except as otherwise provided in the Procedures. In voting proxies, the Advisers are guided by general fiduciary principles. Each must act prudently, solely in the interest of the beneficial owners of the Funds it manages. The Advisers will not subordinate the interest of beneficial owners to unrelated objectives. Each Adviser will vote proxies in the manner that it believes will do the most to maximize shareholder value.
II.
GUIDELINES
The following Guidelines are grouped according to the types of proposals generally presented to shareholders of U.S. issuers: Board of Directors, Proxy Contests, Auditors, Proxy Contest Defenses, Tender Offer Defenses, Miscellaneous, Capital Structure, Executive and Director Compensation, State of Incorporation, Mergers and Corporate Restructurings, Mutual Fund Proxies, and Social and Environmental Issues. An additional section addresses proposals most frequently found in global proxies.
General Policies
These Guidelines apply to securities of publicly traded companies and to those of privately held companies if publicly available disclosure permits such application. All matters for which such disclosure is not available shall be considered CASE-BY-CASE.
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It shall generally be the policy of the Funds to take no action on a proxy for which no Fund holds a position or otherwise maintains an economic interest in the relevant security at the time the vote is to be cast.
In all cases receiving CASE-BY-CASE consideration, including cases not specifically provided for under these Guidelines, unless otherwise provided for under these Guidelines, it shall generally be the policy of the Funds to vote in accordance with the recommendation provided by the Funds Agent, Institutional Shareholder Services Inc., a subsidiary of MSCI Inc.
Unless otherwise provided for herein, it shall generally be the policy of the Funds to vote in accordance with the Agents recommendation when such recommendation aligns with the recommendation of the relevant issuers management or management has made no recommendation. However, this policy shall not apply to CASE-BY-CASE proposals for which a contrary recommendation from the Investment Professional for the relevant Fund has been received and is to be utilized, provided that incorporation of any such recommendation shall be subject to the conflict of interest review process required under the Procedures.
Recommendations from the Investment Professionals, while not required under the Procedures, are likely to be considered with respect to proxies for private equity securities and/or proposals related to merger transactions/corporate restructurings, proxy contests, or unusual or controversial issues. Such input shall be given primary consideration with respect to CASE-BY-CASE proposals being considered on behalf of the relevant Fund.
Except as otherwise provided for herein, it shall generally be the policy of the Funds not to support proposals that would impose a negative impact on existing rights of the Funds to the extent that any positive impact would not be deemed sufficient to outweigh removal or diminution of such rights.
The foregoing policies may be overridden in any case as provided for in the Procedures. Similarly, the Procedures provide that proposals whose Guidelines prescribe a firm voting position may instead be considered on a CASE-BY-CASE basis when unusual or controversial circumstances so dictate.
Interpretation and application of these Guidelines is not intended to supersede any law, regulation, binding agreement or other legal requirement to which an issuer may be or become subject. No proposal shall be supported whose implementation would contravene such requirements.
1.
The Board of Directors
Voting on Director Nominees in Uncontested Elections
Unless otherwise provided for herein, the Agents standards with respect to determining director independence shall apply. These standards generally provide that, to be considered completely independent, a director shall have no material connection to the company other than the board seat.
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Agreement with the Agents independence standards shall not dictate that a Funds vote shall be cast according to the Agents corresponding recommendation. Votes on director nominees not subject to specific policies described herein should be made on a CASE-BY-CASE basis.
Where applicable and except as otherwise provided for herein, it shall generally be the policy of the Funds to lodge disagreement with an issuers policies or practices by withholding support from a proposal for the relevant policy or practice rather than the director nominee(s) to which the Agent assigns a correlation. Support shall be withheld from nominees deemed responsible for governance shortfalls, but if they are not standing for election ( e.g. , the board is classified), support shall generally not be withheld from others in their stead. When a determination is made to withhold support due to concerns other than those related to an individual directors independence or actions, responsibility may be attributed to the entire board, a committee, or an individual (such as the CEO or committee chair), taking into consideration whether the desired effect is to send a message or to remove the director from service.
Where applicable and except as otherwise provided for herein, generally vote FOR nominees in connection with issues raised by the Agent if the nominee did not serve on the board or relevant committee during the majority of the time period relevant to the concerns cited by the Agent.
WITHHOLD support from a nominee who, during both of the most recent two years, attended less than 75 percent of the board and committee meetings without a valid reason for the absences. WITHHOLD support if two-year attendance cannot be ascertained from available disclosure. DO NOT WITHHOLD support in connection with attendance issues for nominees who have served on the board for less than the two most recent years.
Unless a company has implemented a policy that should reasonably prevent abusive use of its poison pill, WITHHOLD support from nominees responsible for implementing excessive anti-takeover measures, including failure to remove restrictive poison pill features or to ensure a pills expiration or timely submission to shareholders for vote. Rather than follow the Agents practice of withholding support from all incumbent nominees, responsibility will generally be assigned to the board chair or, if not standing for election, the lead director. If neither is standing for election, WITHHOLD support from all continuing directors.
Consider on a CASE-BY-CASE basis any nominee whom the Agent cites as having failed to implement a majority-approved shareholder proposal. Vote FOR if the shareholder proposal has been reasonably addressed. Proposals seeking shareholder ratification of a poison pill may be deemed reasonably addressed if the company has implemented a policy that should reasonably prevent abusive use of the pill. WITHHOLD support if the shareholder proposal at issue is supported under these Guidelines and the board has not disclosed its reasoning for not implementing the proposal.
If the board has not acted upon negative votes (WITHHOLD or AGAINST, as applicable based on the issuers election standard) representing a majority of the votes cast at the previous annual meeting, consider board nominees on a CASE-BY-CASE basis. Generally, vote FOR nominees when:
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(1)
The issue relevant to the majority negative vote has been adequately addressed or cured, which may include disclosure of the boards rationale; or
(2)
The Funds Guidelines or voting record do not support the relevant issue causing the majority negative vote.
If the above provisions have not been satisfied, generally WITHHOLD support from the chair of the nominating committee, or if not standing for election, consider CASE-BY-CASE.
WITHHOLD support from inside directors or affiliated outside directors who sit on the audit committee.
Vote FOR inside directors or affiliated outside directors who sit on the nominating or compensation committee, provided that such committee meets the applicable independence requirements of the relevant listing exchange.
Vote FOR inside directors or affiliated outside directors if the full board serves as the compensation or nominating committee OR has not created one or both committees, provided that the issuer is in compliance with all provisions of the listing exchange in connection with performance of relevant functions ( e.g. , performance of relevant functions by a majority of independent directors in lieu of the formation of a separate committee).
Compensation Practices:
It shall generally be the policy of the Funds that matters of compensation are best determined by an independent board and compensation committee. Votes on director nominees in connection with compensation practices should be considered on a CASE-BY-CASE basis, and generally:
(1)
Say on pay . If shareholders have been provided with an advisory vote on executive compensation (say on pay), and practices not supported under these Guidelines have been identified, it shall generally be the policy of the Funds to align with the Agent when a vote AGAINST the say on pay proposal has been recommended in lieu of withholding support from certain nominees for compensation concerns. Issuers receiving negative recommendations on both director nominees and say on pay regarding issues not otherwise supported by these Guidelines will be considered on a CASE-BY-CASE basis.
(2)
Tenure . Where applicable and except as otherwise provided for herein, vote FOR nominees who did not serve on the compensation committee, or board, as applicable based on the Agents analysis, during the majority of the time period relevant to the concerns cited by the Agent.
(3)
Pay for performance . Consider nominees receiving an adverse recommendation from the Agent CASE-BY-CASE when the Agent has identified a pay practice (or combination of practices) not otherwise supported under these Guidelines that appears to have created a misalignment between CEO pay and performance with regard to shareholder value. Generally vote FOR nominees if the company has provided a reasonable rationale regarding pay and performance, or has demonstrated that they are reasonably correlated, or when the increased compensation relates solely to a practice or practices (such as an increase in option awards or base salary) not deemed inherently problematic by the Agent. Generally WITHHOLD support from nominees for
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structuring equity compensation such that pay is unreasonably insulated from performance conditions.
(4)
Pay disparity . Generally DO NOT WITHHOLD support from director nominees solely due to internal pay disparity as assessed by the Agent, but consider pay magnitude concerns on a CASE-BY-CASE basis.
(5)
Change in control provisions . If the Agent recommends withholding support from nominees in connection with overly liberal change in control provisions, including those lacking a double trigger, vote FOR such nominees if mitigating provisions or board actions ( e.g. , clawbacks) are present, but generally WITHHOLD support if they are not. If the Agent recommends withholding support from nominees in connection with potential change in control payments or tax-gross-ups on change in control payments, vote FOR the nominees if the amount appears reasonable and no material governance concerns exist. Generally WITHHOLD support if the amount is so significant (individually or collectively) as to potentially influence an executives decision to enter into a transaction or to effectively act as a poison pill.
(6)
Repricing . If the Agent recommends withholding support from nominees in connection with their failure to seek a shareholder vote on plans to reprice, replace, buy back or exchange options, generally WITHHOLD support from such nominees, except that cancellation of options would not be considered an exchange unless the cancelled options were regranted or expressly returned to the plan reserve for reissuance.
(7)
Tax benefits . If the Agent recommends withholding support from nominees that have approved compensation that is ineligible for tax benefits to the company ( e.g. , under Section 162(m) of OBRA), vote FOR such nominees if the company has provided an adequate rationale or the plan itself is being put to shareholder vote at the same meeting. If the plan is up for vote, the provisions under Section 8., OBRA-Related Compensation Proposals, shall apply.
(8)
Director perquisites . If the Agent recommends withholding support from nominees in connection with director compensation in the form of perquisites, generally vote FOR the nominees if the cost is reasonable in the context of the directors total compensation and the perquisites themselves appear reasonable given their purpose, the directors duties and the companys line of business.
(9)
Incentive plans . Generally WITHHOLD support from nominees in connection with long-term incentive plans, or total executive compensation packages, inadequately aligned with shareholders because they are overly cash-based/lack an appropriate equity component, except that such cases will be considered CASE-BY-CASE in connection with executives already holding significant equity positions. Generally consider nominees on a CASE-BY-CASE basis in connection with short-term incentive plans over which the nominee has exercised discretion to exclude extraordinary items, and WITHHOLD support if treatment of such items has been inconsistent ( e.g. , exclusion of losses but not gains).
(10)
Options backdating . If the Agent has raised issues of options backdating, consider members of the compensation committee, or board, as applicable, as well as company executives nominated as directors, on a CASE-BY-CASE basis.
(11)
Independence from management . Generally WITHHOLD support from nominees cited by the Agent for permitting named executives to have excessive input into setting their own compensation.
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(12)
Multiple concerns . If the Agent recommends withholding support from nominees in connection with other compensation practices such as tax gross-ups, perquisites, retention or recruitment provisions (including contract length or renewal provisions), guaranteed awards, pensions/SERPs, severance or termination arrangements, vote FOR such nominees if the issuer has provided adequate rationale and/or disclosure, factoring in any overall adjustments or reductions to the compensation package at issue. Generally DO NOT WITHHOLD support solely due to any single such practice if the total compensation appears reasonable, but consider on a CASE-BY-CASE basis compensation packages representing a combination of such provisions and deemed by the Agent to be excessive.
(13)
Commitments . Generally, vote FOR nominees receiving an adverse recommendation from the Agent due to problematic pay practices if the issuer makes a public commitment ( e.g. , via a Form 8-K filing) to rectify the practice on a going-forward basis.
(14)
Other . If the Agent has raised other considerations regarding poor compensation practices, consider nominees on a CASE-BY-CASE basis.
Accounting Practices:
(1)
Generally, vote FOR independent outside director nominees serving on the audit committee.
(2)
Where applicable and except as otherwise provided for herein, generally vote FOR nominees serving on the audit committee, or the companys CEO or CFO if nominated as directors, who did not serve on that committee or have responsibility over the relevant financial function, as applicable, during the majority of the time period relevant to the concerns cited by the Agent.
(3)
If the Agent has raised concerns regarding poor accounting practices, consider the companys CEO and CFO, if nominated as directors, and nominees serving on the audit committee on a CASE-BY-CASE basis. Generally vote FOR nominees if the company has taken adequate steps to remediate the concerns cited, which would typically include removing or replacing the responsible executives, and if the concerns are not re-occurring and/or the company has not yet had a full year to remediate the concerns since the time they were identified.
(4)
If total non-audit fees exceed the total of audit fees, audit-related fees and tax compliance and preparation fees, the provisions under Section 3., Auditor Ratification, shall apply.
Board Independence:
It shall generally be the policy of the Funds that a board should be majority independent and therefore to consider inside director or affiliated outside director nominees when the full board is not majority independent on a CASE-BY-CASE basis. Generally:
(1)
WITHHOLD support from the fewest directors whose removal would achieve majority independence across the remaining board, except that support may be withheld from additional nominees whose relative level of independence cannot be differentiated.
(2)
WITHHOLD support from all non-independent nominees, including the founder, chairman or CEO, if the number required to achieve majority independence is equal to or greater than the number of non-independent nominees.
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(3)
Except as provided above, vote FOR non-independent nominees in the role of CEO, and when appropriate, founder or chairman, and determine support for other non-independent nominees based on the qualifications and contributions of the nominee as well as the Funds voting precedent for assessing relative independence to management, e.g. , insiders holding senior executive positions are deemed less independent than affiliated outsiders with a transactional or advisory relationship to the company, and affiliated outsiders with a material transactional or advisory relationship are deemed less independent than those with lesser relationships.
(4)
Non-voting directors ( e.g. , director emeritus or advisory director) shall be excluded from calculations with respect to majority board independence.
(5)
When conditions contributing to a lack of majority independence remain substantially similar to those in the previous year, it shall generally be the policy of the Funds to vote on nominees in a manner consistent with votes cast by the Fund(s) in the previous year.
Generally vote FOR nominees without regard to over-boarding issues raised by the Agent unless other concerns requiring CASE-BY-CASE consideration have been raised.
Generally, when the Agent recommends withholding support due to assessment that a nominee acted in bad faith or against shareholder interests in connection with a major transaction, such as a merger or acquisition, or if the Agent recommends withholding support due to other material failures or egregious actions, consider on a CASE-BY-CASE basis, factoring in the merits of the nominees performance and rationale and disclosure provided. If the Agent cites concerns regarding actions in connection with a candidates service on another board, vote FOR the nominee if the issuer has provided adequate rationale regarding the boards process for determining the appropriateness of the nominee to serve on the board under consideration.
Performance Test for Directors
Consider nominees failing the Agents performance test, which includes market-based and operating performance measures, on a CASE-BY-CASE basis. Input from the Investment Professional(s) for a given Fund shall be given primary consideration with respect to such proposals.
Support will generally be WITHHELD from nominees receiving a negative recommendation from the Agent due to sustained poor stock performance (measured by one- and three-year total shareholder returns) combined with multiple takeover defenses/entrenchment devices if the issuer:
(1)
Is a controlled company or has a non-shareholder-approved poison pill in place, without provisions to redeem or seek approval in a reasonable period of time; and
(2)
Maintains a dual class capital structure, imposes a supermajority vote requirement or has authority to issue blank check preferred stock.
Nominees receiving a negative recommendation from the Agent due to sustained poor stock performance combined with other takeover defenses/entrenchment devices will be considered on a CASE-BY-CASE basis.
Proposals Regarding Board Composition or Board Service
Generally, except as otherwise provided for herein, vote AGAINST shareholder proposals to impose new board structures or policies, including those requiring that the positions of chairman
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and CEO be held separately, but vote FOR proposals in connection with a binding agreement or other legal requirement to which an issuer has or reasonably may expect to become subject, and consider such proposals on a CASE-BY-CASE basis if the board is not majority independent or corporate governance concerns have been identified. Generally, except as otherwise provided for herein, vote FOR management proposals to adopt or amend board structures or policies, except consider such proposals on a CASE-BY-CASE basis if the board is not majority independent, corporate governance concerns have been identified, or the proposal may result in a material reduction in shareholders rights.
Generally, vote AGAINST shareholder proposals:
·
Asking that more than a simple majority of directors be independent.
·
Asking that the independence of the compensation and/or nominating committees be greater than that required by the listing exchange.
·
Limiting the number of public company boards on which a director may serve.
·
Seeking to redefine director independence or directors specific roles ( e.g. , responsibilities of the lead director).
·
Requesting creation of additional board committees or offices, except as otherwise provided for herein.
·
Limiting the tenure of outside directors or impose a mandatory retirement age for outside directors (unless the proposal seeks to relax existing standards), but generally vote FOR management proposals in this regard.
Generally, vote FOR shareholder proposals that seek creation of an audit, compensation or nominating committee of the board, unless the committee in question is already in existence or the issuer has availed itself of an applicable exemption of the listing exchange ( e.g. , performance of relevant functions by a majority of independent directors in lieu of the formation of a separate committee).
Stock Ownership Requirements
Generally, vote AGAINST shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director or to remain on the board.
Director and Officer Indemnification and Liability Protection
Proposals on director and officer indemnification and liability protection should be evaluated on a CASE-BY-CASE basis, using Delaware law as the standard. Vote AGAINST proposals to limit or eliminate entirely directors and officers liability for monetary damages for violating the duty of care. Vote AGAINST indemnification proposals that would expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. Vote FOR only those proposals providing such expanded coverage in cases when a directors or officers legal defense was unsuccessful if:
(1)
The director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company; and
(2)
Only if the directors legal expenses would be covered.
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2.
Proxy Contests
These proposals should generally be analyzed on a CASE-BY-CASE basis. Input from the Investment Professional(s) for a given Fund shall be given primary consideration with respect to proposals in connection with proxy contests being considered on behalf of that Fund.
Voting for Director Nominees in Contested Elections
Votes in a contested election of directors must be evaluated on a CASE-BY-CASE basis.
Reimburse Proxy Solicitation Expenses
Voting to reimburse proxy solicitation expenses should be analyzed on a CASE-BY-CASE basis, generally voting FOR if associated nominees are also supported.
3.
Auditors
Ratifying Auditors
Generally, except in cases of poor accounting practices or high non-audit fees, vote FOR management proposals to ratify auditors. Consider management proposals to ratify auditors on a CASE-BY-CASE basis if the Agent cites poor accounting practices. If fees for non-audit services exceed 50 percent of total auditor fees as described below, consider on a CASE-BY-CASE basis, voting AGAINST management proposals to ratify auditors only if concerns exist that remuneration for the non-audit work is so lucrative as to taint the auditors independence. For purposes of this review, fees deemed to be reasonable, generally non-recurring exceptions to the non-audit fee category ( e.g. , those related to an IPO) shall be excluded. Generally vote FOR shareholder proposals asking the issuer to present its auditor annually for ratification.
Auditor Independence
Generally, consider shareholder proposals asking companies to prohibit their auditors from engaging in non-audit services (or capping the level of non-audit services) on a CASE-BY-CASE basis.
Audit Firm Rotation
Generally, vote AGAINST shareholder proposals asking for mandatory audit firm rotation.
4.
Proxy Contest Defenses
Presentation of management and shareholder proposals on the same matter on the same agenda shall not require a Fund to vote FOR one and AGAINST the other.
Board Structure: Staggered vs. Annual Elections
Generally, vote AGAINST proposals to classify the board or otherwise restrict shareholders ability to vote upon directors and FOR proposals to repeal classified boards and to elect all directors annually.
Shareholder Ability to Remove Directors
Generally, vote AGAINST proposals that provide that directors may be removed only for cause.
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Generally, vote FOR proposals to restore shareholder ability to remove directors with or without cause.
Generally, vote AGAINST proposals that provide that only continuing directors may elect replacements to fill board vacancies.
Generally, vote FOR proposals that permit shareholders to elect directors to fill board vacancies.
Cumulative Voting
If the company is controlled or maintains a classified board of directors, generally, vote AGAINST management proposals to eliminate cumulative voting, except that such proposals may be supported irrespective of classification in furtherance of an issuers plan to adopt a majority voting standard, and vote FOR shareholder proposals to restore or permit cumulative voting.
Time-Phased Voting
Generally, vote AGAINST proposals to implement, and FOR proposals to eliminate, time-phased or other forms of voting that do not promote a one share, one vote standard.
Shareholder Ability to Call Special Meetings
Generally, vote FOR management or shareholder proposals that provide shareholders with the ability to call special meetings.
Shareholder Ability to Act by Written Consent
Generally, vote AGAINST shareholder proposals seeking the right to act by written consent if the issuer:
(1)
Permits shareholders to call special meetings;
(2)
Does not impose supermajority vote requirements; and
(3)
Has otherwise demonstrated its accountability to shareholders ( e.g. , the company has reasonably addressed majority-supported shareholder proposals).
Consider management proposals to eliminate the right to act by written consent on a CASE-BY-CASE basis, generally voting FOR if the above conditions are present.
Generally, vote FOR shareholder proposals seeking the right to act by written consent if the above conditions are not present.
Shareholder Ability to Alter the Size of the Board
Generally, vote FOR proposals that seek to fix the size of the board or designate a range for its size.
Generally, vote AGAINST proposals that give management the ability to alter the size of the board outside of a specified range without shareholder approval.
5.
Tender Offer Defenses
Poison Pills
Generally, vote FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification, or to redeem its pill in lieu thereof, unless (1) shareholders have approved adoption of the plan, (2) a policy has already been implemented by the company that should reasonably prevent abusive use of the pill, or (3) the board had determined that it was in
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the best interest of shareholders to adopt a pill without delay, provided that such plan would be put to shareholder vote within twelve months of adoption or expire, and if not approved by a majority of the votes cast, would immediately terminate.
Review on a CASE-BY-CASE basis shareholder proposals to redeem a companys poison pill.
Review on a CASE-BY-CASE basis management proposals to approve or ratify a poison pill or any plan or charter amendment ( e.g. , investment restrictions) that can reasonably be construed as an anti-takeover measure, with voting decisions generally based on the Agents approach to evaluating such proposals, considering factors such as rationale, trigger level and sunset provisions. Votes will generally be cast in a manner that seeks to preserve shareholder value and the right to consider a valid offer, voting AGAINST management proposals in connection with poison pills or anti-takeover activities that do not meet the Agents standards.
Fair Price Provisions
Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis.
Generally, vote AGAINST fair price provisions with shareholder vote requirements greater than a majority of disinterested shares.
Greenmail
Generally, vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a companys ability to make greenmail payments.
Review on a CASE-BY-CASE basis anti-greenmail proposals when they are bundled with other charter or bylaw amendments.
Pale Greenmail
Review on a CASE-BY-CASE basis restructuring plans that involve the payment of pale greenmail.
Unequal Voting Rights
Generally, vote AGAINST dual-class exchange offers and dual-class recapitalizations.
Supermajority Shareholder Vote Requirement
Generally, vote AGAINST proposals to require a supermajority shareholder vote.
Generally, vote FOR management or shareholder proposals to lower supermajority shareholder vote requirements, unless, for companies with shareholder(s) with significant ownership levels, the Agent recommends retention of existing supermajority requirements in order to protect minority shareholder interests.
White Squire Placements
Generally, vote FOR shareholder proposals to require approval of blank check preferred stock issues for other than general corporate purposes.
6.
Miscellaneous
Amendments to Corporate Documents
Except to align with legislative or regulatory changes or when support is recommended by the Agent or Investment Professional (including, for example, as a condition to a major transaction such
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as a merger), generally, vote AGAINST proposals seeking to remove shareholder approval requirements or otherwise remove or diminish shareholder rights, e.g. , by (1) adding restrictive provisions, (2) removing provisions or moving them to portions of the charter not requiring shareholder approval, or (3) in corporate structures such as holding companies, removing provisions in an active subsidiarys charter that provide voting rights to parent company shareholders. This policy would also generally apply to proposals seeking approval of corporate agreements or amendments to such agreements that the Agent recommends AGAINST because a similar reduction in shareholder rights is requested.
Generally, vote AGAINST proposals for charter amendments that support board entrenchment or may be used as an anti-takeover device (or to further anti-takeover conditions), particularly if the proposal is bundled or the board is classified.
Generally, vote FOR proposals seeking charter or bylaw amendments to remove anti-takeover provisions.
Consider proposals seeking charter or bylaw amendments not addressed under these Guidelines on a CASE-BY-CASE basis.
Confidential Voting
Generally, vote FOR shareholder proposals that request companies to adopt confidential voting, use independent tabulators, and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows:
·
In the case of a contested election, management should be permitted to request that the dissident group honor its confidential voting policy.
·
If the dissidents agree, the policy remains in place.
·
If the dissidents do not agree, the confidential voting policy is waived.
Generally, vote FOR management proposals to adopt confidential voting.
Proxy Access
Consider on a CASE-BY-CASE basis shareholder proposals seeking access to managements proxy material in order to nominate their own candidates to the board.
Majority Voting Standard
Except as otherwise provided for herein, it shall generally be the policy of the Funds to extend discretion to issuers to determine when it may be appropriate to adopt a majority voting standard . Generally, vote FOR management proposals, provided the proposal contains a plurality carve-out for contested elections, but AGAINST shareholder proposals unless also supported by management, seeking election of directors by the affirmative vote of the majority of votes cast in connection with a meeting of shareholders, including amendments to corporate documents or other actions in furtherance of a majority standard, and provided such standard does not conflict with state law in which the company is incorporated. For issuers with a history of significant corporate governance concerns, consider such proposals on a CASE-BY-CASE basis.
Bundled Proposals
Except as otherwise provided for herein, review on a CASE-BY-CASE basis bundled or conditioned proxy proposals, generally voting AGAINST bundled proposals containing one or more items not supported under these Guidelines if the Agent or an Investment Professional deems the negative impact, on balance, to outweigh any positive impact.
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Shareholder Advisory Committees
Review on a CASE-BY-CASE basis proposals to establish a shareholder advisory committee.
Reimburse Shareholder for Expenses Incurred
Voting to reimburse expenses incurred in connection with shareholder proposals should be analyzed on a CASE-BY-CASE basis.
Other Business
In connection with proxies of U.S. issuers, generally vote FOR management proposals for Other Business, except in connection with a proxy contest in which a Fund is not voting in support of management.
Quorum Requirements
Review on a CASE-BY-CASE basis proposals to lower quorum requirements for shareholder meetings below a majority of the shares outstanding.
Advance Notice for Shareholder Proposals
Generally, vote FOR management proposals related to advance notice period requirements, provided that the period requested is in accordance with applicable law and no material governance concerns have been identified in connection with the issuer.
Multiple Proposals
Multiple proposals of a similar nature presented as options to the course of action favored by management may all be voted FOR, provided that support for a single proposal is not operationally required, no one proposal is deemed superior in the interest of the Fund(s), and each proposal would otherwise be supported under these Guidelines.
7.
Capital Structure
Common Stock Authorization
Review proposals to increase the number of shares of common stock authorized for issuance on a CASE-BY-CASE basis. Except where otherwise indicated, the Agents proprietary approach of determining appropriate thresholds and, for requests above such allowable threshold, applying a company-specific, qualitative review ( e.g. , considering rationale and prudent historical usage), will generally be utilized in evaluating such proposals.
Generally vote FOR:
·
Proposals to authorize capital increases within the Agents allowable thresholds or those in excess but meeting Agents qualitative standards, but consider on a CASE-BY-CASE basis those requests failing the Agents review for proposals in connection with which a contrary recommendation from the Investment Professional(s) has been received and is to be utilized ( e.g., in support of a merger or acquisition proposal).
·
Proposals to authorize capital increases within the Agents allowable thresholds or those in excess but meeting Agents qualitative standards, unless the company states that the stock may be used as a takeover defense. In those cases, consider on a CASE-BY-CASE
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basis if a contrary recommendation from the Investment Professional(s) has been received and is to be utilized.
·
Proposals to authorize capital increases exceeding the Agents thresholds when a companys shares are in danger of being delisted or if a companys ability to continue to operate as a going concern is uncertain.
Generally, vote AGAINST:
·
Proposals to increase the number of authorized shares of a class of stock if the issuance which the increase is intended to service is not supported under these Guidelines.
·
Nonspecific proposals authorizing excessive discretion to a board.
Consider management proposals to make changes to the capital structure not otherwise addressed under these Guidelines CASE-BY-CASE, generally voting with the Agents recommendation unless a contrary recommendation has been received from the Investment Professional for the relevant Fund and is to be utilized.
Dual Class Capital Structures
Generally, vote AGAINST proposals to increase the number of authorized shares of the class of stock that has superior voting rights in companies that have dual class capital structures, but consider CASE-BY-CASE if (1) bundled with favorable proposal(s), (2) approval of such proposal(s) is a condition of such favorable proposal(s), or (3) part of a recapitalization for which support is recommended by the Agent or an Investment Professional.
Generally, vote AGAINST management proposals to create or perpetuate dual class capital structures with unequal voting rights, and vote FOR shareholder proposals to eliminate them, when the relevant Fund owns the class with inferior voting rights, but generally vote FOR management proposals and AGAINST shareholder proposals when the relevant Fund owns the class with superior voting rights. Consider CASE-BY-CASE if bundled with favorable proposal(s), (2) approval of such proposal(s) is a condition of such favorable proposal(s), or (3) part of a recapitalization for which support is recommended by the Agent or an Investment Professional.
Consider management proposals to eliminate or make changes to dual class capital structures CASE-BY-CASE, generally voting with the Agents recommendation unless a contrary recommendation has been received from the Investment Professional for the relevant Fund and is to be utilized.
Stock Distributions: Splits and Dividends
Generally, vote FOR management proposals to increase common share authorization for a stock split, provided that the increase in authorized shares falls within the Agents allowable thresholds, but consider on a CASE-BY-CASE basis those proposals exceeding the Agents threshold for proposals in connection with which a contrary recommendation from the Investment Professional(s) has been received and is to be utilized.
Reverse Stock Splits
Consider on a CASE-BY-CASE basis management proposals to implement a reverse stock split. In the event the split constitutes a capital increase effectively exceeding the Agents allowable threshold because the request does not proportionately reduce the number of shares authorized,
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consider managements rationale and/or disclosure, generally voting FOR, but generally not supporting additional requests for capital increases on the same agenda.
Preferred Stock
Review proposals to increase the number of shares of preferred stock authorized for issuance on a CASE-BY-CASE basis, and except where otherwise indicated, generally utilize the Agents approach for evaluating such proposals. This approach incorporates both qualitative and quantitative measures, including a review of past performance ( e.g. , board governance, shareholder returns and historical share usage) and the current request ( e.g. , rationale, whether shares are blank check and declawed, and dilutive impact as determined through the Agents proprietary model for assessing appropriate thresholds).
Generally, vote AGAINST proposals authorizing the issuance of preferred stock or creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights (blank check preferred stock), but vote FOR if the Agent or an Investment Professional so recommends because the issuance is required to effect a merger or acquisition proposal.
Generally, vote FOR proposals to issue or create blank check preferred stock in cases when the company expressly states that the stock will not be used as a takeover defense. Generally vote AGAINST in cases where the company expressly states that, or fails to disclose whether, the stock may be used as a takeover defense, but vote FOR if the Agent or an Investment Professional so recommends because the issuance is required to address special circumstances such as a merger or acquisition.
Generally, vote FOR proposals to authorize or issue preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable.
Vote CASE-BY-CASE on proposals to increase the number of blank check preferred shares after analyzing the number of preferred shares available for issue given a companys industry and performance in terms of shareholder returns.
Shareholder Proposals Regarding Blank Check Preferred Stock
Generally, vote FOR shareholder proposals to have blank check preferred stock placements, other than those shares issued for the purpose of raising capital or making acquisitions in the normal course of business, submitted for shareholder ratification.
Adjustments to Par Value of Common Stock
Generally, vote FOR management proposals to reduce the par value of common stock.
Preemptive Rights
Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive rights or management proposals that seek to eliminate them. In evaluating proposals on preemptive rights, consider the size of a company and the characteristics of its shareholder base.
Debt Restructurings
Review on a CASE-BY-CASE basis proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan.
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Share Repurchase Programs
Generally, vote FOR management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms, but vote AGAINST plans with terms favoring selected parties.
Generally, vote FOR management proposals to cancel repurchased shares.
Generally, vote AGAINST proposals for share repurchase methods lacking adequate risk mitigation or exceeding appropriate volume or duration parameters for the market.
Consider shareholder proposals seeking share repurchase programs on a CASE-BY-CASE basis, with input from the Investment Professional(s) for a given Fund to be given primary consideration.
Tracking Stock
Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis.
8.
Executive and Director Compensation
Except as otherwise provided for herein, votes with respect to compensation and employee benefit plans should be determined on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such plans, which includes determination of costs and comparison to an allowable cap.
·
Ge nerally, vote in accordance with the Agents recommendations FOR equity-based plans with costs within such cap and AGAINST those with costs in excess of it, except that plans above the cap may be supported if so recommended by the Agent or Investment Professional as a condition to a major transaction such as a merger.
·
Generally, vote AGAINST plans if the Agent suggests cost or dilution assessment may not be possible due to the method of disclosing shares allocated to the plan(s), except that such concerns arising in connection with evergreen provisions shall be considered CASE-BY-CASE, voted FOR if the company has provided a reasonable rationale and/or adequate disclosure regarding the plan as a whole.
·
Generally, vote FOR plans with costs within the cap if the primary considerations raised by the Agent pertain to burn rate thresholds set by the Agent or matters that would not result in a negative vote under these Guidelines on a management say on pay proposal or the relevant board or committee member(s).
·
Generally, vote AGAINST plans administered by potential grant recipients.
·
Generally, vote AGAINST proposals to eliminate existing shareholder approval requirements for material plan changes, unless the company has provided a reasonable rationale and/or adequate disclosure regarding the requested changes.
·
Generally vote AGAINST long-term incentive plans that are inadequately aligned with shareholders because they lack an appropriate equity component, except that such cases will be considered CASE-BY-CASE in connection with executives already holding significant equity positions.
·
Generally, vote AGAINST plans that contain an overly liberal change in control definition ( e.g. , does not result in actual change in control).
·
Consider plans CASE-BY-CASE if the Agent raises other considerations not otherwise provided for herein.
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Restricted Stock or Stock Option Plans
Consider proposals for restricted stock or stock option plans, or the issuance of shares in connection with such plans, on a CASE-BY-CASE basis, considering factors such as level of disclosure and adequacy of vesting or performance requirements. Plans that do not meet the Agents criteria in this regard may be supported, but vote AGAINST if no disclosure is provided regarding either vesting or performance requirements.
Management Proposals Seeking Approval to Reprice Options
Review on a CASE-BY-CASE basis management proposals seeking approval to reprice, replace or exchange options, considering factors such as rationale, historic trading patterns, value-for-value exchange, vesting periods and replacement option terms. Generally, vote FOR proposals that meet the Agents criteria for acceptable repricing, replacement or exchange transactions, except that considerations raised by the Agent regarding burn rate or executive participation shall not be grounds for withholding support.
Vote AGAINST compensation plans that (1) permit or may permit ( e.g. , history of repricing and no express prohibition against future repricing) repricing of stock options, or any form or alternative to repricing, without shareholder approval, (2) include provisions that permit repricing, replacement or exchange transactions that do not meet the Agents criteria (except regarding burn rate or executive participation as noted above), or (3) give the board sole discretion to approve option repricing, replacement or exchange programs.
Director Compensation
Votes on stock-based plans for directors are made on a CASE-BY-CASE basis, with voting decisions generally based on the Agents quantitative approach described above as well as a review of qualitative features of the plan when costs exceed the Agents threshold. DO NOT VOTE AGAINST plans for which burn rate is the sole consideration raised by the Agent.
Employee Stock Purchase Plans
Votes on employee stock purchase plans, and capital issuances in support of such plans, should be made on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such plans, except that negative recommendations by the Agent due to evergreen provisions will be reviewed CASE-BY-CASE, voted FOR if the company has provided a reasonable rationale and/or adequate disclosure regarding the plan as a whole.
OBRA-Related Compensation Proposals
Votes on plans intended to qualify for favorable tax treatment under the provisions of Section 162(m) of OBRA should be evaluated irrespective of the Agents assessment of board independence, provided that the board meets the independence requirements of the relevant listing exchange and no potential recipient under the plan(s) sits on the committee that exercises discretion over the related compensation awards. Unless the issuer has provided a compelling rationale, generally vote with the Agents recommendations AGAINST plans that deliver excessive compensation that fails to qualify for favorable tax treatment.
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Amendments that Place a Cap on Annual Grants or Amend Administrative Features
Generally, vote FOR plans that simply amend shareholder-approved plans to include administrative features or place a cap on the annual grants any one participant may receive to comply with the provisions of Section 162(m) of OBRA.
Amendments to Add Performance-Based Goals
Generally, vote FOR amendments to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) of OBRA.
Amendments to Increase Shares and Retain Tax Deductions Under OBRA
Votes on amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment under the provisions of Section 162(m) should be evaluated on a CASE-BY-CASE basis, generally voting FOR such plans that do not raise any negative concerns under these Guidelines.
Approval of Cash or Cash-and-Stock Bonus Plans
Generally, vote FOR cash or cash-and-stock bonus plans to exempt the compensation from taxes under the provisions of Section 162(m) of OBRA, with primary consideration given to managements assessment that such plan meets the requirements for exemption of performance-based compensation.
Shareholder Proposals Regarding Executive and Director Pay
Regarding the remuneration of individuals other than senior executives and directors, generally, vote AGAINST shareholder proposals that seek to expand or restrict disclosure or require shareholder approval beyond regulatory requirements and market practice. Vote AGAINST shareholder proposals that seek disclosure of executive or director compensation if providing it would be out of step with market practice and disruptive to the business.
Unless evidence exists of abuse in historical compensation practices, and except as otherwise provided for herein, generally vote AGAINST shareholder proposals that seek to impose new compensation structures or policies.
Severance and Termination Payments
Generally, vote FOR shareholder proposals to have parachute arrangements submitted for shareholder ratification (with parachutes defined as compensation arrangements related to termination that specify change in control events) and provided that the proposal does not include unduly restrictive or arbitrary provisions such as advance approval requirements.
Generally, vote FOR shareholder proposals seeking double triggers on change in control awards.
Generally vote FOR shareholder proposals to submit executive severance agreements for shareholder ratification, if such proposals specify change in control events, Supplemental Executive Retirement Plans, or deferred executive compensation plans, or if ratification is required by the listing exchange.
Review on a CASE-BY-CASE basis all proposals to approve, ratify or cancel executive severance or termination arrangements, including those related to executive recruitment or retention. Generally vote FOR such compensation arrangements if:
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(1)
The primary considerations raised by the Agent would not result in a negative vote under these Guidelines on a management say on pay proposal or the relevant board or committee member(s);
(2)
The issuer has provided adequate rationale and/or disclosure; or
(3)
Support is recommended by the Agent or Investment Professional ( e.g. , as a condition to a major transaction such as a merger).
However, vote in accordance with the Agents recommendations AGAINST new or materially amended plans, contracts or payments that include single trigger change in control provisions or do not require an actual change in control in order to be triggered, except that plans, contracts or payments with single triggers may be supported if mitigating provisions or board actions ( e.g. , clawbacks) are present.
Employee Stock Ownership Plans (ESOPs)
Generally, vote FOR proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs, except in cases when the number of shares allocated to the ESOP is excessive ( i.e. , generally greater than five percent of outstanding shares).
401(k) Employee Benefit Plans
Generally, vote FOR proposals to implement a 401(k) savings plan for employees.
Holding Periods
Generally, vote AGAINST proposals requiring mandatory periods for officers and directors to hold company stock.
Advisory Votes on Executive Compensation (Say on Pay)
Generally, management proposals seeking ratification of the companys compensation program will be voted FOR unless the program includes practices or features not supported under these Guidelines and the proposal receives a negative recommendation from the Agent. Unless otherwise provided for herein, proposals not receiving the Agents support due to concerns regarding severance/termination payments, incentive structures or vesting or performance criteria not otherwise supported by these Guidelines will be considered on a CASE-BY-CASE basis, factoring in whether the issuer has made improvements to its overall compensation program and generally voting FOR if the company has provided a reasonable rationale and/or adequate disclosure regarding the matter(s) under consideration. For say on pay proposals not supported by the Agent and referencing incentive plan concerns:
(1)
Long-term incentive plans : Proposals will be voted AGAINST if they cite long-term incentive plans that are inadequately aligned with shareholders because they are cash-based or lack an appropriate equity component, except that such cases will be considered CASE-BY-CASE in connection with executives already holding significant equity positions.
(2)
Short-term incentive plans : Proposals will be considered on a CASE-BY-CASE basis if they cite short-term incentive plans over which the board has exercised discretion to exclude extraordinary items, and voted AGAINST if treatment of such items has been inconsistent ( e.g. , exclusion of losses but not gains).
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Generally, vote AGAINST proposals when named executives have material input into setting their own compensation.
Generally, vote AGAINST proposals presented by issuers subject to Troubled Asset Relief Program (TARP) provisions if there is inadequate discussion of the process for ensuring that incentive compensation does not encourage excessive risk-taking.
Frequency of Advisory Votes on Executive Compensation
Generally, support proposals seeking an annual say on pay and oppose those seeking a less frequent say on pay.
9.
State of Incorporation
Voting on State Takeover Statutes
Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freezeout provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, anti-greenmail provisions, and disgorgement provisions).
Voting on Reincorporation Proposals
Proposals to change a companys state of incorporation should be examined on a CASE-BY-CASE basis, generally supporting management proposals not assessed as a potential takeover defense, but if so assessed, weighing managements rationale for the change. Generally, vote FOR management reincorporation proposals upon which another key proposal, such as a merger transaction, is contingent if the other key proposal is also supported. Generally, vote AGAINST shareholder reincorporation proposals not also supported by the company.
10.
Mergers and Corporate Restructurings
Input from the Investment Professional(s) for a given Fund shall be given primary consideration with respect to proposals regarding business combinations, particularly those between otherwise unaffiliated parties, or other corporate restructurings being considered on behalf of that Fund.
Generally, vote FOR a proposal not typically supported under these Guidelines if a key proposal, such as a merger transaction, is contingent upon its support and a vote FOR is accordingly recommended by the Agent or an Investment Professional.
Mergers and Acquisitions
Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis.
Corporate Restructuring
Votes on corporate restructuring proposals, including demergers, minority squeezeouts, leveraged buyouts, spinoffs, liquidations, dispositions, divestitures and asset sales, should be considered on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such proposals.
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Adjournment
Generally, vote FOR proposals to adjourn a meeting to provide additional time for vote solicitation when the primary proposal is also voted FOR.
Appraisal Rights
Generally, vote FOR proposals to restore, or provide shareholders with, rights of appraisal.
Changing Corporate Name
Generally, vote FOR changing the corporate name.
11.
Mutual Fund Proxies
Approving New Classes or Series of Shares
Generally, vote FOR the establishment of new classes or series of shares.
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval
Generally, vote FOR these proposals.
Master-Feeder Structure
Generally, vote FOR the establishment of a master-feeder structure.
Establish Director Ownership Requirement
Generally, vote AGAINST shareholder proposals for the establishment of a director ownership requirement.
The matters below should be examined on a CASE-BY-CASE basis:
·
Election of Directors
·
Converting Closed-end Fund to Open-end Fund
·
Proxy Contests
·
Investment Advisory Agreements
·
Preferred Stock Proposals
·
1940 Act Policies
·
Changing a Fundamental Restriction to a Nonfundamental Restriction
·
Change Fundamental Investment Objective to Nonfundamental
·
Name Rule Proposals
·
Disposition of Assets/Termination/Liquidation
·
Changes to the Charter Document
·
Changing the Domicile of a Fund
·
Change in Funds Subclassification
·
Distribution Agreements
·
Mergers
·
Reimburse Shareholder for Expenses Incurred
·
Terminate the Investment Advisor
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12.
Social and Environmental Issues
Boards of directors and company management are responsible for guiding the corporation in connection with matters that are most often the subject of shareholder proposals on social and environmental issues: ensuring that the companies they oversee comply with applicable legal, regulatory and ethical standards, effectively managing risk, and assessing and addressing matters that may have a financial impact on shareholder value. The Funds will generally vote in accordance with the boards recommendation on such proposals unless it appears both that the stewardship noted above has fallen short and the issue is material to the company. The former may be evidenced by the companys failure to align its actions and disclosure with market practice and that of its peers, or the companys having been subject to significant controversies, litigation, fines or penalties in connection with the relevant issue. Such instances will be considered CASE-BY-CASE. The Funds will generally vote AGAINST shareholder proposals seeking to dictate corporate conduct, impose excessive costs or restrictions, duplicate policies already substantially in place, or release information that would not help a shareholder evaluate an investment in the corporation as an economic matter.
13.
Global Proxies
Companies incorporated outside the U.S. shall generally be subject to the foregoing U.S. Guidelines if they are listed on a U.S. exchange and treated as a U.S. domestic issuer by the Securities and Exchange Commission. Where applicable and not provided for otherwise herein, certain U.S. Guidelines may also be applied to companies incorporated outside the U.S., e.g. , companies with a significant base of U.S. operations and employees. However, the following provide for differing regulatory and legal requirements, market practices and political and economic systems existing in various global markets.
Unless otherwise provided for herein, it shall generally be the policy of the Funds to vote AGAINST global proxy proposals when the Agent recommends voting AGAINST such proposal because relevant disclosure by the issuer, or the time provided for consideration of such disclosure, is inadequate. For purposes of these global Guidelines, AGAINST shall mean withholding of support for a proposal, resulting in submission of a vote of AGAINST or ABSTAIN, as appropriate for the given market and level of concern raised by the Agent regarding the issue or lack of disclosure or time provided.
In connection with practices described herein that are associated with a firm AGAINST vote, it shall generally be the policy of the Funds to consider them on a CASE-BY-CASE basis if the Agent recommends their support (1) as the issuer or market transitions to better practices ( e.g. , having committed to new regulations or governance codes) or (2) as the more favorable choice when shareholders must choose between alternate proposals.
Routine Management Proposals
Generally, vote FOR the following and other similar routine management proposals:
·
the opening of the shareholder meeting
·
that the meeting has been convened under local regulatory requirements
·
the presence of quorum
·
the agenda for the shareholder meeting
·
the election of the chair of the meeting
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·
the appointment of shareholders to co-sign the minutes of the meeting
·
regulatory filings ( e.g. , to effect approved share issuances)
·
the designation of inspector or shareholder representative(s) of minutes of meeting
·
the designation of two shareholders to approve and sign minutes of meeting
·
the allowance of questions
·
the publication of minutes
·
the closing of the shareholder meeting
Consider proposals seeking authority to call shareholder meetings on less than 21 days notice on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to consider whether the issuer has provided clear disclosure of its compliance with any hurdle conditions for the authority imposed by applicable law and has historically limited it use of such authority to time-sensitive matters.
Discharge of Management/Supervisory Board Members
Generally, vote FOR management proposals seeking the discharge of management and supervisory board members, unless the Agent recommends AGAINST due to concern about the past actions of the companys auditors or directors or legal action is being taken against the board by other shareholders, including when the proposal is bundled. Generally do not withhold support from such proposals in connection with remuneration practices otherwise supported under these Guidelines or as a means of expressing disapproval of broader practices of the issuer or its board.
Director Elections
Unless otherwise provided for herein, the Agents standards with respect to determining director independence shall apply. These standards generally provide that, to be considered completely independent, a director shall have no material connection to the company other than the board seat.
Agreement with the Agents independence standards shall not dictate that a Funds vote shall be cast according to the Agents corresponding recommendation. Further, unless otherwise provided for herein, the application of Guidelines in connection with such standards shall apply only when the nominees level of independence can be ascertained based on available disclosure. These policies generally apply to director nominees in uncontested elections; votes in contested elections, and votes on director nominees not subject to policies described herein, should be made on a CASE-BY-CASE basis, with primary consideration in contested elections given to input from the Investment Professional(s) for a given Fund.
For issuers domiciled in Canada, Finland, France, Ireland, the Netherlands, Sweden or tax haven markets, generally vote AGAINST non-independent directors when the full board serves as the audit committee, or the company does not have an audit committee.
For issuers in all markets, including those in tax haven markets and those in Japan that have adopted the U.S.-style board-with-committees structure, vote AGAINST non-independent nominees to the audit committee, or, if the slate of nominees is bundled, vote AGAINST the slate. If the slate is bundled and audit committee membership is unclear or proposed as a
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separate agenda item, vote FOR if the Agent otherwise recommends support. For Canadian issuers, the Funds U.S. Guidelines with respect to audit committees shall apply; in addition, nominees (or slates of nominees) will be voted AGAINST if they do not comply with regulatory requirements to disclose audit fees broken down by category.
Negative recommendations from the Agent on slate ballots of nominees at Canadian issuers will be considered on a CASE-BY-CASE basis if the board is classified or the Agent cites other concerns not otherwise supported by these Guidelines, generally voting AGAINST when concerns relate to dual class capital structures or other anti-takeover/entrenchment devices.
Generally, vote FOR non-independent directors when the full board serves as the compensation or nominating committee, or the company does not have a compensation or nominating committee, if the board meets the applicable independence requirements of the relevant listing exchange. Vote FOR non-independent directors who sit on the compensation or nominating committees if such committee meets the applicable independence requirements of the relevant listing exchange.
Generally follow the Agents recommendations to vote AGAINST individuals nominated as outside/non-executive directors who do not meet the Agents standard for independence, unless the slate of nominees is bundled, in which case the proposal(s) to elect board members shall be considered on a CASE-BY-CASE basis.
For issuers in tax haven markets, generally withhold support (AGAINST or ABSTAIN, as appropriate) from bundled slates of nominees if the board is non-majority independent. For issuers in Canada and other global markets, generally follow the Agents standards for withholding support from bundled slates or non-independent directors (typically excluding the CEO), as applicable, if the board d oes not meet the Agents independence standards or the boards independence cannot be ascertained due to inadequate disclosure.
For issuers in Japan, generally follow the Agents recommendations in furtherance of greater board independence and minority shareholder protections, including:
·
At listed subsidiary companies with controlling shareholders, if the board after the shareholder meeting does not include at least two directors deemed independent under the Agents standards, generally vote AGAINST reelection of top executives.
·
At companies with a three-committee structure, generally vote AGAINST outside director nominees not deemed independent under the Agents standards; however, generally vote FOR affiliated outsiders if the board after the shareholder meeting is majority independent.
Generally, withhold support (AGAINST or ABSTAIN, as appropriate) from nominees or slates of nominees presented in a manner not aligned with market practice and/or legislation, including:
·
Bundled slates of nominees ( e.g. , France, Hong Kong or Spain);
·
Simultaneous reappointment of retiring directors ( e.g. , South Africa);
·
In markets with term lengths capped by legislation or market practice, nominees whose terms exceed the caps or are not disclosed (except that bundled slates with such lack of disclosure shall be considered on a CASE-BY-CASE basis); or
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·
Nominees whose names are not disclosed in advance of the meeting ( e.g. , Austria, Philippines, Hong Kong or South Africa) or far enough in advance relative to voting deadlines ( e.g. , Italy) to make an informed voting decision.
Such criteria will not generally provide grounds for withholding support in countries in which they may be identified as best practice but such legislation or market practice is not yet applicable, unless specific governance shortfalls identified by the Agent ( e.g. , director terms longer than four years) indicate diminished accountability to shareholders and so dictate that less latitude should be extended to the issuer.
Generally vote FOR nominees without regard to recommendations that the position of chairman should be separate from that of CEO or otherwise required to be independent, unless other concerns requiring CASE-BY-CASE consideration have been raised. The latter would include former CEOs proposed as board chairmen in markets such as the United Kingdom for which best practice and the Agent recommend against such practice.
When cumulative or net voting applies, generally vote with the Agents recommendation to support nominees asserted by the issuer to be independent, even if independence disclosure or criteria fall short of Agents standards.
Consider nominees for whom the Agent has raised concerns regarding scandals or internal controls on a CASE-BY-CASE basis, generally withholding support (AGAINST or ABSTAIN, as appropriate) from nominees or slates of nominees when:
·
The scandal or shortfall in controls took place at the company, or an affiliate, for which the nominee is being considered;
·
Culpability can be attributed to the nominee ( e.g. , nominee manages or audits relevant function); and
·
The nominee has been directly implicated, with resulting arrest and criminal charge or regulatory sanction.
Consider non-independent nominees on a CASE-BY-CASE basis when the Agent has raised concerns regarding diminished shareholder value as evidenced by a significant drop in share price, generally voting with Agents recommendation AGAINST such nominees when few, if any, outside directors are present on the board and:
·
The founding family has retained undue influence over the company despite a history of scandal or problematic controls;
·
The nominees have engaged in protectionist activities such as introduction of a poison pill or preferential and/or dilutive share issuances; or
·
Evidence exists regarding compliance or accounting shortfalls.
If the Agent recommends withholding support due to other material failures or egregious actions, the Funds U.S. Guidelines with respect to such issues shall apply.
Consider nominees serving on the remuneration committee on a CASE-BY-CASE basis if the Agent recommends withholding support from nominees in connection with remuneration practices not otherwise supported by these Guidelines, including cases in which the issuer has not followed market practice by submitting a resolution on executive compensation.
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For issuers in markets in which nominees attendance records are adequately disclosed, the Funds U.S. Guidelines with respect to director attendance shall apply. The same two-year attendance policy shall be applied regarding attendance by directors and statutory auditors of Japanese companies if year-over-year data can be tracked by nominee. For issuers in Canada, generally vote AGAINST a slate of nominees if one or more nominees fail the attendance Guideline, unless the Agent cites compelling reasons for supporting the slate ( e.g. , the issuers commitment to replace slate elections with individual elections within a year).
Consider self-nominated director candidates on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such candidates, except that (1) an unqualified candidate will generally not be supported simply to effect a protest vote and (2) cases of multiple self-nominated candidates may be considered as a proxy contest if similar issues are raised ( e.g. , potential change in control).
Generally vote FOR nominees without regard to over-boarding issues raised by the Agent unless other concerns requiring CASE-BY-CASE consideration have been raised.
In cases where a director holds more than one board seat and corresponding votes, manifested as one seat as a physical person plus an additional seat as a representative of a legal entity, generally vote with the Agents recommendation to withhold support (AGAINST or ABSTAIN, as appropriate) from the legal entity and vote on the physical person.
Generally, vote with the Agents recommendation to withhold support (AGAINST or ABSTAIN, as appropriate) from nominees for whom support has become moot since the time the individual was nominated ( e.g. , due to death, disqualification or determination not to accept appointment).
Generally, vote with the Agents recommendation when more candidates are presented than available seats and no other provisions under these Guidelines apply.
Board Structure
Generally, vote FOR proposals to fix board size, but also support proposals seeking a board range if the range is reasonable in the context of market practice and anti-takeover considerations. Proposed article amendments in this regard shall be considered on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such proposals.
Director and Officer Indemnification and Liability Protection
Generally, vote in accordance with the Agents standards for indemnification and liability protection for officers and directors, voting AGAINST overly broad provisions.
Independent Statutory Auditors
With respect to Japanese companies that have not adopted the three-committee structure, vote AGAINST any nominee to the position of independent statutory auditor whom the Agent considers affiliated, e.g. , if the nominee has worked a significant portion of his career for the
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company, its main bank or one of its top shareholders. Where shareholders must vote on multiple nominees in a single resolution, vote AGAINST all nominees. When multiple slates of statutory auditors are presented, generally vote with the Agents recommendation, typically to support nominees deemed to be more independent and/or aligned with interests of minority shareholders.
Generally, vote AGAINST incumbent nominees at companies implicated in scandals or exhibiting poor internal controls.
Key Committees
Generally, except where market practice otherwise dictates, vote AGAINST proposals that permit non-board members to serve on the audit, compensation or nominating committee, provided that bundled slates may be supported if no slate nominee serves on the relevant committee(s). If not otherwise addressed under these Guidelines, consider other negative recommendations from the Agent regarding committee members on a CASE-BY-CASE basis.
Director and Statutory Auditor Remuneration
Consider director compensation plans on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such proposals, while also factoring in the merits of the rationale and disclosure provided.
Generally, vote FOR proposals to approve the remuneration of directors and auditors as long as the amount is not excessive ( e.g. , significant increases should be supported by adequate rationale and disclosure), there is no evidence of abuse, the recipients overall compensation appears reasonable, and the board and/or responsible committee meets exchange or market standards for independence.
For European issuers, vote AGAINST non-executive director remuneration if:
·
The advance general meeting documents do not specify fees paid to non-executive directors;
·
The company seeks to excessively increase the fees relative to market or sector practices without providing a reasonable rationale for the increase; or
·
It provides for granting of stock options or similarly structured equity-based compensation.
For Toronto Stock Exchange (TSX) issuers, the Agents limits with respect to equity awards to non-employee directors shall apply.
Bonus Payments
With respect to Japanese companies, generally follow the Agents guidelines on retirement and annual bonus payments, which include voting FOR retirement bonus proposals if all payments are for directors or auditors who have served as executives of the company and AGAINST such proposals if any payments are for outsiders, except when deemed appropriate by the Agent, provided that no payments shall be supported unless the individual or aggregate amounts are disclosed. In all markets, if issues have been raised regarding a scandal or internal controls, generally vote AGAINST bonus proposals for retiring directors or continuing directors or auditors when culpability can be attributed to the nominee ( e.g. , if a Fund is also voting AGAINST the nominee under criteria herein regarding issues of scandal or internal controls), unless bundled with bonuses for a majority of directors or auditors a Fund is voting FOR.
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Stock Option Plans for Independent Internal Statutory Auditors
With respect to Japanese companies, follow the Agents guidelines with respect to proposals regarding option grants to independent internal statutory auditors or other outside parties, generally voting AGAINST such plans.
Amendment Procedures for Equity Compensation Plans and ESPPs
For TSX issuers, votes with respect to amendment procedures for security-based compensation arrangements and employee share purchase plans shall generally be cast in a manner designed to preserve shareholder approval rights, with voting decisions generally based on the Agents recommendation.
Compensation Plans and Shares Reserved for Equity Compensation Plans
Unless otherwise provided for herein, votes with respect to equity compensation plans ( e.g. , option, warrant, restricted stock or employee share purchase plans or participation in company offerings such as IPOs or private placements) or awards thereunder, the issuance of shares in connection with such plans, or related management proposals ( e.g. , article amendments), should be determined on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such proposals, considering quantitative or qualitative factors as appropriate for the market and utilizing the Agents methodology, including classification of a companys stage of development as growth or mature and the corresponding determination as to reasonability of the share requests.
Generally, vote AGAINST proposals that:
·
Exceed Agents recommended dilution limits, including cases in which the Agent suggests dilution cannot be fully assessed ( e.g. , due to inadequate disclosure);
·
Provide deep or near-term discounts (or the equivalent, such as dividend equivalents on unexercised options) to executives or directors, unless discounts to executives are deemed by the Agent to be adequately mitigated by other requirements such as long-term vesting or performance requirements ( e.g. , Japan) or broad-based employee participation otherwise meeting the Agents standards ( e.g. , France);
·
Are administered with discretion by potential grant recipients, unless such discretion is deemed acceptable due to market practice or other mitigating provisions;
·
Provide for retirement benefits or equity incentive awards to outside directors if not in line with market practice ( e.g. , Australia, Belgium, The Netherlands);
·
Permit financial assistance in the form of non-recourse (or essentially non-recourse) loans in connection with executives participation;
·
For matching share plans, do not meet the Agents standards, considering holding period, discounts, dilution, participation, purchase price and performance criteria;
·
Provide for vesting upon change in control if deemed to evidence a conflict of interest or anti-takeover device or if the change in control definition is too liberal ( e.g., does not result in actual change in control);
·
Provide no disclosure regarding vesting or performance criteria (provided that proposals providing disclosure in one or both areas, without regard to Agents criteria for such disclosure, shall be supported provided they otherwise satisfy these Guidelines);
·
Permit post-employment vesting or exercise if deemed inappropriate by the Agent;
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·
Allow plan administrators to make material amendments without shareholder approval unless adequate prior disclosure has been provided, with such voting decisions generally based on the Agents approach to evaluating such plans;
·
Provide for contract or notice periods or severance/termination payments that exceed market practice, e.g. , relative to multiples of annual compensation; or
·
Provide for retesting in connection with achievement of performance hurdles unless the Agents analysis indicates that (1) performance targets are adequately increased in proportion to the additional time available, (2) the retesting is de minimis as a percentage of overall compensation or is acceptable relative to market practice, or (3) the issuer has committed to cease retesting within a reasonable period of time.
Generally, vote FOR such plans/awards or the related issuance of shares that (1) do not suffer from the defects noted above or (2) otherwise meet the Agents tests if the considerations raised by the Agent pertain primarily to performance hurdles, discretionary bonuses, recruitment awards, retention incentives, non-compete payments or vesting upon change in control (other than addressed above), if:
(1)
The company has provided adequate disclosure and/or a reasonable rationale regarding the relevant plan/award, practice or participation;
(2)
The recipients overall compensation appears reasonable ;
(3)
Potential payments or awards are not so significant (individually or collectively) as to potentially influence an executives decision-making ( e.g. , to enter into a transaction that will result in a change of control payment) or to effectively act as a poison pill; and
(4)
The board and/or responsible committee meets exchange or market standards for independence.
Unless otherwise provided for herein, market practice of the primary country in which a company does business or competes for talent, or in which an employee is serving, as applicable, shall supersede that of the issuers domicile.
Consider proposals in connection with such plans or the related issuance of shares in other instances on a CASE-BY-CASE basis.
Remuneration Reports (Advisory Votes on Executive Compensation)
Generally, withhold support (AGAINST or ABSTAIN as appropriate for specific market and level of concerns identified) from remuneration reports/advisory votes on compensation that include compensation plans that:
(1)
Permit practices or features not supported under these Guidelines, including financial assistance under the conditions described above;
(2)
Permit retesting excessive relative to market practice (irrespective of the Agents support for the report as a whole);
(3)
Cite long-term incentive plans deemed to be inadequately based on equity awards ( e.g. , cash-based plans or plans lacking an appropriate equity component);
(4)
Cite equity award valuation methods triggering a negative recommendation from the Agent;
(5)
Include components, metrics or rationales that have not been disclosed in line with market practice (although retrospective disclosure may be considered adequate);
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(6)
For issuers in Australia, permit open market purchase of shares in support of equity grants in lieu of seeking shareholder approval, but only if the issuer has a history of significant negative votes when formally seeking approval for such grants; or
(7)
Include provisions for retirement benefits or equity incentive awards to outside directors if not in line with market practice, except that reports will generally be voted FOR if contractual components are reasonably aligned with market practices on a going-forward basis ( e.g. , existing obligations related to retirement benefits or terms contrary to evolving standards would not preclude support for the report).
Reports receiving the Agents support and not triggering the concerns cited above will generally be voted FOR. Unless otherwise provided for herein, reports not receiving the Agents support due to concerns regarding severance/termination payments, leaver status, incentive structures and vesting or performance criteria not otherwise supported by these Guidelines shall be considered on a CASE-BY-CASE basis, generally voted FOR if:
(1)
The company has provided a reasonable rationale and/or adequate disclosure regarding the matter(s) under consideration;
(2)
The recipients overall compensation appears reasonable; and
(3)
The board and/or responsible committee meets exchange or market standards for independence.
Reports with typically unsupported features may be voted FOR when the Agent recommends their initial support as the issuer or market transitions to better practices ( e.g. , having committed to new regulations or governance codes).
Shareholder Proposals Regarding Executive and Director Pay
The Funds U.S. Guidelines with respect to such shareholder proposals shall apply.
General Share Issuances
Unless otherwise provided for herein, voting decisions shall generally be based on the Agents practice to determine support for general issuance requests (with or without preemptive rights), or related requests to repurchase and reissue shares, based on their amount relative to currently issued capital, appropriate volume and duration parameters, and market-specific considerations ( e.g. , priority right protections in France, reasonable levels of dilution and discount in Hong Kong). Requests to reissue repurchased shares will not be supported unless a related general issuance request is also supported.
Consider specific issuance requests on a CASE-BY-CASE basis based on the proposed use and the companys rationale.
Generally, vote AGAINST proposals to issue shares (with or without preemptive rights), convertible bonds or warrants, to grant rights to acquire shares, or to amend the corporate charter relative to such issuances or grants when concerns have been identified by the Agent with respect to inadequate disclosure, inadequate restrictions on discounts, failure to meet the Agents standards for general issuance requests, or authority to refresh share issuance amounts without prior shareholder approval.
Generally, vote AGAINST nonspecific proposals authorizing excessive discretion to a board.
A-46
Increases in Authorized Capital
Unless otherwise provided for herein, voting decisions should generally be based on the Agents approach, as follows. Generally:
·
Vote FOR nonspecific proposals, including bundled proposals, to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding.
·
Vote FOR specific proposals to increase authorized capital, unless:
·
The specific purpose of the increase (such as a share-based acquisition or merger) does not meet these Guidelines for the purpose being proposed; or
·
The increase would leave the company with less than 30 percent of its new authorization outstanding after adjusting for all proposed issuances.
·
Vote AGAINST proposals to adopt unlimited capital authorizations.
·
The Agents market-specific exceptions to the above parameters shall be applied.
Preferred Stock
Unless otherwise provided for herein, voting decisions should generally be based on the Agents approach, including:
·
Vote FOR the creation of a new class of preferred stock or issuances of preferred stock up to 50 percent of issued capital unless the terms of the preferred stock would adversely affect the rights of existing shareholders.
·
Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of common shares that could be issued upon conversion meets the Agents guidelines on equity issuance requests.
·
Vote AGAINST the creation of (1) a new class of preference shares that would carry superior voting rights to the common shares or (2) blank check preferred stock unless the board states that the authorization will not be used to thwart a takeover bid.
Poison Pills/Protective Preference Shares
Generally, vote AGAINST management proposals in connection with poison pills or anti-takeover activities ( e.g. , disclosure requirements or issuances, transfers or repurchases) that do not meet the Agents standards. Generally vote in accordance with Agents recommendation to withhold support from a nominee in connection with poison pill or anti-takeover considerations when responsibility for the actions can be reasonably attributed to the nominee. Generally DO NOT VOTE AGAINST director remuneration in connection with poison pill considerations raised by the Agent.
Waiver on Tender-Bid Requirement
Generally, consider proposals on a CASE-BY-CASE basis seeking a waiver for a major shareholder from the requirement to make a buyout offer to minority shareholders, voting FOR when little concern of a creeping takeover exists and the company has provided a reasonable rationale for the request.
Approval of Financial Statements and Director and Auditor Reports
Generally, vote FOR management proposals seeking approval of financial accounts and reports, unless there is concern about the companys financial accounts and reporting, which, in the case of related party transactions, would include concerns raised by the Agent regarding consulting
A-47
agreements with non-executive directors but not severance/termination payments exceeding the Agents standards for multiples of annual compensation, provided the recipients overall compensation appears reasonable and the board and/or responsible committee meets exchange or market standards for independence. Unless otherwise provided for herein, reports not receiving the Agents support due to other concerns regarding severance/termination payments not otherwise supported by these Guidelines shall be considered on a CASE-BY-CASE basis, factoring in the merits of the rationale or disclosure provided and generally voted FOR if the overall compensation package and/or program at issue appears reasonable. Generally, vote AGAINST board-issued reports receiving a negative recommendation from the Agent due to concerns regarding independence of the board or the presence of non-independent directors on the audit committee. However, generally do not withhold support from such proposals in connection with remuneration practices otherwise supported under these Guidelines or as a means of expressing disapproval of broader practices of the issuer or its board.
Remuneration of Auditors
Generally, vote FOR proposals to authorize the board to determine the remuneration of auditors, unless there is evidence of excessive compensation relative to the size and nature of the company.
Indemnification of Auditors
Generally, vote AGAINST proposals to indemnify auditors.
Ratification of Auditors and Approval of Auditors Fees
For Canadian issuers, the Funds U.S. Guidelines with respect to auditors and auditor fees shall apply.
For other markets, generally, follow the Agents standards for proposals seeking auditor ratification or approval of auditors fees, which generally indicate a vote FOR such proposals if the level of disclosure and independence meet the Agents standards. However, if fees for non-audit services (excluding significant, one-time events) exceed 50 percent of total auditor fees, consider on a CASE-BY-CASE basis, and vote FOR ratification of auditors or approval of auditors fees if it appears that remuneration for the non-audit work is not so lucrative as to taint the auditors independence.
In other cases, generally vote FOR such proposals unless there are material concerns raised by the Agent about the auditors practices or independence.
Audit Commission
Consider nominees to the audit commission on a CASE-BY-CASE basis, with voting decisions generally based on the Agents approach to evaluating such candidates.
Allocation of Income and Dividends
With respect to Japanese companies, consider management proposals concerning allocation of income and the distribution of dividends, including adjustments to reserves to make capital available for such purposes, on a CASE-BY-CASE basis, generally voting with the Agents recommendations to support such proposals unless:
§
The dividend payout ratio has been consistently below 30 percent without adequate explanation; or
A-48
§
The payout is excessive given the companys financial position.
Generally vote FOR such proposals by issuers in other markets. In any markets, in the event management offers multiple dividend proposals on the same agenda, primary consideration shall be given to input from the relevant Investment Professional(s) and voted with the Agents recommendation if no input is received.
Stock (Scrip) Dividend Alternatives
Generally, vote FOR most stock (scrip) dividend proposals, but vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
Debt Instruments
Generally, vote AGAINST proposals authorizing excessive discretion to a board to issue or set terms for debt instruments ( e.g. , commercial paper).
Debt Issuance Requests
When evaluating a debt issuance request, the issuing companys present financial situation is examined. The main factor for analysis is the companys current debt-to-equity ratio, or gearing level. A high gearing level may incline markets and financial analysts to downgrade the companys bond rating, increasing its investment risk factor in the process. A gearing level up to 100 percent is considered acceptable.
Generally, vote FOR debt issuances for companies when the gearing level is between zero and 100 percent. Review on a CASE-BY-CASE basis proposals where the issuance of debt will result in the gearing level being greater than 100 percent, or for which inadequate disclosure precludes calculation of the gearing level, comparing any such proposed debt issuance to industry and market standards, and with voting decisions generally based on the Agents approach to evaluating such requests.
Financing Plans
Generally, vote FOR the adoption of financing plans if they are in the best economic interests of shareholders.
Related Party Transactions
Consider related party transactions on a CASE-BY-CASE basis. Generally, vote FOR approval of such transactions unless the agreement requests a strategic move outside the companys charter or contains unfavorable or high-risk terms ( e.g. , deposits without security interest or guaranty).
Approval of Donations
Generally, vote AGAINST such proposals unless adequate, prior disclosure of amounts is provided; if so, single- or multi-year authorities may be supported.
A-49
Capitalization of Reserves
Generally, vote FOR proposals to capitalize the companys reserves for bonus issues of shares or to increase the par value of shares.
Investment of Company Reserves
These proposals should generally be analyzed on a CASE-BY-CASE basis, with primary consideration given to input from the Investment Professional(s) for a given Fund.
Article Amendments
Review on a CASE-BY-CASE basis all proposals seeking amendments to the articles of association.
Generally, vote FOR an article amendment if:
·
It is editorial in nature;
·
Shareholder rights are protected;
·
There is negligible or positive impact on shareholder value;
·
Management provides adequate reasons for the amendments or the Agent otherwise supports managements position;
·
It seeks to discontinue and/or delist a form of the issuers securities when the relevant Fund does not hold the affected security type; or
·
The company is required to do so by law (if applicable).
Generally, vote AGAINST an article amendment if:
·
It removes or lowers quorum requirements for board or shareholder meetings below levels recommended by the Agent;
·
It reduces relevant disclosure to shareholders;
·
It seeks to align the articles with provisions of another proposal not supported by these Guidelines;
·
It is not supported under these Guidelines, is presented within a bundled proposal, and the negative impact, on balance, outweighs any positive impact; or
·
It imposes a negative impact on existing shareholder rights, including rights of the Funds, or diminishes accountability to shareholders to the extent that any positive impact would not be deemed to be sufficient to outweigh removal or diminution of such rights.
With respect to article amendments for Japanese companies:
·
Generally vote FOR management proposals to amend a companys articles to expand its business lines.
·
Generally vote FOR management proposals to amend a companys articles to provide for an expansion or reduction in the size of the board, unless the expansion/reduction is clearly disproportionate to the growth/decrease in the scale of the business or raises anti-takeover concerns.
·
If anti-takeover concerns exist, generally vote AGAINST management proposals, including bundled proposals, to amend a companys articles to authorize the Board to vary the annual meeting record date or to otherwise align them with provisions of a takeover defense.
A-50
·
Generally follow the Agents guidelines with respect to management proposals regarding amendments to authorize share repurchases at the boards discretion, voting AGAINST proposals unless there is little to no likelihood of a creeping takeover (major shareholder owns nearly enough shares to reach a critical control threshold) or constraints on liquidity (free float of shares is low), and where the company is trading at below book value or is facing a real likelihood of substantial share sales; or where this amendment is bundled with other amendments which are clearly in shareholders interest.
Other Business
In connection with global proxies, vote in accordance with the Agents market-specific recommendations on management proposals for Other Business, generally AGAINST.
A-51
PART C
OTHER INFORMATION
ING Prime Rate Trust
(5,000,000 Common Shares)
Item 25.
Financial Statements and Exhibits
.
Financial Statements
Contained in Part A:
Financial Highlights for the years ended February 28, 2011, 2010 and 2009, February 29, 2008, February 28, 2007, 2006 and 2005, February 29, 2004, February 28, 2003 and 2002.
Financial Statements are incorporated in Part B by reference to Registrant's February 28, 2011 annual shareholder report (audited).
2.
Exhibits
(a)
1.
Agreement and Declaration of Trust dated December 2, 1987. 1
(i)
Amendment to the Agreement and Declaration of Trust dated March 26, 1996 and effective April 12, 1996. 1
(ii)
Amendment to the Agreement and Declaration of Trust dated October 23, 1998 and effective November 16, 1998. 7
(iii)
Amendment to the Agreement and Declaration of Trust dated October 20, 2000 and effective October 20, 2000. 9
(iv)
Amendment to the Agreement and Declaration of Trust dated February 20, 2002 and effective March 1, 2002. 10
(v)
Amendment to the Agreement and Declaration of Trust dated June 11, 2010 Filed herein.
(b)
1.
By-Laws adopted at a meeting of the Board of Trustees on December 2, 1987. 15
(i)
Amendment dated June 18, 1997 to By-Laws, amends paragraph 3.5 and 3.6 of Article 3. 2
(ii)
Amendment adopted on August 2, 1999 to By-Laws, amends Section 11.5 of Article 11. 8
(iii)
Amendment adopted on July 26, 2000 to By-Laws, amends Section 11.1 and 11.3 of Article 11. 9
(iv)
Amendment adopted on November 10, 2005 to By-Laws, amends Section 11.5 of Article 11. 15
1
(c)
Not Applicable
(d)
1.
Certificate of Designation for Preferred Shares dated October 20, 2000 Filed herein.
2.
Form of Share Certificate. 9
(e)
Shareholder Investment Program. 12
(f)
Not Applicable
(g)
1.
Investment Management Agreement between ING Investment Management, LLC and ING Prime Rate Trust dated September 1, 2000. 9
(i)
Amended Schedule of Approvals dated June 2009 with respect to the Investment Management Agreement between ING Investments, LLC and ING Prime Rate Trust Filed herein.
(ii)
First Amendment dated September 2, 2004 to the Investment Management Agreement between ING Investment Management, LLC and ING Prime Rate Trust. 13
2.
Sub-Advisory Agreement between ING Investments, LLC and Aeltus Investment Management, Inc. dated August 19, 2003. 11
(i)
First Amendment effective September 1, 2003 to the Sub-Advisory Agreement between ING Investments, LLC and Aeltus Investment Management, Inc. with regard to ING Prime Rate Trust. 12
(ii)
Schedule A to the Sub-Advisory Agreement dated September 3, 2003. 16
(iii)
Second Amendment effective September 15, 2007 to the Sub-Advisory Agreement between ING Investments, LLC and ING Investment Management Co. (formerly Aeltus Investment Management, Inc.) with regard to ING Prime Rate Trust. 16
(iv)
Third Amendment to Sub-Advisory Agreement effective August 1, 2008 between ING Investments, LLC and ING Investment Management Co. (formerly Aeltus Investment Management, Inc.) with regard to ING Prime Rate Trust. 18
(h)
1.
Amended and Restated Distribution Agreement between ING Prime Rate Trust and ING Funds Distributor, LLC (5 Million) dated June 15, 2004. 15
2.
Underwriting Agreement for the Preferred Shares dated November 13, 2000. 12
(i)
Underwriting Agreement for the Preferred Shares dated October 30, 2000. 12
3.
ING Prime Rate Trust Shareholder Reinvestment Program dated April 2006. 15
2
(i)
Not Applicable
(j)
1.
Custodian and Investment Accounting Agreement between Registrant and State Street Bank and Trust Company effective November 1, 2001. 12
(i)
First Amendment dated March 1, 2002 to the Custodian and Investment Accounting Agreement. 12
(ii)
Amended and Restated Exhibit A effective November 22, 2002 with respect to the Custodian and Investment Accounting Agreement. 12
(iii)
Second Amendment dated October 1, 2007 to the Custodian and Investment Accounting Agreement. 16
(iv)
Draft Fee Schedule dated December 17, 2007. 16
(v)
Third Amendment dated August 2, 2010 to the Custodian and Investment Accounting Agreement Filed herein.
2.
Fee Allocation Agreement (FT Interactive) dated August 21, 2003. 12
(i)
Amended Schedule A dated July 2010 to the FT Fee Allocation Agreement Filed herein.
3.
Amended and Restated Proxy Agent Fee Allocation Agreement dated January 1,
2007 amends and restates the Proxy Agent Allocation Agreement dated August 21, 2003. 15
(i)
Amended Schedule A dated July 2010 to the Amended and Restated ISS Proxy Agent Fee Allocation Agreement Filed herein.
(ii)
Schedule B dated June 30, 2003 to Amended and Restated ISS Proxy Agent Fee Allocation Agreement. 15
4.
Allocation Agreement Fidelity Bond made May 24, 2002. 12
(i)
Amended Schedule A dated May 2007 with respect to the Allocation Agreement (Blanket Bond). 15
5.
Allocation Agreement Directors & Officers Liability made May 24, 2002. 12
(i)
Amended Schedule A dated May 2007 with respect to the Allocation Agreement Directors & Officers Liability. 15
6.
Agency Agreement by and between ING Prime Rate Trust and DST Systems, Inc. made November 30, 2000. 12
(i)
Amended and Restated Exhibit A dated April 28, 2008 with respect to the Agency Agreement between ING Prime Rate Trust and DST Systems, Inc. 16
3
7.
Transfer Agency Services Agreement dated February 25, 2009 PNC Global Investment Servicing (U.S.) Inc., (PNC) and ING Prime Rate Trust. 17
(i)
Amended Schedule A dated February 1, 2011 to the Transfer Agency Services Agreement between PNC Global Investment Servicing (U.S.) Inc. and ING Prime Rate Trust Filed herein.
(k)
1.
Amended and Restated Administration Agreement dated November 30, 2008. 18
2.
Revolving Credit and Security Agreement between ING Prime Rate Trust and Citibank dated July 16, 2003. 12
(i)
Amendment No. 1 to the Revolving Credit and Security Agreement dated February 3, 2004. 12
(ii)
Amendment No. 2 to the Revolving Credit and Security Agreement dated July 13, 2004. 13
(iii)
Amendment No. 3 to the Revolving Credit and Security Agreement dated October 15, 2004. 13
3.
Second Amended and Restated Credit Agreement with Bank of America. 12
4.
Auction Agency Agreement dated November 16, 2000. 12
(i)
Auction Agency Agreement dated November 2, 2000. 12
5.
Broker-Dealer Agreement (UBS) dated November 16, 2000. 12
(i)
Broker-Dealer Agreement (Salomon Smith Barney) dated November 16, 2000. 12
(ii)
Broker-Dealer Agreement (Lehman Brothers) dated November 16, 2000. 12
(iii)
Broker-Dealer Agreement (Gruntal & Co.) dated November 16, 2000. 12
(iv)
Broker-Dealer Agreement (PaineWebber) dated November 2, 2000. 12
(v)
Broker-Dealer Agreement (Gruntal & Co.) dated November 2, 2000. 12
(vi)
Broker-Dealer Agreement (Salomon Smith Barney) dated November 2, 2000. 12
(vii)
Broker-Dealer Agreement (Lehman Brothers) dated October 31, 2000. 12
6.
DTC Letter of Representations as to Preferred Shares dated November 15, 2000. 12
4
(i)
DTC Letter of Representation as to Preferred Shares dated November 1, 2000. 12
(l)
1. Opinion of Dechert LLP. 17
(m)
Not Applicable
(n)
1.
Consent of Dechert LLP To be filed in sub-subsequent Post-Effective Amendment.
2.
Consent of KPMG LLP To be filed in sub-subsequent Post-Effective Amendment.
(o)
Not Applicable
(p)
Certificate of Initial Capital. 4
(q)
Not Applicable
(r)
1.
ING Funds and Advisers Code of Ethics, adopted on April 1, 2010. 19
__________________________________________________
1
Incorporated herein by reference to Amendment No. 20 to Registrants Registration Statement under the Investment Company Act of 1940 (the 1940 Act) on Form N-2 (File No. 811-5410), filed on September 16, 1996.
2
Incorporated herein by reference to Amendment No. 24 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on November 7, 1997.
3
Incorporated herein by reference to Amendment No. 22 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on June 23, 1997.
4
Incorporated herein by reference to Pre-Effective Amendment No. 1 to Registrants initial registration statement on form N-2 (File No. 33-18886), filed on January 22, 1988.
5
Incorporated herein by reference to Amendment No. 27 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on May 15, 1998.
6
Incorporated herein by reference to Amendment No. 28 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on August 19, 1998.
7
Incorporated herein by reference to Amendment No. 29 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on December 2, 1998.
8
Incorporated herein by reference to Amendment No. 33 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on May 9, 2000.
9
Incorporated herein by reference to Amendment No. 38 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on October 23, 2000.
5
10
Incorporated herein by reference to Amendment No. 45 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on April 30, 2002.
11
Incorporated herein by reference to Amendment No. 53 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on June 26, 2003.
12
Incorporated herein by reference to Amendment No. 58 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on June 28, 2004.
13
Incorporated herein by reference to Amendment No. 61 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on June 30, 2005.
14
Incorporated herein by reference to Amendment No. 66 to Registrants registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on June 30, 2006.
15
Incorporated herein by reference to Amendment No. 70 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on June 29, 2007.
16
Incorporated herein by reference to Amendment No. 74 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on June 27, 2008.
17
Incorporated herein by reference to Amendment No. 80 to Registrants Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410), filed on August 13, 2009.
18
Incorporated herein by reference to Amendment No. 82 to Registrants Registration Statement under the 1940 Act on Form N-2 (file No. 811-5410), filed on April 22, 2009.
19
Incorporated herein by reference to Amendment No. 84 to Registrants Registration Statement under the 1940 Act on Form N-2 (file No. 811-5410), filed on June 28, 2010.
Item 26.
Marketing Agreements
Not Applicable.
Item 27.
Other Expenses of Issuance and Distribution
Not Applicable.
Item 28.
Persons Controlled by or Under Common Control
Not Applicable.
Item 29.
Number of Holders of Securities
(1) Title of Class |
(2) Number of Record Holders as of June 15, 2011 |
Auction Rate Cumulative Preferred Shares of beneficial interest, par value $0.01 per share: |
|
Series M |
[1,400 |
Series T |
1,400 |
Series W |
1,400 |
Series Th |
1,400 |
Series F |
1,400 |
Common Shares of beneficial interest, par value $0.01 per share |
4,124] |
6
Item 30.
Indemnification
Registrant's Agreement and Declaration of Trust generally provides that the Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers, or trustees of another organization in which the Trust has any interest as a shareholder, creditor, or otherwise) ("Covered Persons") against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred in connection with the defense or disposition of any action, suit, or other proceeding, whether civil or criminal, by reason of being or having been such a Covered Person except with respect to any matter as to which such Covered Person shall have been finally adjudicated: (a) not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interest of the Trust; or (b) to be liable to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of duties involved in the conduct of such Covered Person's office.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Trustees, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of the Registrant of expenses incurred or paid by a Trustee, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such Trustee, officer, or controlling person in connection with the securities being registered, the Registrant will submit, unless in the opinion of its counsel the matter has been settled by controlling precedent, to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 31.
Business and Other Connections of Investment Adviser
Information as to the Trustees and officers of the Adviser, together with information as to any other business, profession, vocation, or employment of a substantial nature engaged in by the directors and officers of the Adviser in the last two years, is included in its application for registration as an investment adviser on Form ADV (File No. 801-48282) filed under the Investment Advisers Act of 1940, as amended (Advisers Act), and is incorporated herein by reference thereto.
Information as to the directors and officers of the sub-adviser, together with information as to any other business, profession, vocation, or employment of a substantial nature engaged in by the directors and officers of the sub-adviser in the last two years, is included in its application for registration as an investment adviser on Form ADV for ING Investment Management Co. (File No. 801-9046) filed under the Investment Adviser Act of 1940, as amended, and is incorporated by reference thereto.
Item 32.
Location of Accounts and Records
The amounts and records of the Registrant will be maintained at its office at 7337 E. Doubletree Ranch Road, Suite 100, Scottsdale, Arizona 85258, at the office of its sub-adviser, ING Investment Management
7
Co., 230 Park Avenue, New York, NY 10169, and at the office of its custodian, State Street Bank & Trust, 801 Pennsylvania, Kansas City, Missouri 64105.
Item 33.
Management Services
Not Applicable.
Item 34.
Undertakings
1.
The Registrant undertakes to suspend the Offer until the prospectus is amended if: (a) subsequent to the effective date of this registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of this registration statement; or (b) the net asset value increases to an amount greater than the net proceeds as stated in the prospectus included in this registration statement.
2.
Not Applicable.
3.
Not Applicable.
4.
The Registrant undertakes:
a.
to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement: (i) to include any prospectus required by Section 10(a)(3) of the 1933 Act; (ii) to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
b.
that, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; and
c.
to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and
d.
Not Applicable
e.
that, for the purpose of determining liability of the Registrant under the 1933 Act to any purchaser in the initial distribution of securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser: (i) any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the 1933 Act; (ii) the portion of any advertisement pursuant to Rule 482 under the 1933 Act relating to the offering
8
containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and (iii) any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
5.
a.
The Registrant undertakes that for the purpose of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 497(h) under the 1933 Act [17 CFR 230.497(h)] shall be deemed to be part of this Registration Statement as of the time it was declared effective; and
b.
that for the purpose of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
6.
The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
9
SIGNATURES
Pursuant to requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale and State of Arizona on the 27 th day of April, 2011.
ING PRIME RATE TRUST
By:/s/ Huey P. Falgout, Jr.
Huey P. Falgout, Jr.
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated:
Signature |
|
Title |
Date |
|
|
|
|
|
|
Interested Trustee and President and Chief Executive Officer |
April 27, 2011 |
Shaun P. Mathews* |
|
|
|
|
|
Senior Vice President, Chief/Principal Financial Officer |
April 27, 2011 |
Todd Modic* |
|
|
|
|
|
|
|
|
|
Trustee |
April 27, 2011 |
Colleen D. Baldwin* |
|
|
|
|
|
|
|
|
|
Trustee |
April 27, 2011 |
John V. Boyer* |
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Trustee |
April 27, 2011 |
Patricia W. Chadwick* |
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Trustee |
April 27, 2011 |
Robert W. Crispin* |
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Trustee |
April 27, 2011 |
Peter S. Drotch* |
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Trustee |
April 27, 2011 |
J. Michael Earley* |
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Trustee |
April 27, 2011 |
Patrick W. Kenny* |
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Trustee |
April 27, 2011 |
Sheryl K. Pressler* |
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Chairman and Trustee |
April 27, 2011 |
Roger B. Vincent* |
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* By: /s/ Huey P. Falgout, Jr.
Attorney-in-Fact** |
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10
-----------------------------
** Powers of Attorney for Todd Modic and each Trustee are attached hereto.
11
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Colleen D. Baldwin |
|
|
Colleen D. Baldwin |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ John V. Boyer |
|
|
John V. Boyer |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Patricia W. Chadwick |
|
|
Patricia W. Chadwick |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Robert W. Crispin |
|
|
Robert W. Crispin |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Peter S. Drotch |
|
|
Peter S. Drotch |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ J. Michael Earley |
|
|
J. Michael Earley |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Patrick W. Kenny |
|
|
Patrick W. Kenny |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Officer and Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Shaun P. Mathews |
|
|
Shaun P. Mathews |
|
|
President and Chief Executive Officer and Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Officer, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety and Shaun P. Mathews, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Todd Modic |
|
|
Todd Modic |
|
|
Senior Vice President, Chief/Principal Financial |
|
|
Officer and Assistant Secretary |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Sheryl K. Pressler |
|
|
Sheryl K. Pressler |
|
|
Director and Trustee |
|
POWER OF ATTORNEY
I, the undersigned Director/Trustee, on behalf of the following Registered Investment Companies, constitute and appoint Huey P. Falgout, Jr., Jeffrey S. Puretz, David J. Harris, Theresa K. Kelety, Shaun P. Mathews and Todd Modic, each of them individually, the true and lawful attorneys-in-fact and agents, with full power to each of them to sign for me, and in my name and in the capacity indicated below, as the case may be, any and all Registration Statements on Form N-1A, Form N-2 and Form N-14, and any amendments thereto, under the Securities Act of 1933 and under the Investment Company Act of 1940, and to file with the Securities and Exchange Commission and any other regulatory authority having jurisdiction over the offer and sale of shares, any and all such Registration Statements under the Securities Act of 1933 and the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and any and all exhibits and other documents required in connection therewith, granting unto said attorneys-in-fact, each of them individually, full power and authority to do and perform each and every act deemed required and necessary to comply with the Securities Act of 1933 and the Investment Company Act of 1940.
REGISTRANT |
|
SECURITIES ACT
|
|
INVESTMENT
|
ING Asia Pacific High Dividend Equity Income Fund |
|
333-139981 |
|
811-22004 |
ING Investors Trust |
|
33-23512 |
|
811-5629 |
ING Partners, Inc. |
|
333-32575 |
|
811-08319 |
ING Equity Trust |
|
333-56881 |
|
811-8817 |
ING Funds Trust |
|
333-59745 |
|
811-8895 |
ING Global Advantage and Premium Opportunity Fund |
|
333-126570 |
|
811-21786 |
ING Global Equity Dividend and Premium Opportunity Fund |
|
333-114333 |
|
811-21553 |
ING Infrastructure, Industrials and Materials Fund |
|
333-147343 |
|
811-22144 |
ING International High Dividend Equity Income Fund |
|
333-142112 |
|
811-22051 |
ING Mayflower Trust |
|
33-67852 |
|
811-7978 |
ING Mutual Funds |
|
33-56094 |
|
811-7428 |
ING Risk Managed Natural Resources Fund |
|
333-136495 |
|
811-21938 |
ING Separate Portfolios Trust |
|
333-141111 |
|
811-22025 |
ING Variable Insurance Trust |
|
333-83071 |
|
811-9477 |
ING Variable Products Trust |
|
33-73140 |
|
811-8220 |
ING Prime Rate Trust |
|
333-161327 (5mil)
|
|
811-5410
|
ING Senior Income Fund |
|
333-150236 |
|
811-10223 |
This Power of Attorney, which shall not be affected by the disability of the undersigned, is executed and effective as of January 14, 2011.
/s/ Roger B. Vincent |
|
|
Roger B. Vincent |
|
|
Chairman and Director/Trustee |
|
EXHIBIT INDEX
ING Prime Rate Trust
(5,000,000 Common Shares)
EXHIBIT NUMBER |
EXHIBIT NAME |
(2)(a)(1)(v) |
Amendment to the Agreement and Declaration of Trust dated June 11, 2010 |
(2)(d)(1) |
Certificate of Designation for Preferred Shares dated October 20, 2000 |
(2)(g)(1)(i) |
Amended Schedule of Approvals dated June 2009 with respect to the Investment Management Agreement between ING Investments, LLC and ING Prime Rate Trust |
(2)(j)(1)(v) |
Third Amendment dated August 2, 2010 to the Custodian and Investment Accounting Agreement |
(2)(j)(2)(i) |
Amended Schedule A dated July 2010 to the FT Fee Allocation Agreement |
(2)(j)(3)(i) |
Amended Schedule A dated July 2010 to the Amended and Restated ISS Proxy Agent Fee Allocation Agreement |
(2)(j)(7)(i) |
Amended Schedule A dated February 1, 2011 to the Transfer Agency Services Agreement between PNC Global Investment Servicing (U.S.) Inc. and ING Prime Rate Trust |
12
Exihibit (2)(a)(1)(v)
WRITTEN INSTRUMENT AMENDING
THE AGREEMENT AND DECLARATION OF TRUST
OF
ING PRIME RATE TRUST
This Amendment to the Agreement and Declaration of Trust (Declaration) of ING Prime Rate Trust (the Trust), is made this 11th day of June, 2010 by the parties signatory hereto, as Trustees of the Trust (the Trustees).
WITNESSETH
WHEREAS, the Declaration of Trust was made on December 2, 1987, and amended on March 26, 1996, October 23, 1998, October 20, 2000, and February 20, 2002, and the Trustees now desire to amend the Declaration to change the Resident Agent; and
WHEREAS, Article IX, Section 7 of the Declaration provides that the Trustees may amend the Declaration without the vote or consent of shareholders to cure any ambiguity by an instrument signed by a majority of the Trustees; and
WHEREAS, the Trustees have determined that the following amendment to the Declaration shall not adversely affect the rights of the shareholders of the Trust.
NOW, THEREFORE, the Trustees hereby declare that Article IX be amended, effective upon the filing of this instrument with the Secretary of the Commonwealth of Massachusetts, to incorporate new Section 8 to read as follows:
Section 8.
Resident Agent . The address of the Trusts registered office in the Commonwealth of Massachusetts is 155 Federal Street Suite 700, Boston, Massachusetts, 02110. The name of its Registered Agent at such address is the CT Corporation System.
The Trustees hereby agree that this document may be signed in counterparts but treated as one document.
IN WITNESS WHEREOF, the undersigned have executed this instrument this _ 11 _ day of June, 2010.
/s/ Colleen D. Baldwin _____________ Colleen D. Baldwin, as Trustee |
/s/ J. Michael Earley _______________ J. Michael Earley, as Trustee |
/s/ John V. Boyer __________________ John V. Boyer, as Trustee |
/s/ Patrick W. Kenny _______________ Patrick W. Kenny, as Trustee |
/s/ Patricia W. Chadwick ____________ Patricia W. Chadwick, as Trustee |
/s/ Shaun P. Mathews _______________ Shaun P. Mathews, as Trustee |
/s/ Robert W. Crispin _______________ Robert W. Crispin, as Trustee |
/s/ Sheryl K. Pressler ________________ Sheryl K. Pressler, as Trustee |
/s/ Peter S. Drotch __________________ Peter S. Drotch, as Trustee |
/s/ Roger B. Vincent _________________ Roger B. Vincent, as Trustee |
Exhibit (2)(d)(1)
PILGRIM PRIME RATE TRUST
CERTIFICATE OF DESIGNATION FOR PREFERRED SHARES
(THE "CERTIFICATE")
Pilgrim Prime Rate Trust, a Massachusetts business trust (the "Trust"), certifies that:
FIRST: Section I of Article III of the Trust's Declaration of Trust (which, as hereafter restated or amended from time to time, is together with this Certificate herein called the "Declaration") empowers the Board of Trustees of the Trust to authorize the issuance of one or more series of a class of preferred shares, provided that to the extent required by the Investment Company Act of 1940, no such series shall have priority over any other series within its class upon the distribution of assets or in respect of the payment of dividends.
SECOND: Pursuant to the authority so vested in the Board of Trustees of the Trust, the Board of Trustees has, by resolution, authorized the creation of 18,000 Auction Rate Cumulative Preferred Shares, $.01 par value, liquidation preference of $25,000 per share, classified as Series M, T, W, Th and F Auction Rate Cumulative Preferred Shares (the "Preferred Shares").
THIRD: The preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the shares of each series of Preferred Shares are as follows:
DESIGNATION
SERIES M : A series of 3,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series M Auction Rate Cumulative Preferred Shares" ("Series M"). Each share of Series M may be issued on a date to be determined by the Board of Trustees of the Trust or pursuant to their delegated authority; have an initial Dividend Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Trustees of the Trust or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series M shall constitute a separate series of Preferred Shares of the Trust.
SERIES T : A series of 3,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series T Auction Rate Cumulative Preferred Shares" ("Series T"). Each share of Series T may be issued on a date to be determined by the Board of Trustees of the Trust or pursuant to their delegated authority; have an initial Dividend Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Trustees of the Trust or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series T shall constitute a separate series of Preferred Shares of the Trust.
SERIES W : A series of 3,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series W Auction Rate Cumulative Preferred Shares" ("Series W"). Each share of Series W may be issued on a date to be determined by the Board of Trustees of the Trust or pursuant to their delegated authority; have an initial Dividend Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Trustees
Exhibit (2)(d)(1)
of the Trust or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series W shall constitute a separate series of Preferred Shares of the Trust.
SERIES TH : A series of 3,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series Th Auction Rate Cumulative Preferred Shares" ("Series Th"). Each share of Series Th may be issued on a date to be determined by the Board of Trustees of the Trust or pursuant to their delegated authority; have an initial Dividend Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Trustees of the Trust or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series Th shall constitute a separate series of Preferred Shares of the Trust.
SERIES F : A series of 3,600 Preferred Shares, liquidation preference $25,000 per share, is hereby designated "Series F Auction Rate Cumulative Preferred Shares" ("Series F"). Each share of Series F may be issued on a date to be determined by the Board of Trustees of the Trust or pursuant to their delegated authority; have an initial Dividend Rate and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Trustees of the Trust or pursuant to their delegated authority; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Declaration applicable to preferred shares of the Trust, as are set forth in Part I and Part II of this Certificate. The Series F shall constitute a separate series of Preferred Shares of the Trust.
Subject to the provisions of Section 3(j) of Part I of this Certificate, the Board of Trustees of the Trust may, in the future, authorize the issuance of additional series of the Trust's preferred shares, including additional Series of Preferred Shares as long as any additional series of Preferred Shares has the same preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption and other terms of each of the respective series herein described, except that the Applicable Rate for its initial Dividend Period, its initial Dividend Payment Date and any other changes in the terms herein set forth shall be as set forth in an amendment to this Certificate.
As used in Part I and Part II of this Certificate, capitalized terms shall have the meanings provided in Section 19 of Part I of this Certificate.
PART I: PREFERRED SHARES TERMS
1. Number of Shares; Ranking .
(a) The initial number of authorized shares constituting Series M is 3,600 shares. The initial number of authorized shares constituting Series T is 3,600 shares. The initial number of authorized shares constituting Series W is 3,600 shares. The initial number of authorized shares constituting Series Th is 3,600 shares. The initial number of authorized shares constituting Series F is 3,600 shares. No fractional shares of any Series shall be issued.
Exhibit (2)(d)(1)
(b) Shares of each Series which at any time have been redeemed or purchased by the Trust shall, after such redemption or purchase, have the status of authorized but unissued preferred shares.
(c) Shares of each Series shall rank on a parity with shares of any other series of preferred shares (including any other shares of Preferred Shares) as to the payment of dividends to which such shares are entitled and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust.
(d) No Holder of shares of any Series shall have, solely by reason of being such a holder, any preemptive or other right to acquire, purchase or subscribe for any shares of any Series, shares of Common Shares of the Trust or other securities of the Trust which it may hereafter issue or sell.
2. Dividends .
(a) The Holders of shares of each Series shall be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available therefor, cumulative cash dividends on their shares at the Applicable Rate, determined as set forth in paragraph (c) of this Section 2, and no more, payable on the respective dates determined as set forth in paragraph (b) of this Section 2. Dividends on the Outstanding shares of each Series issued on the Date of Original Issue shall accumulate from the Date of Original Issue.
(b) (i) Dividends shall be payable when, as and if declared by the Board of Trustees following the initial Dividend Payment Date, subject to subparagraph (b)(ii) of this Section 2, on the shares of each Series, as follows:
(A) with respect to any Dividend Period of one year or less, on the Business Day following the last day of such Dividend Period; provided however, if the Dividend Period is more than 91 days then on the 91st, 181st and 271st days within such period, if applicable, and on the Business Day following the last day of such Dividend Period; and
(B) with respect to any Dividend Period of more than one year, on a quarterly basis on each January 1, April 1, July 1 and October 1 within such Dividend Period and on the Business Day following the last day of such Dividend Period.
(ii) If a day for payment of dividends resulting from the application of subparagraph (b)(i) above is not a Business Day, then the Dividend Payment Date shall be the first Business Day following such day for payment of dividends.
(iii) The Trust shall pay to the Paying Agent not later than 12:00 p.m., New York City time, on the Business Day next preceding each Dividend Payment Date for a Series, an aggregate amount of funds available on the next Business Day in The City of New York, New York, equal to the dividends to be paid to all Holders of such Series on such Dividend Payment Date. The Trust shall not be required to establish any reserves for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the payment of dividends shall be held in trust for the payment of such dividends by the Paying Agent for the benefit of the Holders specified in subparagraph (b)(v) of this Section 2. Any moneys paid to the Paying Agent in accordance with the foregoing but not applied by the Paying Agent to
Exhibit (2)(d)(1)
the payment of dividends, including interest earned on such moneys, will, to the extent permitted by law, be repaid to the Trust at the end of 90 days from the date on which such moneys were to have been so applied.
(v) Each dividend on each Series shall be paid on the Dividend Payment Date therefor to the Holders of that Series as their names appear on the share ledger or share records of the Trust on the Business Day next preceding such Dividend Payment Date, to the Holders as their names appear on the share ledger or share records of the Trust on such date; provided, however, if dividends are in arrears, they may be declared and paid at any time to Holders as their names appear on the share ledger or share records of the Trust on such date not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Trustees. No interest will be payable in respect of any dividend payment or payments which may be in arrears.
(c) (i) The dividend rate on Outstanding shares of each Series during the period from and after the Date of Original Issue to and including the last day of the initial Dividend Period therefor shall be equal to the rate per annum set forth under "Designation" above. For each subsequent Dividend Period, the dividend rate shall be equal to the rate per annum that results from an Auction; provided, however, that if an Auction for any subsequent Dividend Period of a Series is not held for any reason or if Sufficient Clearing Orders have not been made in an Auction (other than as a result of all shares of any Series being the subject of Submitted Hold Orders), then the dividend rate on the shares of that Series for any such Dividend Period shall be the Maximum Rate (except (i) during a Default Period when the dividend rate shall be the Default Rate, as set forth in Section 2(c)(ii) below) or (ii) after a Default Period and prior to the beginning of the next Dividend Period when the dividend rate shall be the Maximum Rate at the close of business on the last day of such Default Period). The rate per annum at which dividends are payable on shares of each Series as determined pursuant to this Section 2(c)(i) shall be the "Applicable Rate."
(ii) Subject to the cure provisions in Section 2(c)(iii) below, a "Default Period" with respect to a particular Series will commence on any date the Trust fails to deposit irrevocably in trust in same-day funds, with the Paying Agent by 12:00 noon, New York City time, (A) the full amount of any declared dividend on that Series payable on the Dividend Payment Date (a "Dividend Default") or (B) the full amount of any redemption price (the "Redemption Price") payable on the date fixed for redemption (the "Redemption Date") (a "Redemption Default") and together with a Dividend Default and a Redemption Default, hereinafter referred to as "Default"). Subject to the cure provisions of Section 2(c)(iii) below, a Default Period with respect to a Dividend Default or a Redemption Default shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid dividends and any unpaid Redemption Price shall have been deposited irrevocably in trust in same-day funds with the Paying Agent. In the case of a Dividend Default, no Auction shall be held during a Default Period applicable to that Series and the Applicable Rate for each Dividend Period commencing during a Default Period will be equal to the Default Rate, and each subsequent Dividend Period commencing after the beginning of a Default Period shall be a Standard Rate Period; provided, however, that the commencement of a Default Period will not by itself cause the commencement of a new Dividend Period. No Auction shall be held during a Default Period applicable to that Series.
Exhibit (2)(d)(1)
(iii) No Default Period with respect to a Dividend Default or Redemption Default shall be deemed to commence if the amount of any dividend or any Redemption Price due (if such default is not solely due to the willful failure of the Trust) is deposited irrevocably in trust, in same-day funds with the Paying Agent by 12:00 noon, New York City time within three Business Days after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount of such non-payment based on the actual number of days comprising such period divided by 360. The Default Rate shall be equal to the Reference Rate multiplied by three (3).
(iv) The amount of dividends per share payable (if declared) on each Dividend Payment Date of each Dividend Period of less than one (1) year (or in respect of dividends on another date in connection with a redemption during such Dividend Period) shall be computed by multiplying the Applicable Rate (or the Default Rate) for such Dividend Period (or a portion thereof) by a fraction, the numerator of which will be the number of days in such Dividend Period (or portion thereof) that such share was Outstanding and for which the Applicable Rate or the Default Rate was applicable and the denominator of which will be 360, multiplying the amount so obtained by $25,000, and rounding the amount so obtained to the nearest cent. During any Dividend Period of one (1) year or more, the amount of dividends per share payable on any Dividend Payment Date (or in respect of dividends on another date in connection with a redemption during such Dividend Period) shall be computed as described in the preceding sentence, except that it will be determined on the basis of a year consisting of twelve 30-day months.
(d) Any dividend payment made on shares of any Series shall first be credited against the earliest accumulated but unpaid dividends due with respect to such Series.
(e) For so long as the Preferred Shares are Outstanding, except as otherwise contemplated by Part I of this Certificate, the Trust will not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Shares or other shares, ranking junior to the Preferred Shares as to dividends or upon liquidation) with respect to Common Shares or any other shares of the Trust ranking junior to the Preferred Shares as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Shares or other shares ranking junior to the Preferred Shares (except by conversion into or exchange for shares of the Trust ranking junior to the Preferred Shares as to dividends and upon liquidation), unless (i) immediately after such transaction, the Trust would have Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount and the 1940 Act Preferred Shares Asset Coverage would be achieved, (ii) all cumulative and unpaid dividends due on or prior to the date of the transaction have been declared and paid in full with respect to the Trust's preferred shares, including the Preferred Shares, and (iii) the Trust has redeemed the full number of preferred shares required to be redeemed by any mandatory provision for redemption including shares of the Preferred Shares required to be redeemed by any provision for mandatory redemption contained in Section 3(a)(ii) of Part I of this Certificate.
(f) For so long as the Preferred Shares are Outstanding, except as set forth in the next sentence, the Trust will not declare, pay or set apart for payment on any series of shares of the Trust ranking, as to the payment of dividends, on a parity with the Preferred
Exhibit (2)(d)(1)
Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the Preferred Shares through their most recent Dividend Payment Date. When dividends are not paid in full upon the Preferred Shares through their most recent Dividend Payment Date or upon any other series of shares ranking on a parity as to the payment of dividends with Preferred Shares through their most recent respective Dividend Payment Dates, all dividends declared upon Preferred Shares and any other such series of shares ranking on a parity as to the payment of dividends with Preferred Shares shall be declared pro rata so that the amount of dividends declared per share on Preferred Shares and such other series of preferred shares shall in all cases bear to each other the same ratio that accumulated dividends per share on the Preferred Shares and such other series of preferred shares bear to each other.
(g) The Trust will not declare, pay or set apart for payment any dividend or other distribution in respect to any Series (i) if there is any event of payment default which has occurred and is continuing under indebtedness senior to such Series (such senior indebtedness including but not limited to indebtedness under the Bank of America Credit Agreement and the GE Loan Agreement) or (ii) unless immediately after such transaction, the Trust would have Eligible Assets with an aggregate Discounted Value at least equal to the asset coverage requirements under the indebtedness senior to such Series.
3. Redemption .
(a) (i) After the initial Dividend Period, subject to the provisions of this Section 3 and to the extent permitted under the 1940 Act and Massachusetts law, the Trust may, at its option, redeem in whole or in part out of funds legally available therefor shares of any Series herein designated as (A) having a Dividend Period of one year or less, on the Business Day after the last day of such Dividend Period by delivering a notice of redemption not less than 15 calendar days and not more than 40 calendar days prior to the Redemption Date, at a redemption price per share equal to $25,000, plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the Redemption Date ("Redemption Price"), or (B) having a Dividend Period of more than one year, on any Business Day prior to the end of the relevant Dividend Period by delivering a notice of redemption not less than 15 calendar days and not more than 40 calendar days prior to the Redemption Date, at the Redemption Price, plus a redemption premium, if any, determined by the Board of Trustees after consultation with the Broker-Dealers and set forth in any applicable Specific Redemption Provisions at the time of the designation of such Dividend Period as set forth in Section 4 of Part I of this Certificate; provided, however, that during a Dividend Period of more than one year no shares of any Series will be subject to optional redemption except in accordance with any Specific Redemption Provisions approved by the Board of Trustees after consultation with the Broker-Dealers at the time of the designation of such Dividend Period. Notwithstanding the foregoing, the Trust shall not give a notice of or effect any redemption pursuant to this Section 3(a)(i) unless, on the date on which the Trust gives such notice and on the Redemption Date (a) the Trust has available Deposit Securities with maturity or tender dates not later than the day preceding the applicable Redemption Date and having a value not less than the amount (including any applicable premium) due to Holders of each Series by reason of the redemption of each Series on the Redemption Date and (b) the Trust would have Eligible Assets with an aggregate Discounted Value at least equal the Preferred Shares Basic Maintenance Amount immediately subsequent to such redemption, if such redemption were to occur on such date, it being understood that the provisions of paragraph (d) of this Section 3 shall be applicable in such circumstances in the event the Trust makes the deposit and takes the other action required thereby.
Exhibit (2)(d)(1)
(ii) If the Trust fails as of any Valuation Date to meet the Preferred Shares Basic Maintenance Amount Test or, as of the last Business Day of any month, the 1940 Act Preferred Shares Asset Coverage, and such failure is not cured within five Business Days following the relevant Valuation Date in the case of a failure to meet the Preferred Shares Basic Maintenance Amount Test or the last Business Day of the following month in the case of a failure to meet the 1940 Act Preferred Shares Asset Coverage (each an "Asset Coverage Cure Date"), the Preferred Shares will be subject to mandatory redemption out of funds legally available therefor. The number of Preferred Shares to be redeemed in such circumstances will be equal to the lesser of (A) the minimum number of Preferred Shares the redemption of which, if deemed to have occurred immediately prior to the opening of business on the relevant Asset Coverage Cure Date,
Would result in the Trust meeting the Preferred Shares Basic Maintenance Amount Test, and the 1940 Act Preferred Shares Asset Coverage, as the case may be, in either case as of the relevant Asset Coverage Cure Date (provided that, if there is no such minimum number of shares the redemption of which would have such result, all Preferred Shares then Outstanding will be redeemed), and (B) the maximum number of shares of Preferred Shares that can be redeemed out of funds expected to be available therefor on the Mandatory Redemption Date at the Mandatory Redemption Price set forth in subparagraph (a)(iv) of this Section 3.
(iii) [Reserved]
(iv) In determining the Preferred Shares required to be redeemed in accordance with the foregoing Section 3(a)(ii), the Trust shall allocate the number of shares required to be redeemed to satisfy the Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage, as the case may be, pro rata among the Holders of the Preferred Shares in proportion to the number of shares they hold and shares of other preferred shares subject to mandatory redemption provisions similar to those contained in this Section 3, subject to the further provisions of this subparagraph (iv). The Trust shall effect any required mandatory redemption pursuant to: (A) the Preferred Shares Basic Maintenance Amount Test, as described in subparagraph (a)(ii) of this Section 3, no later than 30 days after the Trust last met the Preferred Shares Basic Maintenance Amount Test, or (B) the 1940 Act Preferred Shares Asset Coverage, as described in subparagraph (a)(ii) of this Section 3, no later than 30 days after the Asset Coverage Cure Date (the "Mandatory Redemption Date"), except that if the Trust does not have funds legally available for the redemption of, or is not otherwise legally permitted to redeem, the number of Preferred Shares which would be required to be redeemed by the Trust under clause (A) of subparagraph (a)(ii) of this Section 3 if sufficient funds were available, together with shares of other preferred shares which are subject to mandatory redemption under provisions similar to those contained in this Section 3, or the Trust otherwise is unable to effect such redemption on or prior to such Mandatory Redemption Date, the Trust shall redeem those Preferred Shares, and shares of other preferred shares which it was unable to redeem, on the earliest practicable date on which the Trust will have such funds available, upon notice pursuant to Section 3(b) to record owners of shares of the Preferred Shares to be redeemed and the Paying Agent. The Trust will deposit with the Paying Agent funds sufficient to redeem the specified number of Preferred Shares with respect to a redemption required under subparagraph (a)(ii) of this Section 3, by 1:00 p.m., New York City time, of the Business Day immediately preceding the Mandatory Redemption Date. If fewer than all of the Outstanding Preferred Shares are to be redeemed pursuant to this Section 3(a)(iv), the number of shares to be redeemed shall be redeemed pro rata from the Holders of such shares in proportion to the number of such shares held by such Holders, by lot or by such other method as the Trust shall deem fair and equitable, subject, however, to the terms of any applicable Specific Redemption Provisions. "Mandatory Redemption Price" means the Redemption Price plus (in the case of a Dividend Period of one year or more only) a redemption premium, if any, determined by the Board of Trustees after
Exhibit (2)(d)(1)
consultation with the Broker-Dealers and set forth in any applicable Specific Redemption Provisions.
(b) In the event of a redemption pursuant to the foregoing Section 3(a), the Trust will file a notice of its intention to redeem with the Securities and Exchange Commission so as to provide at least the minimum notice required under Rule 23c-2 under the 1940 Act or any successor provision. In addition, the Trust shall deliver a notice of redemption to the Auction Agent (the "Notice of Redemption") containing the information set forth below (i) in the case of an optional redemption pursuant to Section 3(a)(i) above, one Business Day prior to the giving of notice to the Holders, (ii) in the case of a mandatory redemption pursuant to Section 3(a)(ii) above, on or prior to the 10th day preceding the Mandatory Redemption Date. The Auction Agent will use its reasonable efforts to provide telephonic notice to each Holder of shares of any Series called for redemption not later than the close of business on the Business Day immediately following the day on which the Auction Agent determines the shares to be redeemed (or, during a Default Period with respect to such shares, not later than the close of business on the Business Day immediately following the day on which the Auction Agent receives Notice of Redemption from the Trust). The Auction Agent shall confirm such telephonic notice in writing not later than the close of business on the third Business Day preceding the date fixed for redemption by providing the Notice of Redemption to each Holder of shares called for redemption, the Paying Agent (if different from the Auction Agent) and the Securities Depository. Notice of Redemption will be addressed to the registered owners of shares of any Series at their addresses appearing on the share records of the Trust. Such Notice of Redemption will set forth (i) the date fixed for redemption, (ii) the number and identity of shares of each Series to be redeemed, (iii) the redemption price (specifying the amount of accumulated dividends to be included therein), (iv) that dividends on the shares to be redeemed will cease to accumulate on such date fixed for redemption, and (v) the provision under which redemption shall be made. No defect in the Notice of Redemption or in the transmittal or mailing thereof will affect the validity of the redemption proceedings, except as required by applicable law. If fewer than all shares held by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder shall also specify the number of shares to be redeemed from such Holder.
(c) Notwithstanding the provisions of paragraph (a) of this Section 3, no preferred shares, including the Preferred Shares, may be redeemed at the option of the Trust unless all dividends in arrears on the Outstanding Preferred Shares and any other preferred shares have been or are being contemporaneously paid or set aside for payment; provided, however, that the foregoing shall not prevent the purchase or acquisition of outstanding preferred shares pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to Holders of all outstanding preferred shares.
(d) Upon the deposit of funds sufficient to redeem shares of any Series with the Paying Agent and the giving of the Notice of Redemption to the Auction Agent under paragraph (b) of this Section 3, dividends on such shares shall cease to accumulate and such shares shall no longer be deemed to be Outstanding for any purpose (including, without limitation, for purposes of calculating whether the Trust has met the Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage), and all rights of the Holders of the shares so called for redemption shall cease and terminate, except the right of such Holder to receive the redemption price specified herein, but without any interest or other additional amount. Such redemption price shall be paid by the Paying Agent to the nominee of the Securities Depository. The Trust shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent in excess of (i) the aggregate redemption price of the shares of any Series called for redemption on such date and (ii) such other amounts, if
Exhibit (2)(d)(1)
any, to which Holders of shares of any Series called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be paid to the Trust, after which time the Holders of shares of each Series so called for redemption may look only to the Trust for payment of the redemption price and all other amounts, if any, to which they may be entitled; provided, however, that the Paying Agent shall notify all Holders whose funds are unclaimed by placing a notice in the Wall Street Journal concerning the availability of such funds for three consecutive weeks. The Trust shall be entitled to receive, from time to time after the date fixed for redemption, any interest earned on the funds so deposited.
(e) To the extent that any redemption for which Notice of Redemption has been given is not made by reason of the absence of legally available funds therefor, or is otherwise prohibited, such redemption shall be made as soon as practicable to the extent such funds become legally available or such redemption is no longer otherwise prohibited. Failure to redeem shares of any Series shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Trust shall have failed, for any reason whatsoever, to deposit in trust with the Paying Agent the redemption price with respect to any shares for which such Notice of Redemption has been given. Notwithstanding the fact that the Trust may not have redeemed shares of each Series for which a Notice of Redemption has been given, dividends may be declared and paid on shares of any Series and shall include those shares of any Series for which Notice of Redemption has been given but for which deposit of funds has not been made.
(f) All moneys paid to the Paying Agent for payment of the redemption price of shares of any Series called for redemption shall be held in trust by the Paying Agent for the benefit of holders of shares so to be redeemed.
(g) So long as any shares of any Series are held of record by the nominee of the Securities Depository, the redemption price for such shares will be paid on the date fixed for redemption to the nominee of the Securities Depository for distribution to Agent Members for distribution to the persons for whom they are acting as agent.
(h) Except for the provisions described above, nothing contained in this Certificate limits any right of the Trust to purchase or otherwise acquire any shares of each Series outside of an Auction at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on, or the mandatory or optional redemption price with respect to, any shares of each Series for which Notice of Redemption has been given and the Trust meets the 1940 Act Preferred Shares Asset Coverage and the Preferred Shares Basic Maintenance Amount Test after giving effect to such purchase or acquisition on the date thereof. Any shares which are purchased, redeemed or otherwise acquired by the Trust shall have no voting rights. If fewer than all the Outstanding shares of any Series are redeemed or otherwise acquired by the Trust, the Trust shall give notice of such transaction to the Auction Agent, in accordance with the procedures agreed upon by the Board of Trustees.
(i) In the case of any redemption pursuant to this Section 3, only whole shares of each Series shall be redeemed, and in the event that any provision of the Declaration would require redemption of a fractional share, the Auction Agent shall be authorized to round up so that only whole shares are redeemed.
(j) Notwithstanding anything herein to the contrary, including, without limitation, Section 6(i) of Part I of this Certificate, the Board of Trustees may authorize, create or issue other series
Exhibit (2)(d)(1)
of preferred shares, including other series of Preferred Shares, series of stock ranking on a parity with the Preferred Shares with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust, to the extent permitted by the 1940 Act, as amended, if upon issuance, the net proceeds from the sale of such stock (or such portion thereof needed to redeem or repurchase the Outstanding Preferred Shares) are deposited with the Auction Agent in accordance with Section 3(d) of Part I of this Certificate, Notice of Redemption as contemplated by Section 3(b) of Part I of this Certificate has been delivered prior thereto or is sent promptly thereafter, and such proceeds are used to redeem all Outstanding Preferred Shares or if upon the issuance of any such series, the Trust would meet the 1940 Act Preferred Shares Asset Coverage, the Preferred Shares Basic Maintenance Amount Test and the requirements of Section 12(b) of Part I of this Certificate.
(k) Notwithstanding anything herein to the contrary, redemptions of preferred shares pursuant to this Section 3 shall comply with the terms and covenants of the Bank of America Credit Agreement and the GE Loan Agreement and no such redemptions shall be permitted to the extent they will cause an event of default under such agreements.
4. Designation of Dividend Period .
(a) The initial Dividend Period for each Series is as set forth under "Designation" above. The Trust will designate the duration of subsequent Dividend Periods of each Series; provided, however, that no such designation is necessary for a Standard Rate Period and, provided further, that any designation of a Special Rate Period shall be effective only if (i) notice thereof shall have been given as provided herein, (ii) any failure to pay in a timely manner to the Auction Agent the full amount of any dividend on, or the redemption price of, each Series shall have been cured as provided above, (iii) Sufficient Clearing Orders shall have existed in an Auction held on the Auction Date immediately preceding the first day of such proposed Special Rate Period, (iv) if the Trust shall have mailed a Notice of Redemption with respect to any shares, the redemption price with respect to such shares shall have been deposited with the Paying Agent, and (v) in the case of the designation of a Special Rate Period, the Trust has confirmed that as of the Auction Date next preceding the first day of such Special Rate Period, it has Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount, and the Trust has consulted with the Broker-Dealers and has provided notice of such designation and a Preferred Shares Basic Maintenance Certificate to each Rating Agency.
(b) If the Trust proposes to designate any Special Rate Period, not fewer than 7 Business Days (or two Business Days in the event the duration of the Dividend Period prior to such Special Rate Period is fewer than 8 days) nor more than 30 Business Days prior to the first day of such Special Rate Period, notice shall be (i) made by press release and (ii) communicated by the Trust by telephonic or other means to the Auction Agent and confirmed in writing promptly thereafter. Each such notice shall state (A) that the Trust proposes to exercise its option to designate a succeeding Special Rate Period, specifying the first and last days thereof and (B) that the Trust will by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such Special Rate Period, notify the Auction Agent, who will promptly notify the Broker-Dealers, of either (x) its determination, subject to certain conditions, to proceed with such Special Rate Period, subject to the terms of any Specific Redemption Provisions, or (y) its determination not to proceed with such Special Rate Period, in which latter event the succeeding Dividend Period shall be a Standard Rate Period. No later than 3:00 p.m., New York City time, on the second Business Day next preceding the first day of any proposed Special Rate Period, the Trust shall deliver to the Auction Agent, who will promptly deliver to the Broker- Dealers and Existing Holders, either:
Exhibit (2)(d)(1)
(i) a notice stating (A) that the Trust has determined to designate the next succeeding Dividend Period as an Special Rate Period, specifying the first and last days thereof and (B) the terms of any Specific Redemption Provisions; or
(ii) a notice stating that the Trust has determined not to exercise its option to designate a Special Rate Period. If the Trust fails to deliver either such notice with respect to any designation of any proposed Special Rate Period to the Auction Agent or is unable to make the confirmation provided in clause (v) of Paragraph (a) of this Section 4 by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such proposed Special Rate Period, the Trust shall be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in clause (ii) above, thereby resulting in a Standard Rate Period.
5. Restrictions on Transfer . Shares of each Series may be transferred only (a) pursuant to an order placed in an Auction, (b) to or through a Broker-Dealer or (c) to the Trust or any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless the selling Existing Holder or the Agent Member of such Existing Holder, in the case of An Existing Holder whose shares are listed in its own name on the books of the Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer between persons holding shares of any Series through different Broker-Dealers, advises the Auction Agent of such transfer. The certificates representing the shares of each Series issued to the Securities Depository will bear legends with respect to the restrictions described above and stop-transfer instructions will be issued to the Transfer Agent and/or Registrar.
6. Voting Rights .
(a) Except as otherwise provided in the Declaration or as otherwise required by applicable law, (i) each Holder of shares of any Series shall be entitled to one vote for each share of any Series held on each matter submitted to a vote of shareholders of the Trust, and (ii) the holders of outstanding shares of preferred shares, including each Series, and shares of Common Shares shall vote together as a single class on all matters submitted to stockholders; provided, however, that, at any meeting of the shareholders of the Trust held for the election of trustees, the holders of outstanding shares of preferred shares, including each Series, represented in person or by proxy at said meeting, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of capital stock of the Trust, to elect two trustees of the Trust, each share of preferred shares, including each Series, entitling the holder thereof to one vote. Except as set forth in paragraph (b) of this Section 6, the class of outstanding preferred shares, including each Series, shall not be entitled to participate in the election of any other trustees of the Trust.
(b) During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of trustees constituting the Board of Trustees shall be automatically increased by the smallest number that, when added to the two trustees elected exclusively by the holders of shares of preferred shares, including each Series, would constitute a majority of the Board of Trustees as so increased by such smallest number; and the holders of shares of preferred shares, including each Series, shall be entitled, voting as a class on a one-vote-per-share basis (to the exclusion of the holders of all other securities and classes of capital stock of the Trust), to elect such smallest number of additional trustees, together with the two trustees that such holders are in any event entitled to elect. A Voting Period shall commence:
Exhibit (2)(d)(1)
(i) if at the close of business on any Dividend Payment Date accumulated dividends (whether or not earned or declared) on preferred shares, including each Series, equal to at least two full years' dividends shall be due and unpaid; or
(ii) if at any time holders of any other shares of preferred shares are entitled under the 1940 Act to elect a majority of the trustees of the Trust. Upon the termination of a Voting Period, the voting rights described in this paragraph (b) of Section 6 shall cease, subject always, however, to the revesting of such voting rights in the holders of preferred shares, including each Series, upon the further occurrence of any of the events described in this paragraph (b) of Section 6.
(c) As soon as practicable after the accrual of any right of the holders of shares of preferred shares, including each Series, to elect additional trustees as described in paragraph (b) of this Section 6, the Trust shall notify the Auction Agent, and the Auction Agent shall call a special meeting of such holders, by mailing a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more than 90 days after the date of mailing of such notice. If the Trust fails to send such notice to the Auction Agent or if the Auction Agent does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of preferred shares, including each Series, held during a Voting Period at which trustees are to be elected, such holders, voting together as a class (to the exclusion of the holders of all other securities and classes of capital stock of the Trust), shall be entitled to elect the number of trustees prescribed in paragraph (b) of this Section 6 on a one-vote-pershare basis.
(d) The holders of preferred shares, including each Series, may also have such other voting rights as are contemplated by Article III of the Trust's Declaration.
(e) For purposes of determining any rights of the holders of preferred shares, including each Series, to vote on any matter, whether such right is created by the Certificate, by statute or otherwise, if redemption of some or all of the preferred shares, including each Series, is required, no holder of preferred shares, including each Series, shall be entitled to vote and no share of preferred shares, including each Series, shall be deemed to be "outstanding" for the purpose of voting or determining the number of shares required to constitute a quorum, if prior to or concurrently with the time of determination, sufficient Deposit Securities for the redemption of such shares have been deposited in the case of Preferred Shares in trust with the Paying Agent for that purpose and the requisite Notice of Redemption with respect to such shares shall have been given as provided in Section 3(b) of Part I of this Certificate and in the case of other preferred shares the Trust has otherwise met the conditions for redemption applicable to such preferred shares.
(f) The terms of office of all persons who are trustees of the Trust at the time of a special meeting of Holders of the Preferred Shares and holders of other preferred shares to elect trustees pursuant to paragraph (b) of this Section 6 shall continue, notwithstanding the election at such meeting by the holders of the number of trustees that they are entitled to elect.
(g) Simultaneously with the termination of a Voting Period, the terms of office of the additional trustees elected by the Holders of the Preferred Shares and holders of other preferred shares pursuant to paragraph (b) of this Section 6 shall terminate, the remaining trustees shall constitute the trustees of the Trust and the voting rights of such holders to elect additional trustees
Exhibit (2)(d)(1)
pursuant to paragraph (b) of this Section 6 shall cease, subject to the provisions of the last sentence of paragraph (b) of this Section 6.
(h) Unless otherwise required by law or in the Trust's charter documents, the Holders of Preferred Shares shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. In the event that the Trust fails to pay any dividends on the Preferred Shares of the Trust or fails to redeem any Preferred Shares which it is required to redeem, or any other event occurs which requires the mandatory redemption of Preferred Shares and the required Notice of Redemption has not been given, other than the rights set forth in paragraph (a) of Section 3 of Part I of this Certificate, the exclusive remedy of the Holders of Preferred Shares shall be the right to vote for trustees pursuant to the provisions of paragraph (b) of this Section 6. In no event shall the Holders of Preferred Shares have any right to sue for, or bring a proceeding with respect to, such dividends or redemptions or damages for the failure to receive the same.
(i) So long as any of the preferred shares, are outstanding, the Trust will not, without the affirmative vote of the holders of a majority of the outstanding preferred shares, (i) institute any proceedings to be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or Insolvency proceedings against it, or file a petition seeking or consenting to reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trust or a substantial part of its property, or make any assignment for the benefit of creditors, or, except as may be required by applicable law, admit in writing its inability to pay its debts generally as they become due or take any corporate action in furtherance of any such action; (ii) create, incur or suffer to exist, or agree to create, incur or suffer to exist, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of any material lien, mortgage, pledge, charge, security interest, security agreement, conditional sale or trust receipt or other material encumbrance of any kind upon any of the Trust's assets as a whole, except (A) liens the validity of which are being contested in good faith by appropriate proceedings, (B) liens for taxes that are not then due and payable or that can be paid thereafter without penalty, (C) liens, pledges, charges, security interests, security agreements or other encumbrances arising in connection with any indebtedness senior to the Preferred Shares, (D) liens, pledges, charges, security interests, security agreements or other encumbrances arising in connection with any indebtedness permitted under clause (iii) below and (E) liens to secure payment for services rendered including, without limitation, services rendered by the Trust's Paying Agent and the Auction Agent; or (iii) create, authorize, issue, incur or suffer to exist any indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness for borrowed money or any direct or indirect guarantee of such indebtedness, except the Trust may borrow as may be permitted by the Trust's investment restrictions; provided, however, that transfers of assets by the Trust subject to an obligation to repurchase shall not be deemed to be indebtedness for purposes of this provision to the extent that after any such transaction the Trust has Eligible Assets with an aggregate Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount as of the immediately preceding Valuation Date.
(j) The affirmative vote of the holders of a majority of the outstanding preferred shares, including each Series, voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the 1940 Act) adversely affecting such shares or any action requiring a vote of security holders of the Trust under Section 13(a) of the 1940 Act. In the event a vote of holders of preferred shares is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Trust shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify each Rating Agency that such vote is to be taken and the nature of the
Exhibit (2)(d)(1)
action with respect to which such vote is to be taken and shall, not later than ten Business Days after the date on which such vote is taken, notify each Rating Agency of the results of such vote.
(k) The affirmative vote of the holders of a majority of the outstanding preferred shares of any series, voting separately from any other series, shall be required with respect to any matter that materially and adversely affects the rights, preferences, or powers of that series in a manner different from that of other series or classes of the Trust's shares of capital stock. For purposes of the foregoing, no matter shall be deemed to adversely affect any right, preference or power unless such matter (i) alters or abolishes any preferential right of such series; (ii) creates, alters or abolishes any right in respect of redemption of such series; or (iii) creates or alters (other than to abolish) any restriction on transfer applicable to such series. The vote of holders of any series described in this Section 6(k) will in each case be in addition to a separate vote of the requisite percentage of Common Shares and/or preferred shares necessary to authorize the action in question.
(l) The Board of Trustees, without the vote or consent of any holder of the preferred shares or any other shareholder of the Trust, may from time to time amend, alter or repeal any or all of the definitions contained herein, add covenants and other obligations of the Trust, or confirm the applicability of covenants and other obligations set forth herein, all in connection with obtaining or maintaining the rating of any Rating Agency with respect to each Series, and any such amendment, alteration or repeal will not be deemed to affect the preferences, rights or powers of Preferred Shares or the Holders thereof, provided that the Board of Trustees receives written confirmation from each relevant Rating Agency (with such confirmation in no event being required to be obtained from a particular Rating Agency with respect to definitions or other provisions relevant only to and adopted in connection with another Rating Agency's rating of any Series) that any such amendment, alteration or repeal would not adversely affect the rating then assigned by such Rating Agency. In addition, subject to compliance with applicable law, the Board of Trustees may amend the definition of Maximum Rate to increase the percentage amount by which the Reference Rate is multiplied to determine the Maximum Rate shown therein without the vote or consent of the holders of preferred shares, including each Series, or any other shareholder of the Trust, and without receiving any confirmation from any Rating Agency, after consultation with the Broker-Dealers, provided that immediately following any such increase the Trust would meet the Preferred Shares Basic Maintenance Amount Test.
(m) Unless otherwise required by law, Holders of shares of each Series shall not have any relative rights or preferences or other special rights other than those specifically set forth herein. The Holders of shares of each Series shall have no rights to cumulative voting. In the event that the Trust fails to pay any dividends on the shares of any Series, the exclusive remedy of the Holders shall be the right to vote for trustees pursuant to the provisions of this Section 6.
(n) The foregoing voting provisions will not apply with respect to any series if, at or prior to the time when a vote is required, such shares have been (i) redeemed or (ii) called for redemption and sufficient funds shall have been deposited in trust to effect such redemption.
7. Liquidation Rights .
(a) In the event of any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the Holders of Preferred Shares, including each Series, shall be entitled to receive out of the assets of the Trust available for distribution to stockholders, after claims of creditors but before distribution to stockholders, after claims of creditors but before any distribution or payment shall be made in respect of the Common Stock or any other stock of the
Exhibit (2)(d)(1)
Trust ranking junior to the preferred shares, as to liquidation payments, a liquidation distribution in the amount of $25,000 per share (the "Liquidation Preference"), plus an amount equal to all unpaid dividends accrued to and including the date fixed for such distribution or payment (whether or not declared by the Trust, but excluding interest thereon), but such Holders shall be entitled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up.
(b) If, upon any such liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the assets of the Trust available for distribution among the holders of all outstanding preferred shares, including each Series, shall be insufficient to permit the payment in full to such holders of the amounts to which they are entitled, then such available assets shall be distributed among the holders of preferred shares, including each Series, ratably in any such distribution of assets according to the respective amounts which would be payable on all such shares if all amounts thereon were paid in full. Unless and until payment in full has been made to the holders of preferred shares, including each Series, of the liquidation distributions to which they are entitled, no dividends or distributions will be made to holders of Common Stock or any stock of the Trust ranking junior to the preferred shares as to liquidation.
(c) Neither the consolidation nor merger of the Trust with or into any other corporation or corporations, nor the sale, lease, exchange or transfer by the Trust of all or substantially all of its property and assets, shall be deemed to be a liquidation, dissolution or winding up of the Trust for purposes of this Section 7.
(d) After the payment to Holders of Preferred Shares of the full preferential amounts provided for in this Section 7, the Holders of the Preferred Shares as such shall have no right or claim to any of the remaining assets of the Trust.
(e) In the event the assets of the Trust or proceeds thereof available for distribution to the Holders of Preferred Shares, upon dissolution, liquidation or winding up of the affairs of the Trust, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to paragraph (a) of this Section 7, no such distribution shall be made on account of any shares of any other series of preferred shares unless proportionate distributive amounts shall be paid on account of the Preferred Shares, ratably, in proportion to the full distributable amounts to which holders of all preferred shares are entitled upon such dissolution, liquidation or winding up.
(f) Subject to the rights of the holders of other preferred shares or after payment shall have been made in full to the Holders of Preferred Shares as provided in paragraph (a) of this Section 7, but not prior thereto, any other series or class of stock ranking junior to the Preferred Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders of the Preferred Shares shall not be entitled to share therein.
8. Auction Agent . For so long as any shares of Preferred Shares are Outstanding, the Auction Agent, duly appointed by the Trust to so act, shall be in each case a commercial bank, trust company or other financial institution independent of the Trust and its Affiliates (which, however, may engage or have engaged in business transactions with the Trust or its Affiliates) and at no time shall the Trust or any of its Affiliates act as the Auction Agent in connection with the Auction Procedures. If the Auction Agent resigns or for any reason its appointment is terminated during any period that any shares of any Series are Outstanding, the Trust shall use its
Exhibit (2)(d)(1)
best efforts promptly thereafter to appoint another qualified commercial bank, trust company or financial institution to act as the Auction Agent.
9. 1940 Act Preferred Shares Asset Coverage . The Trust shall maintain, as of the last Business Day of each month in which any Preferred Shares are Outstanding, the 1940 Act Preferred Shares Asset Coverage; provided, however, that Section 3(a)(ii) shall be the sole remedy in the event the Trust fails to do so.
10. Preferred Shares Basic Maintenance Amount . So long as any Preferred Shares are Outstanding and any Rating Agency so requires, the Trust shall maintain, as of each Valuation Date, Moody's Eligible Assets and S&P Eligible Assets, as applicable, having an aggregate Discounted Value equal to or greater than the Preferred Shares Basic Maintenance Amount; provided, however, that Section 3(a)(ii) shall be the sole remedy in the event the Trust fails to do so.
11. [Reserved]
12. Certain Other Restrictions . (a) So long as any Preferred Shares are Outstanding and any Rating Agency so requires, the Trust will not, unless it has received written confirmation from such Rating Agency that any such action would not impair the rating then assigned by such Rating Agency to the Preferred Shares, engage in any one or more of the following transactions:
(i)
purchase or sell futures contracts or options thereon with respect to portfolio securities or write put or call options on portfolio securities;
(ii)
except in connection with a refinancing of the Preferred Shares, issue additional shares of any series of preferred shares, including any Series or reissue any shares of preferred shares, including any Series previously purchased or redeemed by the Trust;
(iii)
engage in any short sales of securities;
(iv)
lend portfolio securities;
(iv)
merge or consolidate into or with any other corporation;
(v)
engage in any reverse repurchase agreement; or
(vii) change the Pricing Service to a service other than an Approved Pricing Service.
(b) So long as any Preferred Shares are Outstanding and are rated by S&P:
(i)
the rating on each S&P Eligible Asset must be updated no less frequently than monthly;
(ii)
the prices for S&P Eligible Assets which have a Market Value Price shall be updated as of each Valuation Date;
(iii)
the prices for S&P Eligible Assets which have an Approved Price shall be updated no less frequently than monthly;
Exhibit (2)(d)(1)
(iv)
no less frequently than semi-annually, the Trust's independent auditors shall verify the pricing of at least 25% of the S&P Eligible Assets and provide to S&P a letter describing the results of such verification. For the purposes of this item (iv), "verify" shall mean that the independent auditors agreed the prices reported by the Trust to the prices received by the Trust from an Approved Pricing Service; and
(v)
the Trust shall notify S&P if, on any Valuation Date, the aggregate Discounted Value of the S&P Eligible Assets is less than 125% of the Preferred Shares Basic Maintenance Amount.
13. Compliance Procedures For Asset Maintenance Tests . For so long as any Preferred Shares are Outstanding and any Rating Agency so requires:
(a) As of each Valuation Date, the Trust shall determine (i) the Market Value of each Eligible Asset owned by the Trust on that date, (ii) the Discounted Value of each such Eligible Asset, (iii) whether the Preferred Shares Basic Maintenance Amount Test is met as of that date, (iv) the value (as used in the 1940 Act) of the total assets of the Trust, less all liabilities, and (v) whether the 1940 Act Preferred Shares Asset Coverage is met as of that date.
(b) Upon any failure to meet the Preferred Shares Basic Maintenance Amount Test or 1940 Act Preferred Shares Asset Coverage on any Valuation Date, the Trust may use reasonable commercial efforts (including, without limitation, altering the composition of its portfolio, purchasing shares of the Preferred Shares outside of an Auction or, in the event of a failure to file a certificate on a timely basis, submitting the requisite certificate), to meet (or certify in the case of a failure to file a certificate on a timely basis, as the case may be) the Preferred Shares Basic Maintenance Amount Test or 1940 Act Preferred Shares Asset Coverage on or prior to the Asset Coverage Cure Date.
(c) [Reserved]
(d) The Trust shall deliver to the Auction Agent and each Rating Agency a certificate which sets forth a determination of items (i)-(iii) of paragraph (a) of this Section 13 (a "Preferred Shares Basic Maintenance Certificate") as of (A) the Date of Original Issue, (B) the last Valuation Date of each month, (C) any date requested by any Rating Agency, (D) a Business Day on or before any Asset Coverage Cure Date relating to the Trust's cure of a failure to meet the Preferred Shares Basic Maintenance Amount Test, and (E) any day that Common or Preferred Shares are redeemed. Such Preferred Shares Basic Maintenance Certificate shall be delivered in the case of clause (i)(A) on the Date of Original Issue and in the case of all other clauses above on or before the seventh Business Day after the relevant Valuation Date or Asset Coverage Cure Date.
(e) The Trust shall deliver to the Auction Agent and each Rating Agency a certificate which sets forth a determination of items (iv) and (v) of paragraph (a) of this Section 13 (a "1940 Act Preferred Shares Asset Coverage Certificate") (i) as of the Date of Original Issue, and (ii) as of (A) the last Valuation Date of each quarter thereafter, and (B) as of a Business Day on or before any Asset Coverage Cure Date relating to the failure to meet the 1940 Act Preferred Shares Asset Coverage. Such 1940 Act Preferred Shares Asset Coverage Certificate shall be delivered in the case of clause (i) on the Date of Original Issue and in the case of clause (ii) on or before the seventh Business Day after the relevant Valuation Date or the Asset Coverage Cure
Exhibit (2)(d)(1)
Date. The certificates required by paragraphs (d) and (e) of this Section 13 may be combined into a single certificate.
(f) [Reserved]
(g) Within ten Business Days of the Date of Original Issue, the Trust shall deliver to the Auction Agent and each Rating Agency a letter prepared by the Trust's independent auditors (an "Auditor's Certificate") regarding the accuracy of the calculations made by the Trust in the Preferred Shares Basic Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage Certificate required to be delivered by the Trust on the Date of Original Issue. Within ten Business Days after delivery of the Preferred Shares Basic Maintenance Certificate and the 1940 Act Preferred Shares Asset Coverage Certificate relating to the last Valuation Date of each fiscal quarter of the Trust, the Trust will deliver to the Auction Agent and each Rating Agency an Auditor's Certificate regarding the accuracy of the calculations made by the Trust in such Certificates and in one other Preferred Shares Basic Maintenance Certificate randomly selected by the Trust's independent auditors during such fiscal quarter. In addition, the Trust will deliver to the persons specified in the preceding sentence an Auditor's Certificate regarding the accuracy of the calculations made by the Trust on each Preferred Shares Basic Maintenance Certificate and 1940 Act Preferred Shares Asset Coverage Certificate delivered in relation to an Asset Coverage Cure Date within ten days after the relevant Asset Coverage Cure Date. If an Auditor's Certificate shows that an error was made in any such report, the calculation or determination made by the Trust's independent auditors will be conclusive and binding on the Trust.
(h) The Auditor's Certificates referred to in paragraph (g) above will confirm, based upon the independent auditors review of portfolio data provided by the Trust, (i) the mathematical accuracy of the calculations reflected in the related Preferred Shares Basic Maintenance Amount Certificates and 1940 Act Preferred Shares Asset Coverage Certificates, (ii) that, based upon such calculations, the Trust had, at such Valuation Date, met the Preferred Shares Basic Maintenance Amount Test, and (iii) that the Trust met the Moody's General Portfolio Requirements and the S&P Diversity I or S&P Diversity II requirements, as applicable.
(i) In the event that a Preferred Shares Basic Maintenance Certificate or 1940 Act Preferred Shares Asset Coverage Certificate with respect to an applicable Valuation Date is not delivered within the time periods specified in this Section 13, the Trust shall be deemed to have failed to meet the Preferred Shares Basic Maintenance Amount Test or the 1940 Act Preferred Shares Asset Coverage, as the case may be, on such Valuation Date for purposes of Section 13(b) of Part I of this Certificate. In the event that a Preferred Shares Basic Maintenance Certificate, a 1940 Act Preferred Shares Asset Coverage Certificate or an applicable Auditor's Certificate with respect to an Asset Coverage Cure Date is not delivered within the time periods specified herein, the Trust shall be deemed to have failed to meet the Preferred Shares Basic Maintenance Amount Test or the 1940 Preferred Shares Asset Coverage, as the case may be, as of the related Valuation Date.
14. [Reserved]
15. Notice . All notices or communications hereunder, unless otherwise specified in this Certificate, shall be sufficiently given if in writing and delivered in person, by telecopier or mailed by first-class mail, postage prepaid. Notices delivered pursuant to this Section 15 shall be deemed given on the earlier of the date received or the date five days after which such notice is mailed.
Exhibit (2)(d)(1)
16. Waiver . To the extent permitted by Massachusetts Law, holders of at least two-thirds of the Outstanding Preferred Shares, acting collectively, or each Series, acting as a separate series, may waive any provision hereof intended for their respective benefit in accordance with such procedures as may from time to time be established by the Board of Trustees.
17. Termination . In the event that no shares of the Preferred Shares are Outstanding, all rights and preferences of such shares established and designated hereunder shall cease and terminate, and all obligations of the Trust under this Certificate shall terminate.
18. Amendment . Subject to the provisions of this Certificate, the Board of Trustees may, by resolution duly adopted without shareholder approval (except as otherwise provided by this Certificate or required by applicable law), amend this Certificate to (1) reflect any amendments hereto which the Board of Trustees is entitled to adopt pursuant to the terms of Section 6(l) of Part I of this Certificate without shareholder approval or (2) add additional shares of each Series (and terms relating thereto). All such additional shares shall be governed by the terms of this Certificate. To the extent permitted by applicable law, the Board of Trustees may interpret, amend or adjust the provisions of this Certificate to resolve any inconsistency or ambiguity or to remedy any patent defect.
19. Definitions . As used in Part I and Part II of this Certificate, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "'AA' Financial Composite Commercial Paper Rate" on any date means (i) the interest equivalent of the 7-day rate, in the case of a Dividend Period which is a Standard Rate Period or shorter; for Dividend Periods greater than 7 days but fewer than or equal to 31 days, the 30-day rate; for Dividend Periods greater than 31 days but fewer than or equal to 61 days, the 60-day rate; for Dividend Periods greater than 61 days but fewer than or equal to 91 days, the 90 day rate; for Dividend Periods greater than 91 days but fewer than or equal to 270 days, the rate described in (ii); for Dividend Periods greater than 270 days, the Treasury Index Rate; on commercial paper on behalf of issuers whose corporate bonds are rated "AA" by S&P, or the equivalent of such rating by another nationally recognized rating agency, as announced by the Federal Reserve Bank of New York for the close of business on the Business Day immediately preceding such date; or (ii) if the Federal Reserve Bank of New York does not make available such a rate, then the arithmetic average of the interest equivalent of such rates on commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by the Commercial Paper Dealers to the Auction Agent for the close of business on the Business Day immediately preceding such date (rounded to the next highest .001 of 1%). If any Commercial Paper Dealer does not quote a rate required to determine the "AA" Financial Composite Commercial Paper Rate, such rate shall be determined on the basis of the quotations (or quotation) furnished by the remaining Commercial Paper Dealers (or Dealer), if any, or, if there are no such Commercial Paper Dealers, by the Auction Agent. For Dividend Periods greater than 360 days, the Treasury Index Rate. For purposes of this definition, (A) "Commercial Paper Dealers" shall mean (1) Salomon Smith Barney Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.; (2) in lieu of any thereof, its respective Affiliate or successor; and (3) in the event that any of the foregoing shall cease to quote rates for commercial paper of issuers of the sort described above, in substitution therefor, a nationally recognized dealer in commercial paper of such issuers then making such quotations selected by the Trust, and (B) "interest equivalent" of a rate stated on a discount basis for commercial paper of a given number of days' maturity shall mean a number equal to the quotient (rounded upward to the next higher one-thousandth of 1%) of (1) such rate expressed as a decimal, divided by (2) the difference between (x) 1.00 and (y) a fraction, the numerator of which shall be the product of such rate expressed as a decimal, multiplied by the
Exhibit (2)(d)(1)
number of days in which such commercial paper shall mature and the denominator of which shall be 360.
"Advance Rate" means the Moody's Advance Rate (if Moody's is then rating the Preferred Shares) and the S&P Advance Rate (if S&P is then rating the Preferred Shares), whichever is applicable.
"Affiliate" means any person known to the Auction Agent to be controlled by, in control of or under common control with the Trust; provided that ING Pilgrim Investments, Inc. shall not be deemed to be an Affiliate nor shall any corporation or any person controlled by, in control of or under common control with such corporation, one of the trustees, directors or executive officers of which is also a trustee, director or executive officer of the Trust, be deemed to be an Affiliate.
"Agent Member" means a member of or a participant in the Securities Depository that will act on behalf of a Bidder.
"All Hold Rate" means 80% of the "AA" Financial Composite Commercial Paper Rate.
"Applicable Rate" means, with respect to each Series for each Dividend Period (i) if Sufficient Clearing Orders exist for the Auction in respect thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist for the Auction in respect thereof, the Maximum Rate.
"Approved Dealer" means any Broker-Dealer listed in Exhibit A to this Certificate or any other broker-dealer designated in writing by the Trust provided that no Rating Agency, in its reasonable discretion, has objected to such designated broker-dealer in writing to the Trust within ten business days of receipt of the Trust's written notice of such designation.
"Approved Price" means the "fair value" as determined by the Trust in accordance with the valuation procedures adopted from time to time by the Board of Trustees and for which the Trust receives a mark-to-market price (which, for the purpose of clarity, shall not mean a Market Value Price) from an independent source at least semi-annually.
"Approved Pricing Service" means Loan Pricing Corporation or any other quotation service designated in writing by the Trust provided that no Rating Agency has objected, in its reasonable discretion, in writing to the Trust within ten business days of receipt of the Trust's written notice of the designation of such quotation service.
"Asset Coverage Cure Date" has the meaning set forth in Section 3(a)(ii) of this Certificate.
"Auction" means each periodic operation of the procedures set forth under "Auction Procedures."
"Auction Agent" means Bankers Trust Company unless and until another commercial bank, trust company, or other financial institution appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to follow the Auction Procedures for the purpose of determining the Applicable Rate.
"Auction Date" means the first Business Day next preceding the first day of a Dividend Period for each Series.
Exhibit (2)(d)(1)
"Auction Procedures" means the procedures for conducting Auctions set forth in Part II hereof.
"Auditor's Certificate" has the meaning set forth in Section 13(g) of Part I of this Certificate.
"Bank of America Credit Agreement" means that certain Second Amended and Restated Credit Agreement dated as of September 2, 1998 (as amended or supplemented thereafter) among Pilgrim Prime Rate Trust, a Massachusetts business trust, various financial institutions party to the Credit Agreement, Bank of America, N.A., a national banking association, State Street Bank and Trust Company, Deutsche Bank AG, and Commerzbank AG.
"Beneficial Owner," with respect to shares of each Series, means a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares of such series.
"Bid" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate.
"Bidder" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate; provided, however, that neither the Trust nor any Affiliate shall be permitted to be a Bidder in an Auction.
"Board of Trustees" means the Board of Trustees of the Trust or any duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other entity permitted by law to perform the functions required of a Broker-Dealer by the Auction Procedures, that has been selected by the Trust and has entered into a Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in The City of New York, New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" has the meaning set forth in the definition of "AA" Financial Composite Commercial Paper Rate.
"Commission" means the Securities and Exchange Commission.
"Common Share" means the shares of beneficial interest, par value $.01 per share, of the Trust.
"Date of Original Issue" means the date on which a Series is originally issued by the Trust.
Exhibit (2)(d)(1)
"Default Period" has the meaning set forth in Sections 2(c) (ii) or (iii) of Part I of this Certificate.
"Default Rate" means the Reference Rate multiplied by three (3).
"Deposit Securities" means cash and any obligations or securities, including Short Term Money Market Instruments that are Eligible Assets, rated at least AAA, A-1+ or SP-1+ by S&P, except that, for purposes of optional redemption such obligations or securities shall be considered "Deposit Securities" only if they are also rated at least P-1 by Moody's.
"Discounted Value" means the product of the Market Value (plus accrued interest) of an Eligible Asset multiplied by the applicable Advance Rate.
"Dividend Default" has the meaning set forth in Section 2(c)(iii) of Part I of this Certificate.
"Dividend Payment Date" means (i) with respect to any Dividend Period of one year or less, the Business Day next succeeding the last day thereof and, if any, the 91st, 181st and 271st days thereof, and (ii) with respect to any Dividend Period of more than one year, on a quarterly basis on each January 1, April 1, July 1 and October 1 and on the Business Day following the last day of such Dividend Period.
"Dividend Period" means, with respect to each Series, the period commencing on the Date of Original Issue thereof and ending on the date specified for such series on the Date of Original Issue thereof and thereafter, as to such Series, the period commencing on the day following each Dividend Period for such Series and ending on the day established for such Series by the Trust.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then rating the Preferred Shares) and S&P Eligible Assets (if S&P is then rating the Preferred Shares), whichever is applicable.
"Existing Holder," has the meaning set forth in Section 1(d) of Part II of this Certificate.
"GE Loan Agreement" means that certain Revolving Loan Agreement dated as of July 16, 1998 (as the same may be amended, supplemented, restated or otherwise modified from time to time) and is entered into among Pilgrim Prime Rate Trust (f/k/a Pilgrim America Prime Rate Trust), a Delaware corporation, ING Pilgrim Investments, Inc. (f/k/a Pilgrim America Investments, Inc.), a Delaware corporation, Edison Asset Securitization, L.L.C., a Delaware limited liability company and General Electric Capital Corporation, a New York Corporation.
"Hold Order" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate.
"Holder" means, with respect to Preferred Shares, the registered holder of shares of each Series as the same appears on the share ledger or share records of the Trust.
"Loan" means any assignment of or participation in any bank loan denominated in U.S. dollars including term loans, the funded and unfunded portions of revolving credit lines (provided that the Trust shall place in reserve an amount equal to any unfunded portion of any revolving credit line) and debtor-in possession financings; provided that such loan (a) is not extended for
Exhibit (2)(d)(1)
the purpose of purchasing or carrying any margin stock and (b) is similar to those typically made, syndicated, purchased or participated by a commercial bank in the ordinary course of business.
"Mandatory Redemption Date" has the meaning set forth in Section 3(a)(iv) of Part I of this Certificate.
"Mandatory Redemption Price" has the meaning set forth in Section 3(a)(iv) of Part I of this Certificate.
"Market Value" means the Market Value Price or, if a Market Value Price is not readily available, the Approved Price of each Eligible Asset held by the Trust.
"Market Value Price" means the price of an Eligible Asset which is the price obtained from an Approved Pricing Service or, if such price is not available, the lower of the bid prices quoted by two Approved Dealers.
"Maximum Rate" means, on any date on which the Applicable Rate is determined, the applicable percentage of the "AA" Financial Composite Commercial Paper Rate on the date of such Auction determined as set forth below based on the lower of the credit ratings assigned to the Preferred Shares by Moody's and S&P subject to upward but not downward adjustment in the discretion of the Board of Trustees after consultation with the Broker-Dealers; provided that immediately following any such increase the Trust would be in compliance with the Preferred Shares Basic Maintenance Amount.
Moody's
Credit Rating |
S&P
Credit Rating |
Applicable
Percentage |
|||
---|---|---|---|---|---|
aa3 or Above | AA- or Above | 150% | |||
a3 or a1 | A- to A+ | 160% | |||
baa3 to baa1 | BBB- to BBB+ | 250% | |||
Below baa3 | Below BBB- | 275% |
"Moody's" means Moody's Investors Service, Inc. and its successors at law.
"Moody's Advance Rate" means, so long as the Trust's portfolio complies with the Moody's General Portfolio Requirements, the percentage determined below:
(i)
Loans: for each Moody's Asset Category, the percentage specified in the table below opposite such Moody's Asset Category.
Moody's Asset Category | Advance Rate | ||
---|---|---|---|
A | 84 | .5% | |
B | 73 | % | |
C | 62 | % | |
D | 45 | % | |
E | 45 | % |
(ii) Short Term Money Market Instruments: (A) 97%, so long as such investments mature or have a demand feature at par exercisable within 30 days, (B) 90%, so long as such investments mature or have a demand feature at par not exercisable
Exhibit (2)(d)(1)
within 30 days, and (C) 83%, if such securities are not rated by Moody's, so long as such investments are rated at least A-2/AA or SP-2/AA by S&P and mature or have a demand feature at par exercisable within 30 days.
(iii) Cash; 100%.
"Moody's Asset Category" means the following five categories (and, for purposes of this categorization, the Market Value Price of a Moody's Eligible Asset trading at par is equal to $1.00).
"Moody's Asset Category A" means Performing Senior Loans which have a Market Value Price or an Approved Price greater than or equal to $.90. "Moody's Asset Category B" means:
(i) Performing Senior Loans which have a Market Value Price or an Approved Price of greater than or equal to $.80 but less than $.90; and
(ii) non-Performing Senior Loans which have a Market Value Price or an Approved Price greater than or equal to $.85.
"Moody's Asset Category C" means:
(i) Performing Senior Loans which have a Market Value Price or an Approved Price greater than or equal to $.70 but less than $.80; and
(ii) non-Performing Senior Loans which have a Market Value Price or an Approved Price greater than or equal to $.75 but less than $.85.
"Moody's Asset Category D" means Senior Loans which have a Market Value Price or an Approved price less than $.75. "Moody's Asset Category E" means Non-Senior Loans which have a Market Value Price or an Approved Price. Notwithstanding any other provision contained above, for purposes of determining whether a Moody's Eligible Asset falls within a specific Moody's Asset Category, to the extent that any Moody's Eligible Asset would fall in more than one of the Moody's Asset Categories, such Moody's Eligible Asset shall be deemed to fall into the Moody's Asset Category with the highest applicable Moody's Advance Rate.
"Moody's Eligible Assets" means:
(i) Senior Loans; provided, however, that (a) Senior Loans with an Approved Price will qualify as Moody's Eligible Assets only up to a maximum of 10% of the Trust's total assets; and (b) Senior Loans under Moody's Asset Category D will qualify as Moody's Eligible Assets only up to a maximum of 20% of the Trust's total assets.
(ii) Non-Senior Loans; provided, however, that Non-Senior Loans will qualify as Moody's Eligible Assets only up to a maximum of 10% of the Trust's total assets.
(iii) Short-Term Money Market Instruments so long as (a) such securities are rated at least P-2, (b) in the case of demand deposits, time deposits, banker's acceptances and certificate of deposit and overnight funds, the supporting entity is rated at least A2, (c) such securities are U.S. Government Securities, or (d) in all other cases, the supporting entity (1) is rated A2 and the security matures within one month, (2) is rated
Exhibit (2)(d)(1)
A2 and the security matures within three months or (3) is rated at least Aa3 and the security matures within six months.
(iv) Cash.
"Moody's General Portfolio Requirements" means that the Trust's portfolio must meet the following diversification requirements: (a) no more than 25% by par value of the Trust's total assets can be invested in the securities of borrowers and other issuers having their principal business activities in the same Moody's Industry Classification; provided, that this limitation shall not apply with respect to U.S. Government Securities and provided further that for purposes of this subsection (a), the term "issuer" shall not include a lender selling a participation to the Trust or any other person interpositioned between such lender and the Trust with respect to a participation and (b) no more than 10% by par value of the Trust's total assets can be invested in securities of a single issuer, and provided further that for purposes of this subsection (b), the term "issuer" includes both the borrower under a loan agreement and the lender selling a participation to the Trust together with any other persons interpositioned between such lender and the Trust with respect to such participation. "Moody's Industry Classification" means, for the purposes of determining Moody's Eligible Assets, each of the following industry classifications (or such other classifications as Moody's may from time to time approve for application to the Preferred Shares:
1. Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft Manufacturing, Arms, Ammunition
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts Manufacturing, Personal Use Trailers, Motor Homes, Dealers
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan, Agency, Factoring, Receivables
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil
5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting, Engineering, Construction, Hardware, Forest Products (building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land Development
6. Chemicals, Plastics and Rubber: Chemicals (non-agriculture), Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints, Varnish, Fabricating
7. Containers, Packaging and Glass: Glass, Fiberglass, Containers made of: Glass, Metal, Paper, Plastic, Wood or Fiberglass
8. Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies
9. Diversified/Conglomerate Manufacturing
10. Diversified/Conglomerate Service
Exhibit (2)(d)(1)
11. Diversified Natural Resources, Precious Metals and Minerals: Fabricating, Distribution, Mining and Sales
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste Disposal
13. Electronics: Computer Hardware, Electric Equipment, Components, Controllers, Motors, Household Appliances, Information Service Communicating Systems, Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology
14. Finance: Investment Brokerage, Leasing, Syndication, Securities
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals, Agricultural Equipment, Fertilizers
16. Grocery: Grocery Stores, Convenience Food Stores
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs, Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment
18. Home and Office Furnishings, Housewares, and Durable Consumer Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges
19. Hotels, Motels, Inns and Gaming
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety
21. Leisure, Amusement, Entertainment: Boating, Bowling, Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy Manufacturing
22. Machinery (Non-Agriculture, Non-Construction, Non-Electronic): Industrial, Machine Tools, Steam Generators
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling
25. Personal, Food and Miscellaneous
26. Printing and Publishing: Graphic Arts, Paper, Paper Products, Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks
27. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport
28. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog, Showroom
29. North American Cellular and North American Cable
Exhibit (2)(d)(1)
30. Data and Internet Services
31. Satellite
32. Telecommunications Equipment
33. Other Telecommunications
34. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer, Leather Shoes
35. Utilities: Electric, Water, Hydro Power, Gas, Diversified
36. Radio and TV Broadcasting
37. Foreign Cellular, Foreign Cable, Foreign TV, Foreign Radio and Equipment
38. Other Broadcasting and Entertainment
"1940 Act" means the Investment Company Act of 1940, as amended.
"1940 Act Preferred Shares Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Trust which are stock, including all Outstanding Preferred Shares (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its common shares), determined on the basis of values calculated as of a time within 48 hours (not including Sundays or holidays) next preceding the time of such determination.
"1940 Act Preferred Shares Asset Coverage Certificate" means the certificate required to be delivered by the Trust pursuant to Section 13(e) of Part I of this Certificate.
"Non-Senior Loan" means a Loan that is a hybrid loan, a subordinated loan or an unsecured loan.
"Notice of Redemption" means any notice with respect to the redemption of Preferred Shares pursuant to Section 3 of Part I of this Certificate.
"Order" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate.
"Outstanding" means, as of any date, Preferred Shares theretofore issued by the Trust except, without duplication, (i) Preferred Shares theretofore canceled, redeemed or repurchased by the Trust, or delivered to the Auction Agent for cancellation or with respect to which the Trust has given notice of redemption and irrevocably deposited with the Paying Agent sufficient funds to redeem such Preferred Shares and (ii) any Preferred Shares represented by any certificate in lieu of which a new certificate has been executed and delivered by the Trust. Notwithstanding the foregoing, (A) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any Preferred Shares as to which the Trust or any Affiliate shall be the Existing Holder shall be disregarded and not deemed Outstanding; (B) in connection with any Auction, any Preferred Shares as to which the Trust or any person known to the Auction
Exhibit (2)(d)(1)
Agent to be an Affiliate shall be the Existing Holder shall be disregarded and not deemed Outstanding; and (C) for purposes of determining the Preferred Shares Basic Maintenance Amount, Preferred Shares held by the Trust shall be disregarded and not deemed Outstanding, but shares held by any Affiliate shall be deemed Outstanding.
"Paying Agent" means Bankers Trust Company unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as paying agent, which paying agent may be the same as the Auction Agent.
"Performing" means that no default as to the payment of principal or interest has occurred and is continuing.
"Person" or "person" means and includes an individual, a partnership, the Trust, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
"Potential Beneficial Owner," has the meaning set forth in Section 1of Part II of this Certificate.
"Preferred Shares" has the meaning set forth in paragraph SECOND of this Certificate.
"Preferred Shares Basic Maintenance Amount" as of any Valuation Date means the dollar amount equal to the sum of
(i) (A) the sum of the products resulting from multiplying the number of Outstanding shares of each Series of Preferred Shares on such date by the Liquidation Preference (and redemption premium, if any) per share of such Series; (B) the aggregate amount of dividends that will have accumulated at the Applicable Rate (whether or not earned or declared) to and including the first Dividend Payment Date for each Outstanding Preferred Share that follows such Valuation Date (or to the 30th day after such Valuation Date, if such 30th day occurs before the first following Dividend Payment Date); (C) the amount of anticipated Trust non-interest expenses for the 90 days subsequent to such Valuation Date; (D) the amount of the current outstanding balances of any indebtedness which is senior to the Preferred Shares plus interest actually accrued together with 30 days additional interest on the current outstanding balances calculated at the current rate multiplied by 1.93 and (E) any other current liabilities payable during the 30 days subsequent to such Valuation Date, including, without limitation, any indebtedness service to the Preferred Shares and indebtedness due within one year and any redemption premium due with respect to Preferred Shares for which a Notice of Redemption has been given, as of such Valuation Date to the extent not reflected in any of (i)(A) through (i)(D): less
(ii) the sum of any cash plus the value of any Trust assets irrevocably deposited by the Trust for the payment of any (i)(B) through (i)(E) (except that if the security matures prior to the relevant redemption payment date and is either fully guaranteed by the U.S. Government or is rated P2 by Moody's and A2 by S&P, it will be valued at its face value).
"Preferred Shares Basic Maintenance Amount Test" means a test which is met if the lower of the aggregate Discounted Values of the Moody's Eligible Assets or the S&P Eligible Assets meets or exceeds the Preferred Shares Basic Maintenance Amount.
Exhibit (2)(d)(1)
"Preferred Shares Basic Maintenance Certificate" has the meaning set forth in Section 13(d) of Part I of this Certificate.
"Rate Period" means either a Standard Rate Period or a Special Rate Period.
"Rating Agency" means Moody's and S&P as long as such rating agency is then rating the Preferred Shares.
"Redemption Date" has the meaning set forth in Section 2(c)(ii) of Part I of this Certificate.
"Redemption Default" has the meaning set forth in Section 2(c)(ii) of Part I of this Certificate.
"Redemption Price" has the meaning set forth in Section 3(a)(i) of Part I of this Certificate.
"Reference Rate" means, with respect to the determination of the Default Rate, the applicable "AA" Financial Composite Commercial Paper Rate (for a Dividend Period of fewer than 184 days) or the applicable Treasury Index Rate (for a Dividend Period of 184 days or more).
"Registrar" means Bankers Trust Company unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as transfer agent.
"S&P" means Standard & Poor's and its successors at law.
"S&P Advance Rate" means the rate set forth below for each type of S&P Eligible Asset:
(i) Loans: depending upon whether the Trust's portfolio meets the requirements of either S&P Diversity I or S&P Diversity II, for each S&P Asset Category, the applicable percentage specified in the table below opposite such S&P Asset Category.
S&P Asset Category |
S&P Diversity I
Advance Rate |
S&P Diversity II
Advance Rate |
|||
---|---|---|---|---|---|
A | 80 | % | 86 | % | |
B | 74 | % | 82 | % | |
C | 57 | % | 68 | % | |
D | 47 | % | 60 | % | |
E | 47 | % | 49 | % |
(ii) Short Term Money Market Instruments: (A) 97%, so long as such investments mature or have a demand feature at par exercisable within 30 days, and (B) 90%, so long as such investments mature or have a demand feature at par not exercisable within the 30 days but exercisable within one year.
(iii) Cash; 100%.
"S&P Asset Category" means the following five categories (and, for purposes of this categorization, the Market Value Price of an S&P Eligible Asset trading at par is equal to $ 1.00).
Exhibit (2)(d)(1)
"S&P Asset Category A" means Performing Senior Loans which have a Market Value Price or an Approved Price greater than $.90.
"S&P Asset Category B" means Performing Senior Loans which have a Market Value Price or an Approved Price greater than or equal to $.85 but equal to or less than $.90.
"S&P Asset Category C" means non-Performing Senior Loans which have a Market Value Price or an Approved Price greater than $.85.
"S&P Asset Category D" means:
(i) Performing Senior Loans which have a Market Value Price or an Approved Price less than $.85; and
(ii) Non-Performing Senior Loans which have a Market Value Price or an Approved Price less than or equal to $.85.
"S&P Asset Category E" means (i) Senior Loans whose total syndication is less than $150 million (to the extent such loans exceed 15% of the Trust's total assets), (ii) Senior Loans which are rated below B- by S&P or are unrated (to the extent such loans exceed 15% of the Trust's total assets), and (iii) Non-Senior Loans. Notwithstanding any other provision contained above, for purposes of determining whether an S&P Eligible Asset falls within a specific S&P Asset Category, to the extent that any S&P Eligible Asset would fall in more than one of the five S&P Asset Categories, such S&P Eligible Asset shall be deemed to fall into the S&P Asset Category with the highest applicable S&P Advance Rate.
"S&P Diversity I" means that the Trust's portfolio meets the following requirements:
(1) the Trust's total assets must be invested in the securities of borrowers and other issuers having their principal business activities in at least four S&P Industry Classifications (the electric, gas, water and telephone utility industries, commercial banks, thrift institutions and finance companies being treated as separate industries for purposes of this restriction); provided, that this limitation shall not apply with respect to U.S. Government Securities and provided further that for purposes of this subsection (1), the term "issuer" shall not include a lender selling a participation to the Trust or any other person interpositioned between such lender and the Trust with respect to a participation; and (2) the Trust's total assets must be invested in securities of at least 20 different issuers, provided that for purposes of this subsection (2), the term "issuer" includes both the borrower under a loan agreement and the lender selling a participation to the Trust together with any other persons interpositioned between such lender and the Trust with respect to a participation.
"S&P Diversity II" means that the Trust's portfolio meets the following requirements:
(1) the Trust's total assets must be invested in the securities of borrowers and other issuers having their principal business activities in at least 10 S&P Industry Classifications (the electric, gas, water and telephone utility industries, commercial banks, thrift institutions and finance companies being treated as separate industries for purposes of this restriction); provided, that this limitation shall not apply with respect to U.S. Government Securities and provided further that for purposes of this subsection (1), the term "issuer" shall not include a lender selling a participation to the Trust or any other
Exhibit (2)(d)(1)
person interpositioned between such lender and the Trust with respect to a participation; and (2) the Trust's total assets must be invested in securities of at least 30 different issuers, provided that for purposes of this subsection (2), the term "issuer" includes both the borrower under a loan agreement and the lender selling a participation to the Trust together with any other persons interpositioned between such lender and the Trust with respect to a participation.
"S&P Eligible Assets" means:
(i) Senior Loans; provided, however, that (a) Senior Loan Participations and Non-Senior Loans will qualify as S&P Eligible Assets only up to an aggregate maximum of 15% of the Trust's total assets, (b) Senior Loans whose total syndication is less than $150 million will qualify as S&P Eligible Assets only up to a maximum of 35% of the Trust's total assets, (c) Senior Loans and Non-Senior Loans rated below B- by S&P or unrated will qualify as S&P Eligible Assets only up to an aggregate maximum of 50% of the Trust's total assets, (d) Senior Loans and Non-Senior Loans with an Approved Price will qualify as S&P Eligible Assets only up to an aggregate maximum of 5% of the Trust's total assets, (e) a Senior Loan or a Non-Senior Loan to a single issuer, plus any other investment in the securities of such issuer, will qualify as an S&P Eligible Asset only up to an aggregate maximum of 5% (for the S&P Diversity I Advance Rate) or 3.33% (for the S&P Diversity II Advance Rate) of the Trust's total assets, provided that, for purposes of this subsection (e), the term "issuer" includes both the borrower under a loan agreement and the lender selling a participation to the Trust together with any other persons interpositioned between such lender and the Trust with respect to a participation, (f) Senior Loans and Non-Senior Loans to borrowers and other issuers having their principal business activities in the same S&P Industry Classification will qualify as S&P Eligible Assets only up to an aggregate maximum of 25% (for the S&P Diversity I Advance Rate) or 10% (for the S&P Diversity II Advance Rate) of the Trust's total assets, provided that this limitation shall not apply with respect to U.S. Government Securities and provided further that, for purposes of this subsection (f), the term "issuer" shall not include a lender selling a participation to the Trust or any other person interpositioned between such lender and the Trust with respect to a participation.
(ii) Non-Senior Loans; provided, however, that (a) unsecured Non-Senior Loans will qualify as S&P Eligible Assets only up to a maximum of 3% of the Trust's total assets, (b) Senior Loan Participations and Non-Senior Loans will qualify as S&P Eligible Assets only up to an aggregate maximum of 15% of the Trust's total assets, (c) Senior Loans and Non-Senior Loans rated below Bby S&P or unrated will qualify as S&P Eligible Assets only up to an aggregate maximum of 50% of the Trust's total assets, (d) Senior Loans and Non-Senior Loans with an Approved Price will qualify as S&P Eligible Assets only up to an aggregate maximum of 5% of the Trust's total assets, (e) a Senior Loan or a Non-Senior Loan to a single issuer, plus any other investment in the securities of such issuer, will qualify as an S&P Eligible Asset only up to an aggregate maximum of 5% (for the S&P Diversity I Advance Rate) or 3.33% (for the S&P Diversity I Advance Rate) of the Trust's total assets, provided that, for purposes of this subsection (e), the term "issuer" includes both the borrower under a loan agreement and the lender selling a participation to the Trust together with any other persons interpositioned between such lender and the Trust with respect to a participation, (f) Senior Loans and Non-Senior Loans to borrowers and other issuers having their principal business activities in the same S&P Industry Classification will qualify as S&P Eligible Assets only up to an aggregate maximum of 25% (for the S&P Diversity I Advance Rate) or 10% (for the S&P Diversity
Exhibit (2)(d)(1)
I Advance Rate) of the Trust's total assets, provided that this limitation shall not apply with respect to U.S. Government Securities and provided further that, for purposes of this subsection (f), the term "issuer" shall not include a lender selling a participation to the Trust or any other person interpositioned between such lender and the Trust with respect to a participation.
(iii) Short-Term Money Market Instruments provided that (a) such securities are rated at least A-1 and mature within 30 days or are rated at least A-1+ and mature within one year, and provided further that such securities rated A-1 will qualify as S&P Eligible Assets only up to a maximum of 20% of the Trust's total assets, (b) in the case of demand deposits, time deposits, banker's acceptances, certificates of deposit and overnight funds, the supporting entity is rated at least A+, (c) such securities are U.S. Government Securities or (d) in all other cases, the supporting entity is rated at least A+.
(iv) Cash.
"S&P Industry Classification" means, for the purposes of determining S&P Eligible Assets, each of the following industry classifications (or such other classifications as S&P may from time to time approve for application to the Preferred Shares:
1. Aerospace and Defense: Aircraft manufacturer/components, Arms and ammunition
2. Air transport
3. Automotive: Manufacturers, Parts and Equipment, Tire and Rubber
4. Beverage and Tobacco
5. Broadcast Radio and Television
6. Brokers/Dealers/Investment Houses
7. Building and Development: Builders, Land Development/Real Estate, REITs
8. Business Equipment and Services: Graphic Arts, Office Equipment/Computers, Data Processing Service Bureaus, Computer Software
9. Cable and Satellite Television
10. Chemical/Plastics: Coatings/Paints/Varnishes
11. Clothing/Textiles
12. Conglomerates
13. Containers and Glass Products
14. Cosmetic/Toiletries
15. Drugs
Exhibit (2)(d)(1)
16. Ecological Services and Equipment: Waste Disposal Services and Equipment
17. Electronics/Electric
18. Equipment Leasing: Auto Leasing/Rentals, Commercial Equipment Leasing, Data Processing Equipment Service/Leasing
19. Farming/Agriculture: Agricultural Products and Equipment, Fertilizers
20. Financial Intermediaries: Bank/Thrifts, Finance Companies
21. Food/Drug Retailers
22. Food Products
23. Food Service: Food Service/Restaurants, Vending
24. Forest Products: Building Materials, Paper Products/Containers
25. Health Care
26. Home Furnishings: Appliances, Furniture and Fixtures, Housewares
27. Lodging and Casinos
28. Industrial Equipment: Machinery, Manufacturing/Industrial, Specialty Instruments
29. Insurance
30. Leisure Goods/Activities/Movies
31. Nonferrous Metals/Minerals: Aluminum Producers, Mining (including coal), Other Metal/Mineral Producers
32. Oil and Gas: Producers/Refiners, Gas Pipelines
33. Publishing
34. Rail Industries: Railroads, Rail Equipment
35. Retailers (except food and drug)
36. Steel
37. Surface Transport: Shipping/Shipbuilding, Trucking
38. Telecommunications/Cellular Communications
39. Utilities: Electric, Local Gas, Water
Exhibit (2)(d)(1)
The Trust shall use its discretion in determining which industry classification is applicable to a particular investment.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Depository" means The Depository Trust Company and its successors and assigns or any successor securities depository selected by the Trust that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of each Series.
"Sell Order" has the meaning set forth in Section 2(b) of Part II of this Certificate.
"Senior Loan" means any secured Loan that is not subordinated by its terms to any other indebtedness of the borrower.
"Senior Loan Participations" means participations by the Trust in a lender's portion of a Senior Loan where the Trust has a contractual relationship with such lender and not the borrower, and such lender is rated at least A- 1/A-.
"Series" means any of the series of Preferred Shares issued by the Trust.
"Series F" means the shares of Series F of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series F of the Preferred Shares.
"Series M" means the shares of Series M of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series M of the Preferred Shares.
"Series T" means the shares of Series T of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series T of the Preferred Shares.
"Series Th" means the shares of Series Th of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series Th of the Preferred Shares.
"Series W" means the shares of Series W of the Preferred Shares or any other shares of preferred stock hereinafter designated as shares of Series W of the Preferred Shares.
"Short-Term Money Market Instrument" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Trust, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in 30 days or A-1+ if such commercial paper matures in over 30 days;
(ii) demand or time deposits in, and banker's acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (B) a United States branch office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia);
(iii) overnight funds; and
Exhibit (2)(d)(1)
(iv) U.S. Government Securities.
"Special Rate Period" means a Dividend Period that is not a Standard Rate Period.
"Specific Redemption Provisions" means, with respect to any Special Rate Period of more than one year, either, or any combination of (i) a period (a "Non-Call Period") determined by the Board of Trustees after consultation with the Broker-Dealers, during which the shares subject to such Special Rate Period are not subject to redemption at the option of the Trust pursuant to Section 3(a)(i) and/or Section 3(a)(ii) and/or 3(a)(iii) of Part I of this Certificate and (ii) a period (a "Premium Call Period"), consisting of a number of whole years as determined by the Board of Trustees after consultation with the Broker-Dealers, during each year of which the shares subject to such Special Rate Period shall be redeemable at the Trust's option pursuant to Section 3(a)(i) and/or in connection with any mandatory redemption pursuant to Section 3(a)(ii) and/or 3(a)(iii) at a price per share equal to the Liquidation Value plus accumulated but unpaid dividends (whether or not earned or declared) plus a premium expressed as a percentage or percentages of the Liquidation Value or expressed as a formula using specified variables as determined by the Board of Trustees after consultation with the Broker-Dealers.
"Standard Rate Period" means a Dividend Period of 7 days, unless such 7th day is not a Business Day, then the number of days ending on the Business Day next preceding such 7th day.
"Submission Deadline" means 1:00 P.M., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.
"Transfer Agent" means Bankers Trust Company, unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as Transfer Agent.
"Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable Dividend Period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all Dividend Periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, if the most recent such statistical release shall not have been published during the 15 days preceding the date of computation, the foregoing computations shall be based upon the average of comparable data as quoted to the Trust by at least three recognized dealers in U.S. Government securities selected by the Trust.
"U.S. Government Securities" means direct obligations of the United States or by its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption.
"Valuation Date" means each Business Day of each week.
" Voting Period" has the meaning set forth in Section 6(b) of Part I of this Certificate.
Exhibit (2)(d)(1)
"Winning Bid Rate" has the meaning set forth in Section 4(a)(iii) of Part II of this Certificate.
20. Interpretation . References to sections, subsections, clauses, sub-clauses, paragraphs and subparagraphs are to such sections, subsections, clauses, sub-clauses, paragraphs and subparagraphs contained in this Part I or Part II hereof, as the case may be, unless specifically identified otherwise.
PART II: AUCTION PROCEDURES
1. Certain Definitions. As used in Part II of this Certificate, the following terms shall have the following meanings, unless the context otherwise requires and all section references below are to Part II of this Certificate except as otherwise indicated: Capitalized terms not defined in Section 1 of Part II of this Certificate shall have the respective meanings specified in Part I of this Certificate.
"Agent Member" means a member of or participant in the Securities Depository that will act on behalf of a Bidder.
"Available Preferred Shares" has the meaning set forth in Section 4(a)(i) of Part II of this Certificate.
"Existing Holder" means (a) a person who has signed a Master Purchaser's Letter and beneficially owns those Preferred Shares listed in that person's name in the records of the Auction Agent or (b) the beneficial owner of those Preferred Shares which are listed under such person's Broker-Dealer's name in the records of the Auction Agent, which Broker-Dealer shall have signed a Master Purchaser's Letter.
"Hold Order" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate.
"Master Purchaser's Letter" means a letter which is required to be executed by each prospective purchaser of Preferred Shares or the Broker-Dealer through whom such shares will be held.
"Order" has the meaning set forth in Section 2(a)(ii) of Part II of this Certificate.
"Potential Holder," means (1) any Existing Holder who may be interested in acquiring additional Preferred Shares or (ii) any other person who may be interested in acquiring Preferred Shares and who has signed a Master Purchaser's letter or whose shares will be listed under such person's Broker-Dealer's name on the records of the Auction Agent which Broker-Dealer shall have executed a Master Purchaser's letter.
"Sell Order" has the meaning set forth in Section 2(b) of Part II of this Certificate.
"Submitted Bid Order" has the meaning set forth in Section 4(a) of Part II of this Certificate.
"Submitted Hold Order" has the meaning set forth in Section 4(a) of Part II of this Certificate.
"Submitted Order" has the meaning set forth in Section 4(a) of Part II of this Certificate.
Exhibit (2)(d)(1)
"Submitted Sell Order" has the meaning set forth in Section 4(a) of Part II of this Certificate.
"Sufficient Clearing Orders" means that all Preferred Shares are the subject of Submitted Hold Orders or that the number of Preferred Shares that are the subject of Submitted Buy Orders by Potential Holders specifying one or more rates equal to or less than the Maximum Rate exceeds or equals the sum of (A) the number of Preferred Shares that are subject of Submitted Hold/Sell Orders by Existing Holders specifying one or more rates higher than the Maximum Applicable Rate and (B) the number of Preferred Shares that are subject to Submitted Sell Orders.
"Winning Bid Rate" means the lowest rate specified in the Submitted Orders which, if (A) each Submitted Hold/Sell Order from Existing Holders specifying such lowest rate and all other Submitted Hold/Sell Orders from Existing Holders specifying lower rates were accepted And (B) each Submitted Buy Order from Potential Holders specifying such lowest rate and all other Submitted Buy Orders from Potential Holders specifying lower rates were accepted, would result in the Existing Holders described in clause (A) above continuing to hold an aggregate number of Preferred Shares which, when added to the number of Preferred Shares to be purchased by the Potential Holders described in clause (B) above and the number of Preferred Shares subject to Submitted Hold Orders, would be equal to the number of Preferred Shares.
2. Orders
(a) On or prior to the Submission Deadline on each Auction Date for shares of a series of Preferred Shares:
(i) each Beneficial Owner of shares of such series may submit to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for shares of such series for the next succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner offers to sell if the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of such series shall be less than the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such series held by such Beneficial Owner which such Beneficial Owner offers to sell without regard to the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of such series; and
(ii) each Broker-Dealer, using lists of Potential Beneficial Owners shall in good faith for the purpose of conducting a competitive Auction in a commercially reasonable manner, contact Potential Beneficial Owners (by telephone or otherwise), including Persons that are not Beneficial Owners, on such lists to determine the number of shares, if any, of such series which each such Potential Beneficial Owner offers to purchase if the Applicable Rate for shares of such series for the next succeeding Rate Period of shares of
Exhibit (2)(d)(1)
such series shall not be less than the rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent, of information referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this paragraph (a) is hereinafter referred to as an "Order" and collectively as "Orders" and each Beneficial Owner and each Potential Beneficial Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the Auction Agent, is hereinafter referred to as a "Bidder" and collectively as "Bidders"; an Order containing the information referred to in clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order" and collectively as "Hold Orders"; an Order containing the information referred to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids"; and an Order containing the information referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a series of Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Bid if the Applicable Rate for shares of such series determined on such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding shares of such series to be determined as set forth in clause (iv) of paragraph (a) of Section 5 of this Part II if the Applicable Rate for shares of such series determined on such Auction Date shall be equal to the rate specified therein;or
(C) the number of Outstanding shares of such series specified in such Bid if the rate specified therein shall be higher than the Maximum Rate for shares of such series, or such number or a lesser number of Outstanding shares of such series to be determined as set forth in clause (iii) of paragraph (b) of Section 5 of this Part II if the rate specified therein shall be higher than the Maximum Rate for shares of such series and Sufficient Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of shares of a series of Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of such series as set forth in clause (iii) of paragraph (b) of Section 5 of this Part II if Sufficient Clearing Bids for shares of such series do not exist;
provided however, that a Broker-Dealer that is an Existing Holder with respect to shares of a series of Preferred Shares shall not be liable to any Person for failing to sell such shares pursuant to a Sell Order described in the proviso to paragraph (c) of Section 3 of this Part II if (1) such shares were transferred by the Beneficial Owner thereof without compliance by such Beneficial
Exhibit (2)(d)(1)
Owner or its transferee Broker-Dealer (or other transferee person, if permitted by the Trust) with the provisions of Section 6 of this Part II or (2) such Broker-Dealer has informed the Auction Agent pursuant to the terms of its Broker-Dealer Agreement that, according to such Broker-Dealer's records, such Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Holder of shares of a series of Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified in such Bid if the Applicable Rate for shares of such series determined on such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding shares of such series as set forth in clause (v) of paragraph (a) of Section 5 of this Part II if the Applicable Rate for shares of such series determined on such Auction Date shall be equal to the rate specified therein. (c) No Order for any number of Preferred Shares other than whole shares shall be valid.
3. Submission Of Orders By Broker-Dealers To Auction Agent
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders for Preferred Shares of a series subject to an Auction on such Auction Date obtained by such Broker-Dealer, designating itself (unless otherwise permitted by the Trust) as an Existing Holder in respect of shares subject to Orders submitted or deemed submitted to it by Beneficial Owners and as a Potential Holder in respect of shares subject to Orders submitted to it by Potential Beneficial Owners, and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the Broker-Dealer unless otherwise permitted by the Trust);
(ii) the aggregate number of shares of such series that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of shares of such series:
(A) the number of shares, if any, of such series subject to any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject to any Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of such series subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares of such series, the rate and number of shares of such series specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth (.001) of 1%.
Exhibit (2)(d)(1)
(c) If an Order or Orders covering all of the Outstanding Preferred Shares of a series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding shares of such series held by such Existing Holder and not subject to Orders submitted to the Auction Agent; provided, however, that if an Order or Orders covering all of the Outstanding shares of such series held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline for an Auction relating to a Special Rate Period consisting of more than 7 Rate Period days, the Auction Agent shall deem a Sell Order to have been submitted by or on behalf of such Existing Holder covering the number of outstanding shares of such series held by such Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding Preferred Shares of a series subject to an Auction held by such Existing Holder, such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders for shares of such series shall be considered valid, but only up to and including in the aggregate the number of Outstanding shares of such series held by such Existing Holder, and if the number of shares of such series subject to such Hold Orders exceeds the number of Outstanding shares of such series held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding shares of such series held by such Existing Holder;
(ii)
(A) any Bid for shares of such series shall be considered valid up to and including the excess of the number of Outstanding shares of such series held by such Existing Holder over the number of shares of such series subject to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with the same rate and the number of Outstanding shares of such series subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess, and the number of shares of such series subject to each Bid with the same rate shall be reduced pro rata to cover the number of shares of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid of an Existing Holder for shares of such series is submitted to the Auction Agent with different rates, such Bids shall be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding shares of such series subject to any portion of Bids considered not valid in whole or in part under this clause (ii) shall be treated as the subject of a Bid for shares of such series by or on behalf of a Potential Holder at the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be considered valid up to and including the excess of the number of Outstanding shares of such series held by such
Exhibit (2)(d)(1)
Existing Holder over the sum of shares of such series subject to valid Hold Orders referred to in clause (i) above and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of Preferred Shares is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted shall be a separate Bid with the rate and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, shall be irrevocable.
4. Determination Of Sufficient Clearing Bids, Winning Bid Rate And & Applicable Rate
(a) Not earlier than the Submission Deadline on each Auction Date for shares of a series of Preferred Shares, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers in respect of shares of such series (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series over the number of Outstanding shares of such series subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available Preferred Shares" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series subject to Submitted Bids of Potential Holders specifying one or more rates equal to or lower than the Maximum Rate (for all Rate Periods) for shares of such series; exceeds or is equal to the sum of
(B) the number of Outstanding shares of such series subject to Submitted Bids of Existing Holders specifying one or more rates higher than the Maximum Rate (for all Rate Periods) for shares of such series; and
(C) the number of Outstanding shares of such series subject to Submitted Sell Orders (in the event such excess or such equality exists (other than because the number of shares of such series in subclauses (B) and (C) above is zero because all of the Outstanding shares of such series are subject to Submitted Hold Orders), such Submitted Bids in subclause (A) above being hereinafter referred to collectively as "Sufficient Clearing Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series exist, the lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for shares of such series) which if: (A) (I) each such Submitted Bid of Existing Holders specifying such lowest rate and (II) all other such Submitted Bids of Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of such series that are subject to such Submitted Bids; and
Exhibit (2)(d)(1)
(B) (I) each such Submitted Bid of Potential Holders specifying such lowest rate and (II) all other such Submitted Bids of Potential Holders specifying lower rates were accepted; would result in such Existing Holders described in subclause (A) above continuing to hold an aggregate number of Outstanding shares of such series which, when added to the number of Outstanding shares of such series to be purchased by such Potential Holders described in subclause (B) above, would equal not less than the Available Preferred Shares of such series.
(b) Promptly after the Auction Agent has made the determinations pursuant to paragraph (a) of this Section 4, the Auction Agent shall advise the Trust of the Maximum Rate for shares of the series of Preferred Shares for which an Auction is being held on the Auction Date and, based on such determination, the Applicable Rate for shares of such series for the next succeeding Rate Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist, that the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be equal to the Winning Bid Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not exist (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), that the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be equal to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject to Submitted Hold Orders, that the Applicable Rate for all shares of such series for the next succeeding Rate Period thereof shall be All Hold Rate.
5. Acceptance And Rejection Of Submitted Bids And Submitted Sell Orders And Allocation
Existing Holders shall continue to hold the Preferred Shares that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to paragraph (a) of Section 4 of this Part II, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of Preferred Shares have been made, all Submitted Sell Orders with respect to shares of such series shall be accepted and, subject to the provisions of paragraphs (d) and (e) of this Section 5, Submitted Bids with respect to shares of such series shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying any rate that is higher than the Winning Bid Rate for shares of such series shall be accepted, thus requiring each such Existing Holder to sell the Preferred Shares subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series specifying any rate that is lower than the Winning Bid Rate for shares of such series shall be rejected, thus entitling each such Existing Holder to continue to hold the Preferred Shares subject to such Submitted Bids;
Exhibit (2)(d)(1)
(iii) Potential Holders' Submitted Bids for shares of such series specifying any rate that is lower than the Winning Bid Rate for shares of such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such series specifying a rate that is equal to the Winning Bid Rate for shares of such series shall be rejected, thus entitling such Existing Holder to continue to hold the Preferred Shares subject to such Submitted Bid, unless the number of Outstanding Preferred Shares subject to all such Submitted Bids shall be Greater than the number of Preferred Shares ("remaining shares") in the excess of the Available Preferred Shares of such series over the number of Preferred Shares subject to Submitted Bids described in clauses (ii) and (iii) of this paragraph (a), in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold Preferred Shares subject to such Submitted Bid, but only in an amount equal to the Preferred Shares of such series obtained by multiplying the number of remaining shares by a fraction, the numerator of which shall be the number of Outstanding Preferred Shares held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Preferred Shares subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such series specifying a rate that is equal to the Winning Bid Rate for shares of such series shall be accepted but only in an amount equal to the number of shares of such series obtained by multiplying the number of shares in the excess of the Available Preferred Shares of such series over the number of Preferred Shares subject to Submitted Bids described in clauses (ii) through (iv) of this paragraph (a) by a fraction, the numerator of which shall be the number of Outstanding Preferred Shares subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Preferred Shares subject to such Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of Preferred Shares have not been made (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), subject to the provisions of paragraph (d) of this Section 5, Submitted Orders for shares of such series shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series specifying any rate that is equal to or lower than the Maximum Rate for shares of such series shall be rejected, thus entitling such Existing Holders to continue to hold the Preferred Shares subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series specifying any rate that is equal to or lower than the Maximum Rate for shares of such series shall be accepted; and
Exhibit (2)(d)(1)
(iii) Each Existing Holder's Submitted Bid for shares of such series specifying any rate that is higher than the Maximum Rate for shares of such series and the Submitted Sell Orders for shares of such series of each Existing Holder shall be accepted, thus entitling each Existing Holder that submitted or on whose behalf was submitted any such Submitted Bid or Submitted Sell Order to sell the shares of such series subject to such Submitted Bid or Submitted Sell Order, but in both cases only in an amount equal to the number of shares of such series obtained by multiplying the number of shares of such series subject to Submitted Bids described in clause (ii) of this paragraph (b) by a fraction, the numerator of which shall be the number of Outstanding shares of such series held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding shares of such series subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of Preferred Shares are subject to Submitted Hold Orders, all Submitted Bids for shares of such series shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v) of paragraph (a) or clause (iii) of paragraph (b) of this Section 5, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of a series of Preferred Shares on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, round up or down the number of Preferred Shares of such series to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date as a result of such procedures so that the number of shares so purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be whole shares of a series of Preferred Shares.
(e) If, as a result of the procedures described in clause (v) of paragraph (a) of this Section 5 any Potential Holder would be entitled or required to purchase less than a whole share of a series of Preferred Shares on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, allocate Preferred Shares of such series for purchase among Potential Holders so that only whole shares of Preferred Shares of such series are purchased on such Auction Date as a result of such procedures by any Potential Holder, even if such allocation results in one or more Potential Holders not purchasing Preferred Shares of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of Preferred Shares, the Auction Agent shall determine the aggregate number of shares of such series to be purchased and the aggregate number of shares of such series to be sold by Potential Holders and Existing Holders and, with respect to each Potential Holder and Existing Holder, to the extent that such aggregate number of shares to be purchased and such aggregate number of shares to be sold differ, determine to which other Potential Holder(s) or Existing Holder(s) they shall deliver, or from which other Potential Holder(s) or Existing Holder(s) they shall receive, as the case may be, Preferred Shares of such series. Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder or Beneficial Owner of shares of a series of Preferred Shares with respect to whom a Broker- Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of
Exhibit (2)(d)(1)
Preferred Shares that have been made in respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares of such series that have been accepted in whole or in part shall constitute good delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Trust nor the Auction Agent nor any affiliate of either shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial Owner or its respective Agent Member to deliver Preferred Shares of any series or to pay for Preferred Shares of any series sold or purchased pursuant to the Auction Procedures or otherwise.
6. Transfer Of Preferred Shares
Unless otherwise permitted by the Trust, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose of Preferred Shares only in whole shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with the procedures described in this Part II or to a Broker-Dealer; provided, however, that (a) a sale, transfer or other disposition of Preferred Shares from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this Section 6 if such Broker-Dealer remains the Existing Holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to Auctions, the Broker-Dealer (or other Person, if permitted by the Trust) to whom such transfer is made shall advise the Auction Agent of such transfer.
Exhibit (2)(d)(1)
EXHIBIT A
APPROVED BROKER-DEALERS
Bank of American National Trust & Savings Assoc./Nationsbank, N.A.
BankBoston Corporation
Bank of Montreal
Bear Stearns Companies Inc.
Canadian Imperial Bank of Commerce
Credit Suisse First Boston /Donaldson, Lufkin & Jenrette, Inc.
The Chase Manhattan Bank/J.P. Morgan Securities Inc.
Citibank N.A. /Salomon Smith Barney Holdings Inc.
Deutsche Bank
First Chicago NBD Corporation/Bank One Corporation
First Union National Bank
Goldman Sachs & Co.
Lehman Brothers, Inc.
Merrill Lynch & Co., Inc.
Morgan Guaranty Trust Company of New York
Morgan Stanley Dean Witter & Co.
Toronto-Dominion Bank
Exhibit (2)(d)(1)
IN WITNESS WHEREOF, the Trust has caused these representations to be signed in its name and on its behalf by its Senior Executive Vice-President and attested by its Assistant Secretary his 20th day of October, 2000. The Trust's Declaration of Trust, as amended, is on file with the Secretary of State of the Commonwealth of Massachusetts, and the said officers of the Trust have executed this Certificate as officers and not individually, and the obligations and rights set forth in this Certificate are not binding upon any such officers, or the Trustees or shareholders of the Trust, individually, but are binding only upon the assets and property of the Trust.
PILGRIM PRIME RATE TRUST
By:
/s/ James Hennessey_________
Senior Executive Vice President
ATTEST:
By:
/a/ Illegible_________
Assistant Secretary
Exhibit (2)(g)(1)(i)
AMENDED SCHEDULE OF APPROVALS
with respect to the
INVESTMENT MANAGEMENT AGREEMENT
between
ING PRIME RATE TRUST
and
ING INVESTMENTS, LLC
an Arizona Limited Liability Company
Trust |
Annual Investment Management Fee (as a percentage of Managed Assets) |
ING Prime Rate Trust |
0.80% |
Exhibit (2)(j)(1)(v)
T HIRD A MENDMENT TO C USTODIAN AND I NVESTMENT A CCOUNTING A GREEMENT
T HIS T HIRD A MENDMENT TO C USTODIAN AND I NVESTMENT A CCOUNTING A GREEMENT (the Amendment) is made and entered into as of August 2 , 2010 by and among each of the funds set forth on Exhibit A attached hereto, each a business trust or corporation organized and existing under the laws of the jurisdiction listed on Exhibit A (each, a Fund) and S TATE S TREET B ANK AND T RUST C OMPANY , a Massachusetts trust company (State Street).
W ITNESSETH :
W HEREAS , Fund and State Street are parties to that certain Custodian and Investment Accounting Agreement dated as of November 1, 2001, and amended as of March 1, 2002 and October 1, 2007 (the Agreement); and
W HEREAS , Fund and State Street desire to amend and supplement the Agreement upon the following terms and conditions.
N OW T HEREFORE , for and in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Fund and State Street hereby agree that the Agreement is amended and supplemented as follows:
1.
The second Whereas clause is amended to read:
W HEREAS , Fund intends that this Agreement be applicable to each of its series listed on Exhibit A (such series together with all other series subsequently made subject to this Agreement in accordance with Section 17.2, shall be referred to herein as the Portfolio(s) );
2.
Exhibit A is replaced in its entirety by the Exhibit A dated August 2 , 2010 attached hereto and incorporated herein by this reference.
3.
Section 17.2 is amended to read:
SECTION 17.2 ADDITIONAL FUNDS AND PORTFOLIOS . In the event that any management investment company in addition to those listed on Appendix A hereto desires to have State Street render services as custodian under the terms hereof, it shall so notify State Street in writing, and if State Street agrees in writing to provide such services, such management investment company shall become a Fund hereunder and be bound by all terms and conditions and provisions hereof. In the event that any Fund desires to have State Street render services as custodian under the terms hereof with respect to one or more series in addition to those set forth on Exhibit A hereto, it shall so notify State Street in writing, and if State Street agrees in writing to provide such services, such series shall become a Portfolio hereunder.
4.
This Amendment is intended to modify and amend the Agreement and the terms of this Amendment and the Agreement are to be construed to be cumulative and not exclusive of each other. Except as provided herein, the Agreement is hereby ratified and confirmed and remains in full force and effect.
Exhibit (2)(j)(1)(v)
I N W ITNESS W HEREOF , the parties have caused this Amendment to be executed by their duly authorized officers to be effective as of the date first above written.
S TATE S TREET B ANK AND T RUST C OMPANY |
|
E ACH OF THE E NTITIES S ET F ORTH ON E XHIBIT A H ERETO |
|
|
|
By: /s/ Mark Nicholson |
|
By: /s/ Todd Modic |
Name: Mark Nicholson |
|
Name: Todd Modic |
Title: SVP |
|
Title: Senior Vice President |
Exhibit (2)(j)(1)(v)
Exhibit A
LIST OF FUNDS
Amended as of August 2 , 2010
ENTITY NAME |
JURISDICTION |
ING SENIOR INCOME FUND |
Delaware Business Trust |
ING PRIME RATE TRUST |
Massachusetts Business Trust |
ING FUNDS TRUST ING Floating Rate Fund |
Delaware Business Trust |
Exhibit (2)(j)(2)(i)
AMENDED SCHEDULE A
with respect to the
FT FEE ALLOCATION AGREEMENT
ING ASIA PACIFIC HIGH DIVIDEND |
ING American Funds International Portfolio 1 |
EQUITY INCOME FUND |
ING American Funds World Allocation Portfolio |
|
ING Artio Foreign Portfolio 1 |
ING EQUITY TRUST |
ING BlackRock Inflation Protected Bond Portfolio |
ING Equity Dividend Fund |
ING BlackRock Large Cap Growth Portfolio 1 |
ING Growth Opportunities Fund |
ING BlackRock Large Cap Value Portfolio 1 |
ING MidCap Opportunities Fund |
ING Clarion Global Real Estate Portfolio |
ING Opportunistic LargeCap Fund |
ING Clarion Real Estate Portfolio 1 |
ING Real Estate Fund |
ING DFA Global All Equity Portfolio |
ING SmallCap Opportunities Fund |
ING DFA Global Allocation Portfolio |
ING Value Choice Fund |
ING FMRSM Diversified Mid Cap Portfolio 1 |
|
ING Franklin Income Portfolio |
ING FUNDS TRUST |
ING Franklin Mutual Shares Portfolio 1 |
ING Classic Money Market Fund |
ING Franklin Templeton Founding Strategy Portfolio |
ING Floating Rate Fund |
ING Global Resources Portfolio 1 |
ING GNMA Income Fund |
ING Goldman Sachs Commodity Strategy Portfolio |
ING High Yield Bond Fund |
ING Janus Contrarian Portfolio 1 |
ING Institutional Prime Money Market Fund |
ING JPMorgan Emerging Markets Equity Portfolio 1 |
ING Intermediate Bond Fund |
ING JPMorgan Small Cap Core Equity Portfolio 1 |
|
ING Large Cap Growth Portfolio |
ING GLOBAL ADVANTAGE AND PREMIUM |
ING Limited Maturity Bond Portfolio 1 |
OPPORTUNITY FUND |
ING Liquid Assets Portfolio 1 |
|
ING Lord Abbett Growth and Income Portfolio 1 |
ING GLOBAL EQUITY DIVIDEND AND |
ING Marsico Growth Portfolio 1 |
PREMIUM OPPORTUNITY FUND |
ING Marsico International Opportunities Portfolio |
|
ING MFS Total Return Portfolio 1 |
ING INFRASTRUCTURE, INDUSTRIALS AND |
ING MFS Utilities Portfolio |
MATERIALS FUND |
ING Oppenheimer Active Asset Allocation Portfolio |
|
ING PIMCO High Yield Portfolio 1 |
ING INTERNATIONAL HIGH DIVIDEND |
ING PIMCO Total Return Bond Portfolio 1 |
EQUITY INCOME FUND |
ING Pioneer Equity Income Portfolio |
|
ING Pioneer Fund Portfolio 1 |
ING INVESTORS TRUST |
ING Pioneer Mid Cap Value Portfolio 1 |
ING American Funds Asset Allocation Portfolio 1 |
ING Retirement Conservative Portfolio |
ING American Funds Bond Portfolio 1 |
ING Retirement Growth Portfolio |
ING American Funds Growth Portfolio 1 |
ING Retirement Moderate Growth Portfolio |
ING American Funds Growth-Income Portfolio 1 |
|
1 Under the terms of the Management Agreement between ING Investors Trust and Directed Services LLC, the Fund is subject to a unified fee arrangement. Accordingly, the portion of SCAS Fees allocated to the Fund under the Agreement will be borne directly by Directed Services LLC as provided in the Management Agreement.
1
Exhibit (2)(j)(2)(i)
1 Under the terms of the Management Agreement between ING Investors Trust and Directed Services LLC, the Fund is subject to a unified fee arrangement. Accordingly, the portion of SCAS Fees allocated to the Fund under the Agreement will be borne directly by Directed Services LLC as provided in the Management Agreement.
2
Exhibit (2)(j)(2)(i)
ING GET U.S. Core Portfolio - Series 5 |
ING Strategic Allocation Moderate Fund |
ING GET U.S. Core Portfolio - Series 6 |
ING Tactical Asset Allocation Fund |
ING GET U.S. Core Portfolio - Series 7 |
ING U.S. Government Money Market Fund |
ING GET U.S. Core Portfolio - Series 8 |
|
ING GET U.S. Core Portfolio - Series 9 |
ING STRATEGIC ALLOCATION PORTFOLIOS, INC. |
ING GET U.S. Core Portfolio - Series 10 |
ING Strategic Allocation Conservative Portfolio |
ING GET U.S. Core Portfolio - Series 11 |
ING Strategic Allocation Growth Portfolio |
ING GET U.S. Core Portfolio - Series 12 |
ING Strategic Allocation Moderate Portfolio |
ING GET U.S. Core Portfolio - Series 13 |
|
ING GET U.S. Core Portfolio - Series 14 |
ING VARIABLE FUNDS |
|
ING Growth and Income Portfolio |
ING VARIABLE PRODUCTS TRUST |
|
ING International Value Portfolio |
ING VARIABLE PORTFOLIOS, INC. |
ING MidCap Opportunities Portfolio |
ING BlackRock Science and Technology Opportunities Portfolio |
ING SmallCap Opportunities Portfolio |
ING Euro STOXX 50® Index Portfolio |
|
ING FTSE 100 Index® Portfolio |
ING BALANCED PORTFOLIO |
ING Hang Seng Index Portfolio |
ING Balanced Portfolio |
ING Index Plus LargeCap Portfolio |
|
ING Index Plus MidCap Portfolio |
ING INTERMEDIATE BOND PORTFOLIO |
ING Index Plus SmallCap Portfolio |
|
ING International Index Portfolio |
ING MONEY MARKET PORTFOLIO |
ING Japan TOPIX Index® Portfolio |
|
ING Opportunistic Large Cap Portfolio |
ING SERIES FUND, INC. |
ING Russell Large Cap Growth Index Portfolio |
Brokerage Cash Reserves |
ING Russell™ Large Cap Index Portfolio |
ING Alternative Beta Fund |
ING Russell Large Cap Value Index Portfolio |
ING Balanced Fund |
ING Russell™ Mid Cap Index Portfolio |
ING Core Equity Research Fund |
ING Russell Mid Cap Growth Index Portfolio |
ING Corporate Leaders 100 Fund |
ING Russell™ Small Cap Index Portfolio |
ING Global Target Payment Fund |
ING Small Company Portfolio |
ING Index Plus LargeCap Fund |
ING U.S. Bond Index Portfolio |
ING Index Plus MidCap Fund |
ING U.S. Government Money Market Portfolio |
ING Index Plus SmallCap Fund |
ING WisdomTree sm Global High-Yielding Equity Index Portfolio |
ING Money Market Fund |
|
ING Small Company Fund |
|
ING Strategic Allocation Conservative Fund |
|
ING Strategic Allocation Growth Fund |
|
1 Under the terms of the Management Agreement between ING Investors Trust and Directed Services LLC, the Fund is subject to a unified fee arrangement. Accordingly, the portion of SCAS Fees allocated to the Fund under the Agreement will be borne directly by Directed Services LLC as provided in the Management Agreement.
3
Exhibit (2)(j)(3)(i)
AMENDED SCHEDULE A
with respect to the
AMENDED AND RESTATED
ISS PROXY VOTING FEE ALLOCATION AGREEMENT
ING ASIA PACIFIC HIGH DIVIDEND |
ING American Funds Growth-Income Portfolio 1 |
EQUITY INCOME FUND |
ING American Funds International Portfolio 1 |
|
ING Artio Foreign Portfolio |
ING EQUITY TRUST |
ING BlackRock Inflation Protected Bond Portfolio |
ING Equity Dividend Fund |
ING BlackRock Large Cap Growth Portfolio 1 |
ING Growth Opportunities Fund |
ING BlackRock Large Cap Value Portfolio 1 |
ING MidCap Opportunities Fund |
ING Clarion Global Real Estate Portfolio |
ING Opportunistic LargeCap Fund |
ING Clarion Real Estate Portfolio |
ING Real Estate Fund |
ING DFA Global All Equity Portfolio |
ING SmallCap Opportunities Fund |
ING DFA Global Allocation Portfolio |
ING Value Choice Fund |
ING FMR SM Diversified Mid Cap Portfolio 1 |
|
ING Franklin Income Portfolio |
ING FUNDS TRUST |
ING Franklin Mutual Shares Portfolio 1 |
ING Classic Money Market Fund |
ING Global Resources Portfolio 1 |
ING Floating Rate Fund |
ING Goldman Sachs Commodity Strategy Portfolio |
ING GNMA Income Fund |
ING Janus Contrarian Portfolio 1 |
ING High Yield Bond Fund |
ING JPMorgan Emerging Markets Equity Portfolio 1 |
ING Institutional Prime Money Market Fund |
ING JPMorgan Small Cap Core Equity Portfolio 1 |
ING Intermediate Bond Fund |
ING Large Cap Growth Portfolio |
|
ING Limited Maturity Bond Portfolio 1 |
ING GLOBAL ADVANTAGE AND |
ING Liquid Assets Portfolio 1 |
PREMIUM OPPORTUNITY FUND |
ING Lord Abbett Growth and Income Portfolio 1 |
|
ING Marsico Growth Portfolio 1 |
ING GLOBAL EQUITY DIVIDEND AND |
ING Marsico International Opportunities Portfolio |
PREMIUM OPPORTUNITY FUND |
ING MFS Total Return Portfolio 1 |
|
ING MFS Utilities Portfolio |
ING INFRASTRUCTURE, INDUSTRIALS |
ING Morgan Stanley Global Franchise Portfolio |
AND MATERIALS FUND |
ING Morgan Stanley Global Tactical Asset Allocation Portfolio |
|
ING PIMCO High Yield Portfolio 1 |
ING INTERNATIONAL HIGH DIVIDEND |
ING PIMCO Total Return Bond Portfolio 1 |
EQUITY INCOME FUND |
|
|
|
ING INVESTORS TRUST |
|
ING American Funds Asset Allocation Portfolio 1 |
|
ING American Funds Bond Portfolio 1 |
|
ING American Funds Growth Portfolio 1 |
|
1 Under the terms of the Management Agreement between ING Investors Trust and Directed Services LLC, the Fund is subject to a unified fee arrangement. Accordingly, the portion of SCAS Fees allocated to the Fund under the Agreement will be borne directly by Directed Services LLC as provided in the Management Agreement.
1
Exhibit (2)(j)(3)(i)
1
Under the terms of the Management Agreement between ING Investors Trust and Directed Services LLC, the Fund is subject to a unified fee arrangement. Accordingly, the portion of SCAS Fees allocated to the Fund under the Agreement will be borne directly by Directed Services LLC as provided in the Management Agreement.
2
Exhibit (2)(j)(3)(i)
1 Under the terms of the Management Agreement between ING Investors Trust and Directed Services LLC, the Fund is subject to a unified fee arrangement. Accordingly, the portion of SCAS Fees allocated to the Fund under the Agreement will be borne directly by Directed Services LLC as provided in the Management Agreement.
3
|
Exhibit (2)(j)(7)(i) |
February 1, 2011
Attention: President
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
Dear Sir or Madam:
Pursuant to the Transfer Agency Services Agreement dated February 25, 2009, between the Funds
(as defined in the Agreement) and BNY Mellon Investment Servicing (US) Inc., formerly, PNC Global Investment Servicing (U.S.) Inc. (the Agreement), we hereby notify you of our intention to retain you as Transfer Agent and Dividend Disbursing Agent to render such services to ING International Core Fund (the Fund), a newly established series of ING Mutual Funds, effective on or about February 1, 2011, upon all of the terms and conditions set forth in the Agreement. Upon your acceptance, the Agreement will be modified to give effect to the foregoing by adding the above-mentioned Fund to the Amended Exhibit A of the Agreement. This Amended Exhibit A supersedes the previous Amended Exhibit A dated December 14, 2010.
The Amended Exhibit A has also been updated to reflect: 1) the name changes of ING Marsico International Opportunities Portfolio to ING T. Rowe Price International Stock Portfolio, ING Oppenheimer Global Strategic Income Portfolio to ING Global Bond Portfolio, and ING Pioneer Equity Income Portfolio to ING Large Cap Value Portfolio, and 2) the removal of ING American Funds Growth-Income Portfolio, ING Asia-Pacific Real Estate Fund, ING BlackRock Large Cap Value Portfolio, ING European Real Estate Fund, ING Institutional Prime Money Market Fund, ING Legg Mason ClearBridge Aggressive Growth Portfolio, ING Lord Abbett Growth and Income Portfolio, and ING Morgan Stanley Global Tactical Asset Allocation Portfolio because each series recently merged into other funds or liquidated and dissolved.
[Remainder of this page intentionally left blank]
7337 E. Doubletree Ranch Rd., Suite 100 Scottsdale, AZ 85258-2034 |
Tel: 480-477-3000 Fax: 480-477-2700 www.ingfunds.com |
ING Funds Trust ING Investors Trust ING Mutual Funds ING Partners, Inc. |
Please signify your acceptance to act as Transfer Agent and Dividend Disbursing Agent under the Agreement with respect to the Fund by signing below.
Very sincerely,
/s/ Todd Modic
Todd Modic
Senior Vice President
ING Funds Trust
ING Investors Trust
ING Mutual Funds
ING Partners, Inc.
ACCEPTED AND AGREED TO:
BNY Mellon Investment Servicing (US) Inc.
By:
/s/ Susan M. Frasu
Name:
Susan M. Frasu _______
Title:
SVP/MNG DIR, Duly Authorized
2
AMENDED EXHIBIT A
(Dated: February 1, 2011)
THIS EXHIBIT A is Exhibit A to that certain Transfer Agency Services Agreement dated as of February 25, 2009, between BNY Mellon Investment Servicing (US) Inc., formerly, PNC Global Investment Servicing (U.S.) Inc. and the Fund (the Agreement). For all purposes under the Agreement, the terms Fund and Portfolio shall refer to the following, respectively:
ING Equity Trust
ING Equity Dividend Fund
ING Growth Opportunities Fund
ING MidCap Opportunities Fund
ING Real Estate Fund
ING SmallCap Opportunities Fund
ING Value Choice Fund
ING Funds Trust
ING Classic Money Market Fund
ING Floating Rate Fund
ING GNMA Income Fund
ING High Yield Bond Fund
ING Intermediate Bond Fund
ING Investors Trust
ING American Funds Asset Allocation Portfolio
ING American Funds Bond Portfolio
ING American Funds Global Growth and Income Portfolio
ING American Funds Growth Portfolio
ING American Funds International Growth and Income Portfolio
ING American Funds International Portfolio
ING American Funds World Allocation Portfolio
ING Artio Foreign Portfolio
ING BlackRock Inflation Protected Bond Portfolio
ING BlackRock Large Cap Growth Portfolio
ING Clarion Global Real Estate Portfolio
ING Clarion Real Estate Portfolio
ING DFA Global Allocation Portfolio
ING DFA World Equity Portfolio
ING FMR SM Diversified Mid Cap Portfolio
ING Franklin Income Portfolio
ING Franklin Mutual Shares Portfolio
ING Franklin Templeton Founding Strategy Portfolio
ING Global Resources Portfolio
ING Goldman Sachs Commodity Strategy Portfolio
ING Janus Contrarian Portfolio
ING JPMorgan Emerging Markets Equity Portfolio
ING JPMorgan Small Cap Core Equity Portfolio
ING Large Cap Growth Portfolio
ING Large Cap Value Portfolio
ING Limited Maturity Bond Portfolio
ING Liquid Assets Portfolio
ING Marsico Growth Portfolio
ING MFS Total Return Portfolio
ING MFS Utilities Portfolio
3
ING Morgan Stanley Global Franchise Portfolio
ING Oppenheimer Active Allocation Portfolio
ING PIMCO Global Advantage Bond Portfolio
ING PIMCO High Yield Portfolio
ING PIMCO Total Return Bond Portfolio
ING Pioneer Fund Portfolio
ING Pioneer Mid Cap Value Portfolio
ING Retirement Conservative Portfolio
ING Retirement Growth Portfolio
ING Retirement Moderate Growth Portfolio
ING Retirement Moderate Portfolio
ING T. Rowe Price Capital Appreciation Portfolio
ING T. Rowe Price Equity Income Portfolio
ING T. Rowe Price International Stock Portfolio
ING Templeton Global Growth Portfolio
ING U.S. Stock Index Portfolio
ING Van Kampen Growth and Income Portfolio
ING Wells Fargo Health Care Portfolio
ING Mayflower Trust
ING International Value Fund
ING Mutual Funds
ING Diversified International Fund
ING Emerging Countries Fund
ING Global Bond Fund
ING Global Equity Dividend Fund
ING Global Natural Resources Fund
ING Global Opportunities Fund
ING Global Real Estate Fund
ING Global Value Choice Fund
ING Greater China Fund
ING Index Plus International Equity Fund
ING International Capital Appreciation Fund
ING International Core Fund
ING International Growth Fund
ING International Real Estate Fund
ING International SmallCap Multi-Manager Fund
ING International Value Choice Fund
ING Russia Fund
ING Partners, Inc.
ING American Century Small-Mid Cap Value Portfolio
ING Baron Small Cap Growth Portfolio
ING Columbia Small Cap Value Portfolio
ING Davis New York Venture Portfolio
ING Fidelity ® VIP Contrafund ® Portfolio
ING Fidelity ® VIP Equity-Income Portfolio
ING Fidelity ® VIP Mid Cap Portfolio
ING Global Bond Portfolio
ING Index Solution 2015 Portfolio
ING Index Solution 2025 Portfolio
ING Index Solution 2035 Portfolio
ING Index Solution 2045 Portfolio
ING Index Solution 2055 Portfolio
ING Index Solution Income Portfolio
4
ING JPMorgan Mid Cap Value Portfolio
ING Oppenheimer Global Portfolio
ING PIMCO Total Return Portfolio
ING Pioneer High Yield Portfolio
ING Solution 2015 Portfolio
ING Solution 2025 Portfolio
ING Solution 2035 Portfolio
ING Solution 2045 Portfolio
ING Solution 2055 Portfolio
ING Solution Aggressive Growth Portfolio
ING Solution Conservative Portfolio
ING Solution Growth Portfolio
ING Solution Income Portfolio
ING Solution Moderate Portfolio
ING T. Rowe Price Diversified Mid Cap Growth Portfolio
ING T. Rowe Price Growth Equity Portfolio
ING Templeton Foreign Equity Portfolio
ING Thornburg Value Portfolio
ING UBS U.S. Large Cap Equity Portfolio
ING Van Kampen Comstock Portfolio
ING Van Kampen Equity and Income Portfolio
ING Prime Rate Trust
ING Senior Income Fund
ING Separate Portfolios Trust
ING SPorts Core Fixed Income Fund
ING Variable Insurance Trust
ING GET U.S. Core Portfolio Series 5
ING GET U.S. Core Portfolio Series 6
ING GET U.S. Core Portfolio Series 7
ING GET U.S. Core Portfolio Series 8
ING GET U.S. Core Portfolio Series 9
ING GET U.S. Core Portfolio Series 10
ING GET U.S. Core Portfolio Series 11
ING GET U.S. Core Portfolio Series 12
ING GET U.S. Core Portfolio Series 13
ING GET U.S. Core Portfolio Series 14
ING Variable Products Trust
ING International Value Portfolio
ING MidCap Opportunities Portfolio
ING SmallCap Opportunities Portfolio
ING Goldman Sachs Commodity Strategy Portfolio (Cayman), Ltd. *
* Please reference the Adoption Agreement, dated August 2, 2010, between BNY Mellon Investment Servicing (US) Inc. and ING Goldman Sachs Commodity Strategy Portfolio (Cayman), Ltd.
5