TABLE OF CONTENTS
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PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio securities is available (1) without charge, upon request, by calling Shareholder Services
toll-free at (800) 992-0180; (2) on the Funds website at www.inginvestment.com and (3) on the SECs website at www.sec.gov. Information regarding how the Fund voted proxies related to portfolio securities during the most recent
12-month period ended June 30 is available without charge on the Funds website at www.inginvestment.com and on the SECs website at www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. This report contains a summary portfolio of investments for the Fund. The Funds Forms N-Q are available on the SECs website at www.sec.gov. The Funds Form N-Q
may be reviewed and copied at the SECs Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Funds Forms N-Q, as well as a complete portfolio
of investments, are available without charge upon request from the Fund by calling Shareholder Services toll-free at (800) 992-0180.
PRESIDENTS LETTER
Dear Shareholder,
ING Emerging Markets High Dividend Equity Fund (the Fund) is a diversified closed-end management investment company whose shares are traded on
the New York Stock Exchange under the symbol IHD. The Funds investment objective is total return through a combination of current income, capital gains and capital appreciation.
The Fund seeks to achieve its investment objective by investing principally in a portfolio of equity securities, primarily of issuers in
emerging market countries. The sub-adviser seeks to construct a portfolio with a weighted average gross dividend yield that exceeds the dividend yield of the MSCI Emerging Markets Index
SM
. The Fund will also normally seek to secure gains and enhance the stability of returns over a market cycle by writing
(selling) call options on selected exchange-traded funds (ETFs) and/or international, regional or country indices of equity securities, and/or on equity securities.
For the period ended August 31, 2013, the Fund made quarterly distributions totaling $0.72 per share, which were characterized as $0.48 per share return of capital and $0.24 per share of net investment
income.
Based on net asset value (NAV), the Fund provided a total return of (9.67)% for the period ended
August 31, 2013.
(1)
This NAV return reflects a decrease in
the Funds NAV from $14.53 on February 28, 2013 to $12.44 on August 31, 2013. Based on its share price, the Fund provided a total return of (15.97)% for the period ended August 31, 2013
(2)
. This share price return reflects a decrease in the Funds share
price from $15.13 on February 28, 2013 to $12.05 on August 31, 2013.
The global equity markets have witnessed a challenging and
turbulent period. Please read the Market Perspective and Portfolio Managers Report for more information on the market and the Funds performance.
At ING Funds, our mission is to set the standard in helping our clients manage their financial future. We seek to assist you and your financial advisor by offering a range of global investment solutions. We
invite you to visit our website at www.inginvestment.com. Here you will find information on our products and services, including current market data and fund statistics on our open-and closed-end funds. You will see that we offer a broad variety of
equity, fixed income and multi-asset funds that aim to fulfill a variety of investor needs.
We thank you for trusting ING Funds with your
investment assets, and we look forward to serving you in the months and years ahead.
Sincerely,
Shaun Mathews
President and Chief Executive Officer
ING Funds
October 5, 2013
The views expressed in the
Presidents Letter reflect those of the President as of the date of the letter. Any such views are subject to change at any time based upon market or other conditions and ING Funds disclaim any responsibility to update such views. These views
may not be relied on as investment advice and because investment decisions for an ING Fund are based on numerous factors, may not be relied on as an indication of investment intent on behalf of any ING Fund. Reference to specific company securities
should not be construed as recommendations or investment advice. International investing does pose special risks including currency fluctuation, economic and political risks not found in investments that are solely domestic.
For more complete information, or to obtain a prospectus for any ING Fund, please call your Investment Professional or the funds Shareholder Service
Department at (800) 992-0180 or log on to www.inginvestment.com. The prospectus should be read carefully before investing. Consider the funds investment objectives, risks, charges and expenses carefully before investing. The prospectus
contains this information and other information about the fund. Check with your Investment Professional to determine which funds are available for sale within their firm. Not all funds are available for sale at all firms.
(1)
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Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at net asset value at the end of each period and assumes reinvestment of dividends, capital gain distributions and return of capital distributions/allocations, if any, in
accordance with the provisions of the Funds dividend reinvestment plan.
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(2)
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Total investment return at market value measures the change in the market value
of your investment assuming reinvestment of dividends, capital gain distributions, and return of capital distributions/allocations, if any, in accordance with the provisions of the Funds dividend reinvestment plan.
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1
M
ARKET
P
ERSPECTIVE
:
S
IX
M
ONTHS
E
NDED
A
UGUST
31, 2013
By the end of the first month of our new fiscal year, global equities, in the form of the
MSCI World Index
SM
measured in local currencies including net
reinvested dividends (the Index) had already surged 9.79% in 2013. But there was plenty of skepticism. Stock markets were only rising, it was argued, because of central banks ultra-loose monetary policy. This kept interest rates so
low that many investors who would normally favor fixed income investments had turned to stocks. Others countered that interest rates might be low, but they would stay that way into the medium term. So capital values should be fairly safe and
inflation isnt an issue. Such arguments would be tested in the months through August, by which point the Index had added another 7.15%. (The MSCI World Index
SM
returned 6.12% for the six-months ended August 31, 2013, measured in U.S. dollars.)
In the U.S., with sentiment cushioned by the Federal Reserves $85 billion of monthly Treasury and mortgage-backed securities purchases, investors
continued to puzzle at an economic recovery that was undeniable but unimpressive.
And any illusions about the ultimate source of investor
confidence in this environment were shattered on May 22 and again on June 19, when Federal Reserve Chairman Bernanke attempted to prepare markets for the beginning of the end of quantitative easing, perhaps sooner than expected. He tried
to make the point that the tapering of bond purchases by the Federal Reserve would be a reason for markets to feel upbeat, as it would only happen when conditions had substantially improved. In the meantime dont be too worried.
Markets didnt buy it. Bond yields soared and by June 24, the Index had given back 8%, leading nervous central bankers the world over, in the last
days of June, to assure all who would listen that easy money was here for a long time. Not only were markets being heavily influenced by central bankers; evidently central bankers were more than a little sensitive to their effect on markets.
Soothed by these and later words of comfort in July, investors drove the Index to a new high for the year on August 2, only to retreat by
about 4% by month-end. Nervousness crept in again as reports of falling unemployment to 7.4% and rising gross domestic product (GDP) to 2.5% made the early end to quantitative easing all but certain in the minds of many. But was the
economy really ready? The 30-year mortgage rate rose by over 1% after early May and in July new home sales plunged 13.4% from June. Retailers Walmart, Macys and Kohls all lowered expectations for the rest of 2013. Personal incomes and
spending were barely rising by the end of August. Finally the imminent threat of military engagement in the Middle East raised oil prices and dampened sentiment.
The securities and currencies of a number of emerging markets were hit particularly hard by the prospective demise of quantitative easing, especially those with current account deficits and stumbling growth,
like Turkey, Brazil, Indonesia and India. Quantitative easing had caused vast monetary flows to flood into these markets in search of better returns, in many cases using money borrowed cheaply in U.S. dollars. Talk of the end of the program started
the inevitable reversal. In U.S. fixed income markets, the Barclays U.S. Aggregate Bond Index (Barclays Aggregate) of investment
grade bonds fell 2.61% in the six months through August as an end to quantitative easing presaged weakness in longer dated issues. Sub-indices with the shortest durations held on to positive
returns, but the Barclays Long Term U.S. Treasury sub-index dropped 8.12%. The Barclays U.S. Corporate Investment Grade Bond sub-index lost 3.17%. But the (separate) Barclays High Yield Bond 2% Issuer Constrained Composite Index (not a part
of the Barclays Aggregate) gained 0.84%.
U.S. equities, represented by the S&P 500
®
Index including dividends, rose 8.95%, albeit down 4.5% from its August 2 record closing high. The consumer
discretionary sector did best with a gain of 14.55%, followed by health care 14.39%. The worst performers were the telecommunications sector 0.30% and previously in-favor utilities 1.58%. Operating earnings per share for S&P 500
®
companies set a record in the second quarter of 2013. But could this last given that the share of profits in national
income was historically high?
In currency markets the dollar fell 1.25% against the euro during the six months and 2.20% against the pound, on
better economic news from Europe and, some commentators argued, as sales of longer dated U.S. dollar-denominated bonds was partly reinvested in other currencies. But the dollar advanced 6.06% on the yen on confidence that the new Japanese
governments policy to weaken the yen would succeed.
In international markets, the MSCI Japan
®
Index jumped 14.63%. Encouragingly GDP grew at 2.6% annualized in the second quarter of 2013 after 3.8% in the first.
Core consumer prices started rising again, necessary to get consumers and companies spending again. Diluting this better news however, capital spending was still falling while prices were only rising because of energy costs. The MSCI Europe ex UK
®
Index rose 5.06%, the euro zone at last reporting slim GDP growth after six straight quarterly declines. The numbers of
unemployed edged down in June and July, but not enough to dent the record rate of 12.1%. Closely watched purchasing managers indices indicated expansion in August for the first time since January 2012. The MSCI UK
®
Index added only 3.11%, weighed down by weak Materials and Banking sectors. GDP in the first quarter of 2013 reclaimed
the fourth quarters 0.3% loss before recording 0.7% in the second quarter. Purchasing managers indices, retail sales, industrial production and consumer confidence were showing clear improvement as August ended.
Past performance does not guarantee future results. The performance quoted represents past performance. Investment return and principal value of an
investment will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. The Funds performance is subject to change since the periods end and may be lower or higher than the performance data shown. Please
call (800) 992-0180 or log on to www.inginvestment.com to obtain performance data current to the most recent month end.
Market
Perspective reflects the views of INGs Chief Investment Risk Officer only through the end of the period, and is subject to change based on market and other conditions.
2
B
ENCHMARK
D
ESCRIPTIONS
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Index
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Description
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Barclays U.S. Aggregate Bond Index
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An unmanaged index of publicly issued investment grade U.S. Government, mortgage-backed,
asset-backed and corporate debt securities.
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Barclays U.S. Corporate Investment
Grade Bond Index
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An unmanaged index consisting of publicly issued, fixed rate, nonconvertible, investment
grade debt securities.
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Barclays High Yield Bond 2% Issuer Constrained Composite Index
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An unmanaged index that includes all fixed-income securities having a maximum quality rating
of Ba1, a minimum amount outstanding of $150 million, and at least one year to maturity.
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Barclays Long Term U.S. Treasury Index
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The Index includes all publicly issued, U.S. Treasury securities that have a remaining
maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value.
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MSCI Emerging Markets Index
SM
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An unmanaged index that measures the performance of securities listed on exchanges in
developing nations throughout the world.
|
MSCI Europe ex
UK
®
Index
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A free float-adjusted market capitalization index that is designed to measure developed
market equity performance in Europe, excluding the UK.
|
MSCI Japan
®
Index
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A free float-adjusted market capitalization index that is designed to measure developed
market equity performance in Japan.
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MSCI UK
®
Index
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A free float-adjusted market capitalization index that is designed to measure developed
market equity performance in the UK.
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MSCI World
Index
SM
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An unmanaged index that measures the performance of over 1,400 securities listed on exchanges
in the U.S., Europe, Canada, Australia, New Zealand and the Far East.
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S&P 500
®
Index
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An unmanaged index that measures the performance of securities of approximately 500
large-capitalization companies whose securities are traded on major U.S. stock markets.
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3
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ING E
MERGING
M
ARKETS
H
IGH
D
IVIDEND
E
QUITY
F
UND
|
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P
ORTFOLIO
M
ANAGERS
R
EPORT
|
Geographic Diversification
as of August 31, 2013
(as a percentage of net assets)
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China
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18.0%
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South Korea
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12.7%
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Russia
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9.4%
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Brazil
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9.2%
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Taiwan
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9.1%
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India
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5.2%
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South Africa
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4.7%
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Poland
|
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3.4%
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Malaysia
|
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3.2%
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Czech Republic
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2.4%
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Countries between 0.4%-2.2%^
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21.3%
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Assets in Excess of Other Liabilities*
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1.4%
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Net Assets
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100.0%
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*
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Includes short-term investments.
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^
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Includes 16 countries, which each represents
0.4%-2.2%
of net assets.
|
Portfolio holdings are subject to change daily.
ING Emerging Markets High Dividend Equity Funds (the Fund) primary investment objective is
to provide total return through a combination of current income, capital gains and capital appreciation. The Fund seeks to achieve its investment objectives by investing principally in a portfolio of equity securities, primarily of issuers in
emerging market countries. The Fund will also normally seek to secure gains and enhance the stability of returns over a market cycle by writing (selling) call options on selected exchange-traded funds (ETFs) and/or international,
regional or country indices of equity securities, and/or on equity securities.
Portfolio Management
:
The Fund is
managed by Manu Vandenbulck, Nicolas Simar, Robert Davis, Willem van Dommelen and Edwin Cuppen, Portfolio Managers, ING Investment Management Advisors B.V. (Europe) the Sub-Adviser.
Equity Portfolio Construction:
Under normal market conditions, the Fund will seek to achieve its investment objective by
investing at least 80% of its managed assets in dividend producing equity securities of, or derivatives having economic characteristics similar to the equity securities of, issuers in emerging markets. The Sub-Adviser seeks to construct a portfolio
with a weighted average gross dividend yield that exceeds the dividend yield of the MSCI Emerging Markets
Index
SM
. The Fund will invest in approximately 60 to 120 equity
securities and will select securities through a bottom-up process that is based upon quantitative screening and fundamental industry, sector and company analysis.
For the purpose of the Funds investments, the following countries are considered emerging markets:
Argentina, Bahrain, Brazil, Bulgaria, Chile, China, Colombia, Czech Republic, Egypt, Estonia, Hungary, India, Indonesia, Israel, Korea, Jordan, Kuwait, Latvia, Lithuania, Malaysia, Mauritius, Mexico, Morocco, Nigeria, Oman, Pakistan, Peru,
Philippines, Poland, Qatar, Romania, Russia, Saudi Arabia, Slovakia, South Africa, Sri Lanka, Taiwan, Thailand, Turkey, United Arab Emirates, and Zimbabwe.
In addition, the Fund may invest up to 20% of its Managed Assets in the equity securities of issuers in countries which are not considered emerging markets.
The Funds Options Strategy:
The Fund writes (sells) call options on selected ETFs, and/or international, regional or country indicies of
equity securities, and/or on equity securities, with the underlying value of such calls generally having 15% to 50% of total value of the Funds portfolio. The Fund seeks to generate gains from the call writing strategy over a market cycle to
supplement the dividend yield of its underlying portfolio. Call options will be written (sold) usually at-the
money, out-of-the-money or near-the-money and can be written both in exchange-listed option markets and over-the-counter markets with major international banks, broker-dealers and financial
institutions.
Performance:
Based on net asset value (NAV), the Fund had a total return of (9.67)%
for the period ended August 31, 2013. This NAV return reflects a decrease in the Funds NAV from $14.53 on February 28, 2013 to $12.44 on August 31, 2013. Based on its share price as of August 31, 2013, the Fund provided a
total return of (15.97)% for the period. This share price return reflects a decrease in the Funds share price from $15.13 on February 28, 2013 to $12.05 on August 31, 2013. The Fund is not benchmarked to an index but uses the MSCI
Emerging Markets Index
SM
as a reference index, which returned
(10.29)% for the reporting period. During the period, the Fund made quarterly distributions totaling $0.72 per share, which were characterized as $0.48 per share return of capital and $0.24 per share of net investment income. As of August 31,
2013, the Fund had 19,539,819 shares outstanding.
Portfolio Specifics:
Emerging market stocks struggled during the reporting
period. Investor pessimism towards Chinese economic growth, and fears that the U.S. Federal Reserve tapering of quantitative easing would dry up liquidity, were the main factors behind a sell-off of the regions stocks. Emerging market
(EM) Latin America (-19.0%) was the
Top Ten Holdings
as of August 31, 2013
(as a percentage of net assets)
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Gazprom OAO ADR
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2.8%
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Vale SA
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2.1%
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Severstal
|
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1.4%
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CNOOC Ltd.
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1.4%
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Komercni Banka AS
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1.4%
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Millicom International Cellular S.A.
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1.3%
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Mobile Telesystems OJSC ADR
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1.3%
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Jiangsu Expressway Co. Ltd.
|
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1.3%
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Sasol Ltd.
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1.3%
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Shinhan Financial Group Co., Ltd.
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1.3%
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Portfolio
holdings are subject to change daily.
4
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P
ORTFOLIO
M
ANAGERS
R
EPORT
|
|
ING E
MERGING
M
ARKETS
H
IGH
D
IVIDEND
E
QUITY
F
UND
|
hardest hit; EM Asia (-7.4%) fared better despite Chinese growth concerns. EM Europe (-10.5%) fell in line with the reference index. Emerging markets underperformed developed markets by more than
15 percentage points.
The period wasnt completely gloomy as optimism returned towards the end of the period after Chinese export and
industrial production growth surprised on the positive side. There was currency turmoil for India (-18.0%), Indonesia (-25.8%), Thailand (-20.0%) and The Philippines (-16.4%), as markets predicted that Fed tapering would put downward pressure on
currencies of countries with current account deficits. India partially recovered after the central bank opened a special foreign-currency swap line for Indias state-owned oil companies to source their U.S. dollar requirements, instead of using
the spot U.S. dollar market.
In EM Europe, Russian stocks (-9.2%) reacted to news that a bailout deal to save Cyprus banking sector would
involve a tax on depositors. Lower growth expectations and falling crude oil prices also weighed on Russian equities but the latter became supported toward the end of the period as geopolitical tensions in the Middle East rose. Turkey (-24.5%) was
the biggest underperformer as pressure on its currency exchange rate followed an environmental issue that escalated into a large-scale, anti-government protest. Public demonstrations also played a role in Brazil (-21.2%), which suffered from
weakening commodity prices a major headwind for the whole of South America. Mexico (-12.3%) fared better thanks to its proximity to the United States.
Equity Portfolio:
The equity portfolio slightly outperformed the reference index during reporting period. The contribution to relative return from country allocation was positive, mainly due to
our overweight of Hong Kong and our underweights of Brazil and Turkey, the latter two of which suffered from civil unrest and currency depreciation. Stock selection was negative, especially in India. The power equipment manufacturer Bharat Heavy
Electricals Ltd. and the financial company Oriental Bank of Commerce Ltd. were the worst detractors at the stock level. Chinese stock picking also was negative, though Russian gold miner Petropavlosk PLC was the worst overall active position. The
top contributors in the portfolio were Powertech Technology Inc., the Taiwanese technology company involved in services related to integrated circuits, and CTC Media, Inc., a Russian television broadcaster. In the portfolio we maintain a regional
preference for Central Eastern Europe, the Middle East and Africa (the CEEMEA region) over Asia and Latin America. Utilities and industrials are overweight, while expensive consumer staples and information technology are under-represented.
Option Portfolio:
During the period, call options were written against the emerging markets portfolio. The
option portfolio consists of a series of short-dated call options on the iShares ETF, with the MSCI Emerging Markets Index Fund as underlying. The MSCI Emerging Markets Index
SM
is the reference index for the Fund. The options generally were sold having a maturity in the range of four to five
weeks. The overall portfolio coverage was 20%. Options were sold generally at-the-money and implemented in the over-the-counter market to enable the Fund managers to profit from its flexibility, liquidity and opportunities. During the months of
March until the end of August, emerging markets declined and implied volatility increased. These two factors enabled us to collect more option premium than needed to be settled at option expiry. As a consequence, the option strategy contributed to
the Funds relative performance.
Current Strategy and Outlook:
Emerging market equities face a number of headwinds, including
a gradual slowdown of Chinas economic growth trajectory and a less favorable liquidity environment. There has been much debate on the timing of the withdrawal of quantitative easing and the extent of its impact. What is clear already is that
there is reduced availability of U.S. dollars in the EM markets, and that quantitative easing (QE) tapering will compound this reduction. In recent years emerging market countries have been major beneficiaries of strong global liquidity,
which has facilitated significant expansions in credit and consumption. There is little doubt that lower liquidity will be a difficult adjustment for emerging markets, particularly those which have benefited the most, e.g., current-account-deficit
countries such as Turkey, Indonesia, India and South Africa.
In our opinion, the slowing of Chinese GDP growth likely will not occur in a
straight line over time. After a poor growth trajectory earlier this year the near-term data currently suggest a steadying is taking place. This steadying can be attributed in part to a stronger external, developed world economy and partly to an
easing of restrictions on credit and infrastructure spending. After the recent few months of volatility and underperformance in EM assets, the sentiment toward them is depressed. We believe improving global growth and stabilization in China provide
reasons for more optimism in the outlook for emerging equities. Nonetheless, ongoing headwinds in the deficit countries lead to a more balanced view.
Portfolio holdings and
characteristics are subject to change and may not be representative of current holdings and characteristics. The outlook for this Fund is based only on the outlook of its portfolio managers through the end of this period, and may differ from that
presented for other ING Funds. Performance data represents past performance and is no guarantee of future results. Past performance is not indicative of future results. The indices do not reflect fees, brokerage commissions, taxes or other expenses
of investing. Investors cannot invest directly in an index.
5
STATEMENT OF ASSETS AND LIABILITIES
AS
OF
A
UGUST
31, 2013 (U
NAUDITED
)
|
|
|
|
|
ASSETS:
|
|
|
|
|
Investments in securities at fair value*
|
|
$
|
239,727,073
|
|
Short-term investments at fair value**
|
|
|
2,710,197
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
242,437,270
|
|
|
|
|
|
|
Cash
|
|
|
19
|
|
Foreign currencies at value***
|
|
|
178,231
|
|
Receivables:
|
|
|
|
|
Investment securities sold
|
|
|
89,071
|
|
Dividends
|
|
|
1,168,119
|
|
Prepaid expenses
|
|
|
457
|
|
|
|
|
|
|
Total assets
|
|
|
243,873,167
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
Payable for investment management fees
|
|
|
240,222
|
|
Payable for administrative fees
|
|
|
20,889
|
|
Payable for trustee fees
|
|
|
2,492
|
|
Other accrued expenses and liabilities
|
|
|
208,979
|
|
Written options, at fair value^
|
|
|
240,666
|
|
|
|
|
|
|
Total liabilities
|
|
|
713,248
|
|
|
|
|
|
|
NET ASSETS
|
|
$
|
243,159,919
|
|
|
|
|
|
|
NET ASSETS WERE COMPRISED OF:
|
|
|
|
|
Paid-in capital
|
|
$
|
318,609,570
|
|
Undistributed net investment income
|
|
|
17,994
|
|
Accumulated net realized loss
|
|
|
(35,491,072
|
)
|
Net unrealized depreciation
|
|
|
(39,976,573
|
)
|
|
|
|
|
|
NET ASSETS
|
|
$
|
243,159,919
|
|
|
|
|
|
|
* Cost of investments in securities
|
|
$
|
280,533,636
|
|
** Cost of short-term investments
|
|
$
|
2,710,197
|
|
*** Cost of foreign currencies
|
|
$
|
184,968
|
|
^ Premiums received on written options
|
|
$
|
1,088,228
|
|
|
|
|
|
|
Net assets
|
|
$
|
243,159,919
|
|
Shares authorized
|
|
|
unlimited
|
|
Par value
|
|
$
|
0.010
|
|
Shares outstanding
|
|
|
19,539,819
|
|
Net asset value
|
|
$
|
12.44
|
|
See Accompanying Notes to
Financial Statements
6
STATEMENT OF OPERATIONS
FOR
THE
SIX
MONTHS
ENDED
A
UGUST
31, 2013 (U
NAUDITED
)
|
|
|
|
|
INVESTMENT INCOME:
|
|
|
|
|
Dividends, net of foreign taxes withheld*
|
|
$
|
6,669,988
|
|
|
|
|
|
|
Total investment income
|
|
|
6,669,988
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
Investment management fees
|
|
|
1,512,833
|
|
Transfer agent fees
|
|
|
8,432
|
|
Administrative service fees
|
|
|
131,550
|
|
Shareholder reporting expense
|
|
|
21,620
|
|
Professional fees
|
|
|
35,673
|
|
Custody and accounting expense
|
|
|
137,573
|
|
Trustee fees
|
|
|
4,820
|
|
Miscellaneous expense
|
|
|
32,554
|
|
|
|
|
|
|
Total expenses
|
|
|
1,885,055
|
|
|
|
|
|
|
Net investment income
|
|
|
4,784,933
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS):
|
|
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
Investments (net of Chilean capital gains tax withheld^)
|
|
|
(5,400,430
|
)
|
Foreign currency related transactions
|
|
|
(111,632
|
)
|
Written options
|
|
|
1,436,522
|
|
Payment by affiliate (Note 4)
|
|
|
1,730,621
|
|
|
|
|
|
|
Net realized loss
|
|
|
(2,344,919
|
)
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation) on:
|
|
|
|
|
Investments
|
|
|
(29,179,127
|
)
|
Foreign currency related transactions
|
|
|
(26,647
|
)
|
Written options
|
|
|
110,965
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
(29,094,809
|
)
|
|
|
|
|
|
Net realized and unrealized loss
|
|
|
(31,439,728
|
)
|
|
|
|
|
|
Decrease in net assets resulting from operations
|
|
$
|
(26,654,795
|
)
|
|
|
|
|
|
|
|
|
|
|
* Foreign taxes withheld
|
|
$
|
705,059
|
|
^ Foreign taxes on sale of Chilean investments
|
|
$
|
16,591
|
|
See Accompanying Notes to
Financial Statements
7
STATEMENTS OF CHANGES IN NET ASSETS (U
NAUDITED
)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
August 31, 2013
|
|
|
Year Ended
February 28, 2013
|
|
FROM OPERATIONS:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
4,784,933
|
|
|
$
|
5,735,903
|
|
Net realized loss and payment by affiliate (Note 4)
|
|
|
(2,344,919
|
)
|
|
|
(17,944,535
|
)
|
Net change in unrealized appreciation (depreciation)
|
|
|
(29,094,809
|
)
|
|
|
1,839,414
|
|
|
|
|
|
|
|
|
|
|
Decrease in net assets resulting from operations
|
|
|
(26,654,795
|
)
|
|
|
(10,369,218
|
)
|
|
|
|
|
|
|
|
|
|
FROM DISTRIBUTIONS TO SHAREHOLDERS:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(4,765,281
|
)
|
|
|
(5,994,073
|
)
|
Return of capital
|
|
|
(9,253,811
|
)
|
|
|
(23,408,633
|
)
|
|
|
|
|
|
|
|
|
|
Total distributions
|
|
|
(14,019,092
|
)
|
|
|
(29,402,706
|
)
|
|
|
|
|
|
|
|
|
|
FROM CAPITAL SHARE TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Reinvestment of distributions
|
|
|
1,223,165
|
|
|
|
2,817,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from capital share transactions
|
|
|
1,223,165
|
|
|
|
2,817,921
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net assets
|
|
|
(39,450,722
|
)
|
|
|
(36,954,003
|
)
|
|
|
|
|
|
|
|
|
|
NET ASSETS:
|
|
|
|
|
|
|
|
|
Beginning of year or period
|
|
|
282,610,641
|
|
|
|
319,564,644
|
|
|
|
|
|
|
|
|
|
|
End of year or period
|
|
$
|
243,159,919
|
|
|
$
|
282,610,641
|
|
|
|
|
|
|
|
|
|
|
Undistributed (distributions in excess of) net investment income at end of year or period
|
|
$
|
17,994
|
|
|
$
|
(1,658
|
)
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to
Financial Statements
8
F
INANCIAL
H
IGHLIGHTS
(U
NAUDITED
)
Selected data for a share of beneficial interest outstanding throughout each year or period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Operating Performance
|
|
|
Ratios and Supplemental Data
|
|
|
|
|
|
|
Income (loss)
from
investment
operations
|
|
|
|
|
|
Less
distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets
|
|
|
Supplemental
Data
|
|
|
|
Net asset value, beginning of
year or period
|
|
|
Net investment income gain (loss)
|
|
|
Net realized and unrealized
gain (loss)
|
|
|
Total from investment
operations
|
|
|
From net investment income
|
|
|
From net realized gains
|
|
|
From return of capital
|
|
|
Total distributions
|
|
|
Payment by affiliate
|
|
|
Net asset value, end of year or
period
|
|
|
Market value, end of year or
period
|
|
|
Total investment return at net
asset
value
(1)
|
|
|
Total investment return
at
market
value
(2)
|
|
|
Net assets, end of period (000s)
|
|
|
Gross expenses prior to
expense
waiver
(3)
|
|
|
Net expenses after
expense
waiver
(3),(4)
|
|
|
Net investment income after
expense
waiver
(3),(4)
|
|
|
Portfolio turnover rate
|
|
Year or period ended
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
|
(%)
|
|
|
($000s)
|
|
|
(%)
|
|
|
(%)
|
|
|
(%)
|
|
|
(%)
|
|
08-31-13
|
|
|
14.53
|
|
|
|
0.25
|
|
|
|
(1.70
|
)
|
|
|
(1.45
|
)
|
|
|
0.24
|
|
|
|
|
|
|
|
0.48
|
|
|
|
0.72
|
|
|
|
0.08
|
|
|
|
12.44
|
|
|
|
12.05
|
|
|
|
(9.67
|
)
(a)
|
|
|
(15.97
|
)
|
|
|
243,160
|
|
|
|
1.43
|
|
|
|
1.43
|
|
|
|
3.64
|
|
|
|
23
|
|
02-28-13
|
|
|
16.60
|
|
|
|
0.30
|
|
|
|
(0.85
|
)
|
|
|
(0.55
|
)
|
|
|
0.31
|
|
|
|
|
|
|
|
1.21
|
|
|
|
1.52
|
|
|
|
|
|
|
|
14.53
|
|
|
|
15.13
|
|
|
|
(2.95
|
)
|
|
|
5.58
|
|
|
|
282,611
|
|
|
|
1.44
|
|
|
|
1.44
|
|
|
|
2.03
|
|
|
|
66
|
|
04-26-11
(5)
- 02-29-12
|
|
|
19.06
|
(6)
|
|
|
0.24
|
|
|
|
(1.50
|
)
|
|
|
(1.26
|
)
|
|
|
0.17
|
|
|
|
|
|
|
|
1.03
|
|
|
|
1.20
|
|
|
|
|
|
|
|
16.60
|
|
|
|
15.89
|
|
|
|
(5.96
|
)
|
|
|
(14.21
|
)
|
|
|
319,565
|
|
|
|
1.43
|
|
|
|
1.41
|
|
|
|
1.77
|
|
|
|
61
|
|
(1)
|
|
Total investment return at net asset value has been calculated assuming a purchase at net asset value at the beginning of each period and a sale at net
asset value at the end of each period and assumes reinvestment of dividends, capital gain distributions and return of capital distributions/allocations, if any, in accordance with the provisions of the dividend reinvestment plan. Total investment
return at net asset value is not annualized for periods less than one year.
|
(2)
|
|
Total investment return at market value measures the change in the market value of your investment assuming reinvestment of dividends, capital gain
distributions and return of capital distributions/allocations, if any, in accordance with the provisions of the Funds dividend reinvestment plan. Total investment return at market value is not annualized for periods less than one year.
|
(3)
|
|
Annualized for periods less than one year.
|
(4)
|
|
The Investment Adviser has entered into a written expense limitation agreement with the Fund under which it will limit the expenses of the Fund (excluding
interest, taxes, leverage expenses and extraordinary expenses) subject to possible recoupment by the Investment Adviser within three years of being incurred.
|
(5)
|
|
Commencement of operations.
|
(6)
|
|
Net asset value at beginning of period reflects the deduction of the sales load of $0.90 per share and offering costs of $0.04 per share paid by the
shareholder from the $20.00 offering price.
|
(a)
|
|
Excluding a payment by affiliate in the period ended August 31, 2013, total investment return at net asset have been (10.25)%.
|
·
|
|
Calculated using average number of shares outstanding throughout the period.
|
See Accompanying Notes to Financial Statements
9
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31, 2013 (U
NAUDITED
)
NOTE 1 ORGANIZATION
ING Emerging Markets High Dividend Equity Fund (the Fund) is a
diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act). The Fund is organized as a Delaware statutory trust.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the Fund in the preparation of its financial statements, and such policies are in conformity with U.S. generally accepted accounting
principles (GAAP) for investment companies.
A.
Security Valuation
. All investments in securities are recorded at their
estimated fair value, as described below. Investments in equity securities traded on a national securities exchange are valued at the official closing price when available or, for certain markets, the last reported sale price. Securities reported by
NASDAQ are valued at the NASDAQ official closing prices. Securities traded on an exchange or NASDAQ for which there has been no sale and equity securities traded in the over-the-counter-market are valued at the mean between the last reported bid and
ask prices. All investments quoted in foreign currencies are valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at that time. Debt securities with more than 60 days to maturity are fair valued using matrix
pricing methods determined by an independent pricing service which takes into consideration such factors as yields, maturities, liquidity, ratings and traded prices in similar or identical securities. Securities for which valuations are not readily
available from an independent pricing service may be valued by brokers which use prices provided by market makers or estimates of fair market value obtained from yield data relating to investments or securities with similar characteristics.
Investments in open-end mutual funds are valued at the net asset value. Investments in securities of sufficient credit quality maturing in 60 days or less from date of acquisition are valued at amortized cost which approximates fair value.
Securities and assets for which market quotations are not readily available (which may include certain restricted securities that are subject to
limitations as to their sale) are valued at their fair values, as defined by the 1940 Act, and as determined in good faith by or under the supervision of the Funds Board of Trustees (Board), in accordance with methods that are
specifically authorized by the Board. Securities traded
on exchanges, including foreign exchanges, which close earlier than the time that the Fund calculates its net asset value (NAV) may also be valued at their fair values, as defined by
the 1940 Act, and as determined in good faith by or under the supervision of the Board, in accordance with methods that are specifically authorized by the Board. The value of a foreign security traded on an exchange outside the United States is
generally based on its price on the principal foreign exchange where it trades as of the time the Fund determines its NAV or if the foreign exchange closes prior to the time the Fund determines its NAV, the most recent closing price of the foreign
security on its principal exchange. Trading in certain non-U.S. securities may not take place on all days on which the NYSE Euronext (NYSE) is open. Further, trading takes place in various foreign markets on days on which the NYSE is not
open. Consequently, the calculation of the Funds NAV may not take place contemporaneously with the determination of the prices of securities held by the Fund in foreign securities markets. Further, the value of the Funds assets may be
significantly affected by foreign trading on days when a shareholder cannot purchase or redeem shares of the Fund. In calculating the Funds NAV, foreign securities denominated in foreign currency are converted to U.S. dollar equivalents. If an
event occurs after the time at which the market for foreign securities held by the Fund closes but before the time that the Funds NAV is calculated, such event may cause the closing price on the foreign exchange to not represent a readily
available reliable market value quotation for such securities at the time the Fund determines its NAV. In such a case, the Fund will use the fair value of such securities as determined under the Funds valuation procedures. Events after the
close of trading on a foreign market that could require the Fund to fair value some or all of its foreign securities include, among others, securities trading in the U.S. and other markets, corporate announcements, natural and other disasters, and
political and other events. Among other elements of analysis in the determination of a securitys fair value, the Board has authorized the use of one or more independent research services to assist with such determinations. An independent
research service may use statistical analyses and quantitative models to help determine fair value as of the time the Fund calculates its NAV. There can be no assurance that such models accurately reflect the behavior of the applicable markets or
the effect of the behavior of such markets on the fair value of securities, or that such markets will continue to behave in a fashion that is consistent with
10
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
such models. Unlike the closing price of a security on an exchange, fair value determinations employ elements of judgment. Consequently, the fair value assigned to a security may not represent
the actual value that the Fund could obtain if it were to sell the security at the time of the close of the NYSE. Pursuant to procedures adopted by the Board, the Fund is not obligated to use the fair valuations suggested by any research service,
and valuation recommendations provided by such research services may be overridden if other events have occurred or if other fair valuations are determined in good faith to be more accurate. Unless an event is such that it causes the Fund to
determine that the closing prices for one or more securities do not represent readily available reliable market value quotations at the time the Fund determines its NAV, events that occur between the time of the close of the foreign market on which
they are traded and the close of regular trading on the NYSE will not be reflected in the Funds NAV.
Options that are traded
over-the-counter will be valued using one of three methods: (1) dealer quotes; (2) industry models with objective inputs; or (3) by using a benchmark arrived at by comparing prior-day dealer quotes with the corresponding change in the
underlying security or index. Exchange traded options will be valued using the last reported sale. If no last sale is reported, exchange traded options will be valued using an industry accepted model such as Black Scholes. Options on
currencies purchased by the Fund are valued using industry models with objective inputs at their last bid price in the case of listed options or at the average of the last bid prices obtained from dealers in the case of over-the-counter options.
Fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between
market participants at the measurement date. Each investment asset or liability of the Fund is assigned a level at measurement date based on the significance and source of the inputs to its valuation. Quoted prices in active markets for identical
securities are classified as Level 1, inputs other than quoted prices for an asset or liability that are observable are classified as Level 2 and unobservable inputs, including the sub-advisers judgment about the
assumptions that a market participant would use in pricing an asset or liability are classified as Level 3. The inputs used for valuing securities are not necessarily an indication of the risks associated with investing in those
securities. Short-term securities of
sufficient credit quality which are valued at amortized cost, which approximates fair value, are generally considered to be Level 2 securities under applicable accounting rules. A table
summarizing the Funds investments under these levels of classification is included following the Summary Portfolio of Investments.
The
Board has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Pricing Committee as
established by the Funds Administrator. The Pricing Committee considers all facts they deem relevant that are reasonably available, through either public information or information available to the Investment Adviser or sub-adviser, when
determining the fair value of the security. In the event that a security or asset cannot be valued pursuant to one of the valuation methods established by the Board, the fair value of the security or asset will be determined in good faith by the
Pricing Committee. When the Fund uses these fair valuation methods that use significant unobservable inputs to determine its NAV, securities will be priced by a method that the Pricing Committee believes accurately reflects fair value and are
categorized as Level 3 of the fair value hierarchy. The methodologies used for valuing securities are not necessarily an indication of the risks of investing in those securities valued in good faith at fair value nor can it be assured the Fund can
obtain the fair value assigned to a security if they were to sell the security.
To assess the continuing appropriateness of security valuations,
the Pricing Committee may compare prior day prices, prices on comparable securities, and traded prices to the prior or current day prices and the Pricing Committee challenges those prices exceeding certain tolerance levels with the third party
pricing service or broker source. For those securities valued in good faith at fair value, the Pricing Committee reviews and affirms the reasonableness of the valuation on a regular basis after considering all relevant information that is reasonably
available.
For fair valuations using significant unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for
reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in or out of the Level 3 category during the period. The end of period timing recognition is used for the
transfers between Levels of the Funds assets and
11
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 2 SIGNIFICANT ACCOUNTING
POLICIES (continued)
liabilities. A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments.
For the period ended August 31, 2013, there have been no significant changes to the fair valuation methodologies.
B.
Security Transactions and Revenue Recognition
. Security transactions are recorded on the trade date. Realized gains or losses on sales of investments are calculated on the identified cost basis.
Interest income is recorded on the accrual basis. Premium amortization and discount accretion are determined using the effective yield method. Dividend income is recorded on the ex-dividend date, or in the case of some foreign dividends, when the
information becomes available to the Fund.
C.
Foreign Currency Translation
. The books and records of the Fund are maintained in U.S.
dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:
|
(1)
|
Market value of investment securities, other assets and liabilities at the exchange rates prevailing at the end of the day.
|
|
(2)
|
Purchases and sales of investment securities, income and expenses at the rates of exchange prevailing on the respective dates of such transactions.
|
Although the net assets and the market values are presented at the foreign exchange rates at the end of the day, the Fund does not
isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and
unrealized gains or losses from investments. For securities, which are subject to foreign withholding tax upon disposition, liabilities are recorded on the Statement of Assets and Liabilities for the estimated tax withholding based on the
securities current market value. Upon disposition, realized gains or losses on such securities are recorded net of foreign withholding tax. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency
gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds
books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other
than investments in securities at period end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S.
government securities. These risks include, but are not limited to, revaluation of currencies and future adverse political and economic developments which could cause securities and their markets to be less liquid and prices more volatile than those
of comparable U.S. companies and U.S. government securities.
D.
Distributions to Shareholders
. The Fund intends to make quarterly
distributions from its cash available for distribution, which consists of the Funds dividends and interest income after payment of Fund expenses, net option premiums and net realized and unrealized gains on investments. Such quarterly
distributions may also consist of return of capital. At least annually, the Fund intends to distribute all or substantially all of its net realized capital gains. Distributions are recorded on the ex-dividend date. Distributions are determined
annually in accordance with federal tax principles, which may differ from U.S. generally accepted accounting principles for investment companies.
The tax treatment and characterization of the Funds distributions may vary significantly from time to time depending on whether the Fund has gains or
losses on the call options written on its portfolio versus gains or losses on the equity securities in the portfolio. Each quarter, the Fund will provide disclosures with distribution payments made that estimate the percentages of that distribution
that represent net investment income, other income or capital gains, and return of capital, if any. The final composition of the tax characteristics of the distributions cannot be determined with certainty until after the end of the Funds tax
year, and will be reported to shareholders at that time. A significant portion of the Funds distributions may constitute a return of capital. The amount of quarterly distributions will vary, depending on a number of factors. As portfolio and
market conditions change, the rate of dividends on the common shares will change. There can be no assurance that the Fund will be able to declare a dividend in each period.
E.
Federal Income Taxes.
It is the policy of the Fund to comply with the requirements of subchapter M of the
12
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of its net investment income and any net realized capital gains to its
shareholders. Therefore, a federal income tax or excise tax provision is not required. Management has considered the sustainability of the Funds tax positions taken on federal income tax returns for all open tax years in making this
determination. No capital gain distributions shall be made until the capital loss carryforwards have been fully utilized or expire.
F.
Use of
Estimates.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
G.
Risk Exposures and the use of Derivative Instruments.
The Funds investment strategies permit the Fund to enter into various types of
derivatives contracts, including, but not limited to, forward foreign currency exchange contracts and purchased and written options. In doing so, the Fund will employ strategies in differing combinations to permit it to increase or decrease the
level of risk, or change the level or types of exposure to market risk factors. This may allow the Fund to pursue its objectives more quickly, and efficiently than if it were to make direct purchases or sales of securities capable of affecting a
similar response to market factors.
Market Risk Factors.
In pursuit of its investment objectives, the Fund may seek to use derivatives to
increase or decrease its exposure to the following market risk factors:
Credit Risk.
Credit risk relates to the ability of the issuer to
meet interest and principal payments, or both, as they come due. In general, lower-grade, higher-yield bonds are subject to credit risk to a greater extent than lower-yield, higher-quality bonds.
Equity Risk
. Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market.
Foreign Exchange Rate Risk
. Foreign exchange rate risk relates to the change in U.S. dollar value of a security held that is denominated
in a foreign currency. The U.S. dollar value of a foreign currency denominated security will decrease as the dollar appreciates against the currency, while the U.S. dollar value will increase as the dollar depreciates against the currency.
Interest Rate Risk
. Interest rate risk refers to the fluctuations in value of fixed-income securities resulting from the inverse
relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value of already issued fixed-income investments, and a decline in general interest rates will tend to increase their value. In
addition, debt securities with longer durations, which tend to have higher yields, are subject to potentially greater fluctuations in value from changes in interest rates than obligations with shorter durations. The Fund may lose money if short-term
or long-term interest rates rise sharply or otherwise change in a manner not anticipated by the sub-adviser. As of the date of this report, interest rates in the United States are at, or near, historic lows, which may increase the Funds
exposure to risks associated with rising interest rates.
Risks of Investing in Derivatives.
The Funds use of derivatives can result
in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Fund is using derivatives to decrease, or hedge, exposures to market risk factors for securities held by the Fund, there are also risks
that those derivatives may not perform as expected resulting in losses for the combined or hedged positions.
The use of these strategies involves
certain special risks, including a possible imperfect correlation, or even no correlation, between price movements of derivative instruments and price movements of related investments. While some strategies involving derivative instruments can
reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in related investments or otherwise, due to the possible inability of the Fund to purchase or sell a portfolio
security at a time that otherwise would be favorable or the possible need to sell a portfolio security at a disadvantageous time because the Fund is required to maintain asset coverage or offsetting positions in connection with transactions in
derivative instruments. Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Fund.
13
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Associated risks are not the risks that the Fund is attempting to increase or decrease exposure to, per its investment objectives, but are the additional risks from investing in derivatives.
Examples of these associated risks are liquidity risk, which is the risk that the Fund will not be able to sell the derivative in the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not
fulfill its obligation to the Fund. Associated risks can be different for each type of derivative and are discussed by each derivative type in the following notes.
Counterparty Credit Risk and Credit Related Contingent Features.
Certain derivative positions are subject to counterparty credit risk, which is the risk that the counterparty will not fulfill its
obligation to the Fund. The Funds derivative counterparties are financial institutions who are subject to market conditions that may weaken their financial position. The Fund intends to enter into financial transactions with counterparties
that it believes to be creditworthy at the time of the transaction. To reduce this risk, the Fund generally enters into master netting arrangements, established within the Funds International Swap and Derivatives Association,
Inc. (ISDA) Master Agreements (Master Agreements). These agreements are with select counterparties and they govern transactions, including certain over-the-counter (OTC) derivative and forward foreign
currency contracts, entered into by the Fund and the counterparty. The Master Agreements maintain provisions for general obligations, representations, agreements, collateral, and events of default or termination. The occurrence of a specified event
of termination may give a counterparty the right to terminate all of its contracts and affect settlement of all outstanding transactions under the applicable Master Agreement.
The Fund may also enter into collateral agreements with certain counterparties to further mitigate credit risk associated with OTC derivative and forward foreign currency contracts. Subject to established
minimum levels, collateral is generally determined based on the net aggregate unrealized gain or loss on contracts with a certain counterparty. Collateral pledged to the Fund is held in a segregated account by a third-party agent and can be in the
form of cash or debt securities issued by the U.S. government or related agencies.
The Funds maximum risk of loss from counterparty credit
risk on OTC derivatives is generally the aggregate
unrealized gain in excess of any collateral pledged by the counterparty to the Fund. For purchased OTC options, the Fund bears the risk of loss in the amount of the premiums paid and the change
in market value of the options should the counterparty not perform under the contracts. The Fund did not enter into any purchased OTC options during the period ended August 31, 2013. There were no credit events during the period ended
August 31, 2013 that triggered any credit related contingent features.
The Funds master agreements with derivative counterparties have
credit related contingent features that if triggered would allow its derivatives counterparties to close out and demand payment or additional collateral to cover their exposure from the Fund. Credit related contingent features are established
between the Fund and its derivatives counterparties to reduce the risk that the Fund will not fulfill its payment obligations to its counterparties. These triggering features include, but are not limited to, a percentage decrease in the Funds
net assets and or a percentage decrease in the Funds NAV, which could cause the Fund to accelerate payment of any net liability owed to the counterparty. The contingent features are established within the Funds Master Agreements.
Written options by the Fund do not give rise to counterparty credit risk, as written options obligate the Fund to perform and not the
counterparty. As of August 31, 2013, the total value of written OTC call options subject to Master Agreements in a net liability position was $240,666. If a contingent feature had been triggered, the Fund could have been required to pay this
amount in cash to its counterparties. The Fund did not hold or post collateral for its open written OTC call options at period end. There were no credit events during the period ended August 31, 2013 that triggered any credit related contingent
features.
H.
Options Contracts
. The Fund may purchase put and call options and may write (sell) put options and covered call options. The
premium received by the Fund upon the writing of a put or call option is included in the Statement of Assets and Liabilities as a liability which is subsequently marked-to-market until it is exercised or closed, or it expires. The Fund will realize
a gain or loss upon the expiration or closing of the option contract. When an option is exercised, the proceeds on sales of the underlying security for a written call option or purchased put option or the purchase cost of the security for a written
put option or a purchased call option is adjusted by the amount of premium received or paid. The risk in writing a call
14
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in buying an option is that the Fund pays a premium
whether or not the option is exercised. Risks may also arise from an illiquid secondary market or from the inability of counterparties to meet the terms of the contract.
The Fund seeks to generate gains from the OTC call options writing strategy over a market cycle to supplement the dividend yield of its underlying portfolio of high dividend yield equity securities. Please
refer to Note 8 for the volume of written OTC call option activity during the period ended August 31, 2013.
I.
Indemnifications.
In
the normal course of business, the Fund may enter into contracts that provide certain indemnifications. The Funds maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot
be estimated; however, based on experience, management considers the risk of loss from such claims remote.
NOTE 3 INVESTMENT
MANAGEMENT AND ADMINISTRATIVE FEES
ING Investments, LLC (ING Investments or the Investment Adviser), an Arizona
limited liability company, is the Investment Adviser of the Fund. The Fund pays the Investment Adviser for its services under the investment management agreement (Management Agreement), a fee, payable monthly, based on an annual rate of
1.15% of the Funds average daily managed assets. Managed assets are defined as the Funds average daily gross asset value, minus the sum of the Funds accrued and unpaid dividends on any outstanding preferred shares and accrued
liabilities (other than liabilities for the principal amount of any borrowings incurred, commercial paper or notes issued by the Fund and the liquidation preference of any outstanding preferred shares). As of August 31, 2013, there were no
preferred shares outstanding.
The Investment Adviser entered into a sub-advisory agreement (a Sub-Advisory Agreement) with ING
Investment Management Advisors B.V. (IIMA) a subsidiary of ING Groep, domiciled in The Hague, The Netherlands. Subject to policies as the Board or the
Investment Adviser might determine, IIMA manages the Funds assets in accordance with the Funds investment objectives, policies and limitations.
Effective July 5, 2013, the Investment Adviser entered into a sub-advisory agreement (Sub-Advisory Agreement) with ING Investment Management
Co. LLC (ING IM), a Delaware limited liability company. Subject to policies as the Board or the Investment Adviser might determine, ING IM manages the Funds assets in accordance with the Funds investment objectives, policies
and limitations.
The Investment Adviser has also retained ING Investment Management Co. LLC (ING IM or Consultant), a
Delaware limited liability company, to provide certain consulting services for the Investment Adviser. These services include, among other things, furnishing statistical and other factual information; providing advice with respect to potential
investment strategies that may be employed for the Fund, including, but not limited to, potential options strategies; developing economic models of the anticipated investment performance and yield for the Fund; and providing advice to the Investment
Adviser and/or sub-adviser with respect to the Funds level and/or managed distribution policy. For its services, the Consultant will receive a consultancy fee from the Investment Adviser. No fee will be paid by the Fund directly to the
Consultant.
ING Funds Services, LLC (the Administrator), a Delaware limited liability company, serves as Administrator to the Fund.
The Fund pays the Administrator for its services a fee based on an annual rate of 0.10% of the Funds average daily managed assets.
NOTE
4 OTHER TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The Fund has adopted a Deferred Compensation Plan (the
Plan), which allows eligible non-affiliated trustees as described in the Plan to defer the receipt of all or a portion of the trustees fees payable. Amounts deferred are treated as though invested in various notional funds
advised by ING Investments until distribution in accordance with the Plan.
On April 23, 2013, IIMA made a payment of $1,730,621 to reimburse
the Fund for the foregone investment opportunities attributable to available cash amounts not properly reported on IIMAs portfolio management reporting system.
15
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 5 PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of investments for
the period ended August 31, 2013, excluding short-term securities, were $85,588,726 and $58,625,459, respectively.
NOTE
6 OTHER ACCRUED EXPENSES AND LIABILITIES
At August 31, 2013, the Fund had the following payable included in Other
Accrued Expenses and Liabilities on the Statement of Assets and Liabilities that exceeded 5% of total liabilities:
|
|
|
|
|
Accrued Expense
|
|
Amount
|
|
Custody
|
|
$
|
110,970
|
|
NOTE 7 EXPENSE LIMITATION
The Investment Adviser has entered into a written expense limitation agreement (Expense Limitation Agreement) with the Fund under which it will limit the expenses of the Fund, excluding interest,
taxes, leverage expenses, and extraordinary expenses (and acquired fund fees and expenses) to 1.50% of average daily managed assets. The Investment Adviser may at a later date recoup from the Fund fees waived and other expenses assumed by the
Investment Adviser during the previous 36 months, but only if, after such reimbursement, the Funds expense ratio does not exceed the percentage described above. The Expense Limitation Agreement is contractual through March 1, 2014 and
shall renew automatically for one-year terms unless; (i) ING Investments provides 90 days written notice of its termination; and (ii) such termination is approved by the Board; or (iii) the Investment Management Agreement has been
terminated.
Waived and reimbursed fees and any recoupment by the Investment Adviser of such waived and reimbursed fees are reflected on the
accompanying Statement of Operations for the Fund.
As of August 31, 2013, there are no amounts of waived and reimbursed fees that are
subject to possible recoupment by the Investment Adviser.
NOTE 8 TRANSACTIONS IN WRITTEN OPTIONS
Transactions in written OTC call options on indices were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts
|
|
|
Premiums
Received
|
|
Balance at 02/28/13
|
|
|
1,297,300
|
|
|
$
|
835,422
|
|
Options Written
|
|
|
7,660,600
|
|
|
|
6,604,462
|
|
Options Expired
|
|
|
(5,142,500
|
)
|
|
|
(4,104,906
|
)
|
Options Exercised
|
|
|
|
|
|
|
|
|
Options Terminated in Closing Purchase Transactions
|
|
|
(2,568,800
|
)
|
|
|
(2,246,750
|
)
|
|
|
|
|
|
|
|
|
|
Balance at 08/31/13
|
|
|
1,246,600
|
|
|
$
|
1,088,228
|
|
|
|
|
|
|
|
|
|
|
NOTE 9 CONCENTRATION OF INVESTMENT RISKS
All mutual funds involve risk some more than others and there is always the chance that you could lose money or not earn as much as you hope. The Funds risk profile is
largely a factor of the principal securities in which it invests and investment techniques that it uses. For more information regarding the types of securities and investment techniques that may be used by the Fund and its corresponding risks, see
the Funds Prospectus and/or the Statement of Additional Information.
Foreign Securities and Emerging Markets.
The Fund makes
significant investments in foreign securities and securities issued by companies located in countries with emerging markets. Investments in foreign securities may entail risks not present in domestic investments. Since investments in securities are
denominated in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to
foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, as well as from movements in currency, security value and interest rate, all of which could affect the market and/or credit risk
of the investments. The risks of investing in foreign securities can be intensified in the case of investments in issuers located in countries with emerging markets.
Leverage.
Although the Fund has no current intention to do so, the Fund is authorized to utilize leverage through the issuance of preferred shares and/or borrowings, including the issuance of debt
securities. In the event that the Fund determines in the future to utilize investment leverage, there can be no assurance that such a leveraging strategy will be successful during any period in which it is employed.
16
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 10 CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
sold
|
|
|
Reinvestment
of
distributions
|
|
|
Net
increase
(decrease)
in shares
outstanding
|
|
|
Shares
sold
|
|
|
Reinvestment
of
distributions
|
|
|
Net
increase
(decrease)
|
|
Year or
period
ended
|
|
#
|
|
|
#
|
|
|
#
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
8/31/2013
|
|
|
|
|
|
|
92,287
|
|
|
|
92,287
|
|
|
|
|
|
|
|
1,223,165
|
|
|
|
1,223,165
|
|
2/28/2013
|
|
|
|
|
|
|
192,532
|
|
|
|
192,532
|
|
|
|
|
|
|
|
2,817,921
|
|
|
|
2,817,921
|
|
NOTE 11 FEDERAL INCOME TAXES
The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted
accounting principles for investment companies. These book/tax differences may be either temporary or permanent. Permanent differences are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences are
not reclassified. Key differences include the treatment of short-term capital gains, foreign currency transactions, income from passive foreign investment companies (PFICs) and wash sale deferrals. Distributions in excess of net investment income
and/or net realized capital gains for tax purposes are reported as return of capital.
Dividends paid by the Fund from net investment income and
distributions of net realized short-term capital gains are, for federal income tax purposes, taxable as ordinary income to shareholders.
The tax
composition of dividends and distributions in the current period will not be determined until after the Funds tax year-end of December 31, 2013. The tax composition of dividends and distributions as of the Funds most recent tax
year-end was as follows:
|
|
|
Tax Year Ended December 31, 2012
|
Ordinary
Income
|
|
Return
of Capital
|
$5,994,073
|
|
$23,408,633
|
The tax-basis components of distributable earnings and the capital loss carryforwards which may be used to offset future
realized capital gains for federal income tax purposes as of December 31, 2012 are detailed below. The Regulated Investment Company Modernization Act of 2010 (the Act) provides an unlimited carryforward period for newly generated
capital losses. Under the Act, there may be a greater
likelihood that all or a portion of the Funds pre-enactment capital loss carryforwards may expire without being utilized due to the fact that post-enactment capital losses are required to
be utilized before pre-enactment capital loss carryforwards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Late Year
Ordinary
Losses
Deferred
|
|
Post-October
Capital
Losses
Deferred
|
|
|
Unrealized
Appreciation/
(Depreciation)
|
|
|
Capital Loss Carryforwards
|
|
|
|
|
Amount
|
|
|
Character
|
|
|
Expiration
|
|
$(75,644)
|
|
$
|
(1,067,539
|
)
|
|
$
|
(14,342,779
|
)
|
|
$
|
(11,859,322
|
)
|
|
|
Short-term
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,614,184
|
)
|
|
|
Long-term
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(27,473,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Funds major tax jurisdictions are U.S. federal and Arizona. The earliest tax year that remains subject to
examination by these jurisdictions is the Funds initial tax year of 2011.
As of August 31, 2013, no provision for income tax is
required in the Funds financial statements as a result of tax positions taken on federal and state income tax returns for open tax years. The Funds federal and state income and federal excise tax returns for tax years for which the
applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue.
NOTE 12 RESTRUCTURING PLAN
The Investment Adviser, ING IM, and the Administrator, are indirect, wholly-owned subsidiaries of ING U.S., Inc. (ING U.S.). ING U.S. is a
U.S.-based financial institution whose subsidiaries operate in the retirement, investment, and insurance industries. ING U.S. is a majority-owned subsidiary of ING Groep N.V. (ING Groep), which is a global financial institution of Dutch
origin, with operations in more than 40 countries.
In October 2009, ING Groep submitted a restructuring plan (the Restructuring Plan)
to the European Commission in order to receive approval for state aid granted to ING Groep by the Kingdom of the Netherlands in November 2008 and March 2009. To receive approval for this state aid, ING Groep was required to divest its insurance and
investment management businesses, including ING U.S., before the end of 2013. In November 2012, the Restructuring Plan was amended to permit ING Groep additional time to complete the divestment. Pursuant to the amended Restructuring Plan, ING Groep
must divest at least 25% of ING U.S. by the end of 2013, more than 50% by the end of 2014, and the remaining interest by the end of 2016 (such divestment, the Separation Plan).
17
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 12 RESTRUCTURING PLAN (continued)
In May 2013, ING U.S. conducted an initial public offering of ING U.S. common
stock (the IPO).
On September 13, 2013, ING U.S. filed a new Registration Statement on Form S-1 with the U.S. Securities and
Exchange Commission (the SEC) in connection with another potential public offering of ING U.S. common stock held by ING Groep. ING U.S. will not issue or sell common stock in the offering. On October 23, 2013, ING U.S. announced the
pricing of 33 million shares of its common stock being offered by ING Groep in this offering. Closing of the offering is expected to occur on October 29, 2013. ING Groep also granted the underwriters in the offering an option exercisable
within 30 days, to acquire up to approximately an additional 5 million shares from ING Groep. This option was exercised in full. ING U.S. will not receive any proceeds from the offering.
ING Groep continues to own a majority of the common stock of ING U.S. ING Groep has stated that it intends to sell its remaining controlling ownership interest in ING U.S. over time. While the base case for
the remainder of the Separation Plan is the divestment of ING Groeps remaining interest in one or more broadly distributed offerings, all options remain open and it is possible that ING Groeps divestment of its remaining interest in ING
U.S. may take place by means of a sale to a single buyer or group of buyers.
It is anticipated that one or more of the transactions contemplated
by the Separation Plan would result in the automatic termination of the existing advisory and sub-advisory agreements under which the Adviser and sub-adviser provide services to the Fund. In order to ensure that the existing investment advisory and
sub-advisory services can continue uninterrupted, the Board approved new advisory and sub-advisory agreements for the Fund in connection with the IPO. In addition, shareholders of the Fund were asked to approve new investment advisory and
sub-advisory agreements prompted by the IPO, as well as any future advisory and sub-advisory agreements prompted by the Separation Plan that are approved by the Board and whose terms are not be materially different from the current agreements.
Shareholders of the Fund approved a new advisory and sub-advisory agreement on July 5, 2013. This means that shareholders may not have another opportunity to vote on a new agreement with the Adviser or an affiliated sub-adviser even if they
undergo a change of control, as long as no single
person or group of persons acting together gains control (as defined in the 1940 Act) of ING U.S.
The Separation Plan, whether implemented through public offerings or other means, may be disruptive to the businesses of ING U.S. and its subsidiaries, including the Adviser and affiliated entities that
provide services to the Fund, and may cause, among other things, interruption of business operations or services, diversion of managements attention from day-to-day operations, reduced access to capital, and loss of key employees or customers.
The completion of the Separation Plan is expected to result in the Advisers and affiliated entities loss of access to the resources of ING Groep, which could adversely affect its business. It is anticipated that ING U.S., as a
stand-alone entity, may be a publicly held U.S. company subject to the reporting requirements of the Securities Exchange Act of 1934 as well as other U.S. government and state regulations, and subject to the risk of changing regulation.
The Separation Plan may be implemented in phases. During the time that ING Groep retains a majority interest in ING U.S., circumstances affecting ING Groep,
including restrictions or requirements imposed on ING Groep by European and other authorities, may also affect ING U.S. A failure to complete the Separation Plan could create uncertainty about the nature of the relationship between ING U.S. and ING
Groep, and could adversely affect ING U.S. and the Adviser and its affiliates. Currently, the Adviser and its affiliates do not anticipate that the Separation Plan will have a material adverse impact on their operations or the Fund and its
operation.
Shareholder Proxy Proposals
At a meeting of the Board on January 10, 2013, the Board nominated to Class II of the Board five individuals (collectively, the Nominees) for election as Trustees of the Trust. The Nominees
include John V. Boyer, Patricia W. Chadwick, and Sheryl K. Pressler, each of whom was a current member of the Board. In addition, the Board nominated to Class II of the Board Albert E. DePrince Jr. and Martin J. Gavin and appointed to Class I of the
Board Joseph E. Obermeyer and Russell H. Jones, each of whom was not a member of the Board at the time, but who served as a director or trustee to other investment companies in the ING Funds complex. The Nominees were approved by shareholders on
May 6, 2013. The election of the Nominees was effective on May 21, 2013. The appointment of Messrs. Obermeyer and Jones was
18
NOTES TO FINANCIAL STATEMENTS
AS
OF
A
UGUST
31,
2013 (U
NAUDITED
) (
CONTINUED
)
NOTE 12 RESTRUCTURING PLAN (continued)
effective May 21, 2013. These nominations and appointments were, in part, the result of an effort on the part of the Board, another board in the ING Funds complex, and the Investment Adviser
to the Fund to consolidate the membership of the boards so that the same members serve on each board in the ING Funds complex. The result is that all ING Funds are now governed by Boards that are compromised of the same individuals.
NOTE 13 SUBSEQUENT EVENTS
Dividends:
Subsequent to August 31, 2013, the Fund made a distribution of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
Amount
|
|
|
Declaration
Date
|
|
|
Payable
Date
|
|
|
Record
Date
|
|
$
|
0.2880
|
|
|
|
9/16/2013
|
|
|
|
10/15/2013
|
|
|
|
10/3/2013
|
|
Each quarter, the Fund will provide disclosures with distribution payments made that estimate the percentages of that
distribution that represent net
investment income, capital gains, and return of capital, if any. A significant portion of the quarterly distribution payments made by the Fund may constitute a return of capital.
The Fund was granted exemptive relief by the SEC (the Order), which under the 1940 Act, would permit the Fund, subject to Board approval, to
include realized long-term capital gains as a part of its regular distributions to Common Shareholders more frequently than would otherwise be permitted by the 1940 Act (generally once per taxable year) (Managed Distribution Policy). The
Fund may in the future adopt a Managed Distribution Policy.
Effective close of business September 12, 2013, Mr. Gavin resigned as Trustee.
The Fund has evaluated events occurring after the Statement of Assets and Liabilities date (subsequent events) to
determine whether any subsequent events necessitated adjustment to or disclosure in the financial statements. Other than the above, no such subsequent events were identified.
19
|
|
|
ING E
MERGING
M
ARKETS
H
IGH
D
IVIDEND
E
QUITY
F
UND
|
|
SUMMARY
PORTFOLIO OF INVESTMENTS
AS
OF
A
UGUST
31, 2013
(U
NAUDITED
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Value
|
|
|
Percentage
of Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK: 97.2%
|
|
|
|
|
|
|
|
Australia: 0.4%
|
|
|
|
|
|
|
|
|
|
536,838
|
|
|
|
|
Other Securities
|
|
$
|
1,029,886
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belgium: 1.1%
|
|
|
|
|
|
|
|
|
|
91,047
|
|
|
|
|
Oriflame Cosmetics S.A.
|
|
|
2,664,713
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil: 9.2%
|
|
|
|
|
|
|
|
|
|
316,623
|
|
|
|
|
Cia Energetica de Minas Gerais ADR
|
|
|
2,517,153
|
|
|
|
1.0
|
|
|
226,601
|
|
|
|
|
Itau Unibanco Holding S.A.
|
|
|
2,743,772
|
|
|
|
1.1
|
|
|
164,337
|
|
|
|
|
Petroleo Brasileiro SA ADR
|
|
|
2,343,445
|
|
|
|
1.0
|
|
|
230,553
|
|
|
|
|
Porto Seguro SA
|
|
|
2,485,309
|
|
|
|
1.0
|
|
|
743,499
|
|
|
|
|
Tim Participacoes SA
|
|
|
2,888,676
|
|
|
|
1.2
|
|
|
392,358
|
|
|
|
|
Vale SA
|
|
|
5,083,001
|
|
|
|
2.1
|
|
|
1,058,137
|
|
|
|
|
Other Securities
|
|
|
4,373,112
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
22,434,468
|
|
|
|
9.2
|
|
|
|
|
|
|
|
Chile: 1.1%
|
|
|
|
|
|
|
|
|
|
8,530,630
|
|
|
|
|
Enersis SA
|
|
|
2,683,658
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China: 18.0%
|
|
|
|
|
|
|
|
|
|
908,000
|
|
|
|
|
BOC Hong Kong Holdings Ltd.
|
|
|
2,855,339
|
|
|
|
1.2
|
|
|
4,256,000
|
|
|
|
|
China Communications Services Corp., Ltd.
|
|
|
2,853,228
|
|
|
|
1.2
|
|
|
3,986,000
|
|
|
|
|
China Construction Bank
|
|
|
2,907,530
|
|
|
|
1.2
|
|
|
52,990
|
|
|
|
|
China Mobile Ltd. ADR
|
|
|
2,859,870
|
|
|
|
1.2
|
|
|
3,671,200
|
|
|
|
|
China Petroleum & Chemical Corp.
|
|
|
2,643,559
|
|
|
|
1.1
|
|
|
1,184,000
|
|
|
|
|
China Resources Power Holdings Co.
|
|
|
2,711,330
|
|
|
|
1.1
|
|
|
5,931,000
|
|
|
|
|
China Shanshui Cement Group Ltd.
|
|
|
2,346,186
|
|
|
|
1.0
|
|
|
1,681,000
|
|
|
|
|
China Shineway Pharmaceutical Group Ltd.
|
|
|
2,600,223
|
|
|
|
1.1
|
|
|
1,711,000
|
|
|
|
|
CNOOC Ltd.
|
|
|
3,383,147
|
|
|
|
1.4
|
|
|
3,808,000
|
|
|
|
|
Harbin Electric Co. Ltd.
|
|
|
2,346,538
|
|
|
|
1.0
|
|
|
4,602,000
|
|
|
|
|
Industrial and Commercial Bank of China Ltd.
|
|
|
3,009,275
|
|
|
|
1.2
|
|
|
2,816,000
|
|
|
|
|
Jiangsu Expressway Co. Ltd.
|
|
|
3,192,056
|
|
|
|
1.3
|
|
|
878,000
|
|
|
|
|
Shanghai Industrial Holdings Ltd.
|
|
|
2,865,757
|
|
|
|
1.2
|
|
|
3,483,000
|
|
|
|
|
Zhejiang Expressway Co., Ltd.
|
|
|
2,910,753
|
|
|
|
1.2
|
|
|
6,813,500
|
|
|
|
|
Other Securities
|
|
|
4,161,882
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
43,646,673
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Value
|
|
|
Percentage
of Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK: (continued)
|
|
|
|
|
|
|
|
Colombia: 0.9%
|
|
|
|
|
|
|
|
|
|
366,900
|
|
|
|
|
Other Securities
|
|
$
|
2,246,753
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Czech Republic: 2.4%
|
|
|
|
|
|
|
104,008
|
|
|
|
|
CEZ A/S
|
|
|
2,402,256
|
|
|
|
1.0
|
|
|
15,325
|
|
|
|
|
Komercni Banka AS
|
|
|
3,305,660
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
5,707,916
|
|
|
|
2.4
|
|
|
|
|
|
|
|
Egypt: 1.2%
|
|
|
|
|
|
|
|
|
|
567,400
|
|
|
|
|
Commercial International Bank
|
|
|
2,869,020
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong: 1.9%
|
|
|
|
|
|
|
|
|
|
817,000
|
|
|
|
|
Hang Lung Properties Ltd.
|
|
|
2,544,590
|
|
|
|
1.0
|
|
|
29,070,000
|
|
|
|
|
Other Securities
|
|
|
2,167,726
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
4,712,316
|
|
|
|
1.9
|
|
|
|
|
|
|
|
Hungary: 2.2%
|
|
|
|
|
|
|
|
|
|
1,913,191
|
|
|
|
|
Magyar Telekom Telecommunications PLC
|
|
|
2,644,419
|
|
|
|
1.1
|
|
|
172,580
|
|
|
|
|
Richter Gedeon Nyrt
|
|
|
2,769,524
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
5,413,943
|
|
|
|
2.2
|
|
|
|
|
|
|
|
India: 5.2%
|
|
|
|
|
|
|
|
|
|
62,690
|
|
|
|
|
Infosys Ltd. ADR
|
|
|
2,906,935
|
|
|
|
1.2
|
|
|
1,176,886
|
|
|
|
|
NTPC Ltd.
|
|
|
2,329,963
|
|
|
|
1.0
|
|
|
2,644,399
|
|
|
|
|
Other Securities
|
|
|
7,345,832
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
12,582,730
|
|
|
|
5.2
|
|
|
|
|
|
|
|
Indonesia: 1.8%
|
|
|
|
|
|
|
|
|
|
3,981,000
|
|
|
|
|
Indofood Sukses Makmur Tbk PT
|
|
|
2,364,166
|
|
|
|
1.0
|
|
|
5,691,500
|
|
|
|
|
Other Securities
|
|
|
1,999,724
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
4,363,890
|
|
|
|
1.8
|
|
|
|
|
|
|
|
Macau: 1.2%
|
|
|
|
|
|
|
|
|
|
970,400
|
|
|
|
|
Wynn Macau Ltd.
|
|
|
2,924,718
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia: 3.2%
|
|
|
|
|
|
|
|
|
|
1,994,866
|
|
|
|
|
Berjaya Sports Toto BHD
|
|
|
2,423,173
|
|
|
|
1.0
|
|
|
1,893,100
|
|
|
|
|
Gamuda BHD
|
|
|
2,573,874
|
|
|
|
1.1
|
|
|
1,647,300
|
|
|
|
|
IOI Corp. Bhd
|
|
|
2,706,781
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
7,703,828
|
|
|
|
3.2
|
|
|
|
|
|
|
|
Mexico: 1.1%
|
|
|
|
|
|
|
|
|
|
95,827
|
|
|
|
|
Southern Copper Corp.
|
|
|
2,635,243
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panama: 0.9%
|
|
|
|
|
|
|
|
|
|
87,577
|
|
|
|
|
Other Securities
|
|
|
2,108,854
|
|
|
|
0.9
|
|
See Accompanying
Notes to Financial Statements
20
|
|
|
ING E
MERGING
M
ARKETS
H
IGH
D
IVIDEND
E
QUITY
F
UND
|
|
SUMMARY PORTFOLIO OF INVESTMENTS
AS
OF
A
UGUST
31, 2013
(U
NAUDITED
) (
CONTINUED
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Value
|
|
|
Percentage
of Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK: (continued)
|
|
|
|
|
|
|
|
Poland: 3.4%
|
|
|
|
|
|
|
|
|
|
513,132
|
|
|
@
|
|
PGE SA
|
|
$
|
2,697,706
|
|
|
|
1.1
|
|
|
244,223
|
|
|
@
|
|
Powszechna Kasa Oszczednosci Bank Polski S.A.
|
|
|
2,893,552
|
|
|
|
1.2
|
|
|
20,560
|
|
|
|
|
Powszechny Zaklad Ubezpieczen SA
|
|
|
2,785,292
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
8,376,550
|
|
|
|
3.4
|
|
|
|
|
|
|
|
Qatar: 2.2%
|
|
|
|
|
|
|
|
|
|
145,552
|
|
|
|
|
Commercial Bank of Qatar
|
|
|
2,727,379
|
|
|
|
1.1
|
|
|
60,120
|
|
|
|
|
Industries Qatar QSC
|
|
|
2,534,201
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
5,261,580
|
|
|
|
2.2
|
|
|
|
|
|
|
|
Russia: 8.4%
|
|
|
|
|
|
|
|
|
|
867,090
|
|
|
|
|
Gazprom OAO ADR
|
|
|
6,815,328
|
|
|
|
2.8
|
|
|
48,057
|
|
|
|
|
Lukoil OAO
|
|
|
2,774,791
|
|
|
|
1.1
|
|
|
151,858
|
|
|
|
|
Mobile Telesystems OJSC ADR
|
|
|
3,213,315
|
|
|
|
1.3
|
|
|
409,065
|
|
|
|
|
Severstal
|
|
|
3,384,134
|
|
|
|
1.4
|
|
|
432,729
|
|
|
|
|
Other Securities
|
|
|
4,307,902
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
20,495,470
|
|
|
|
8.4
|
|
|
|
|
|
|
|
Singapore: 1.1%
|
|
|
|
|
|
|
175,000
|
|
|
|
|
United Overseas Bank Ltd.
|
|
|
2,721,055
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa: 4.7%
|
|
|
|
|
|
|
293,356
|
|
|
|
|
Foschini Group Ltd./The
|
|
|
2,743,408
|
|
|
|
1.1
|
|
|
145,221
|
|
|
|
|
MTN Group Ltd.
|
|
|
2,652,626
|
|
|
|
1.1
|
|
|
67,543
|
|
|
|
|
Sasol Ltd.
|
|
|
3,162,487
|
|
|
|
1.3
|
|
|
253,058
|
|
|
|
|
Standard Bank Group Ltd.
|
|
|
2,816,206
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
11,374,727
|
|
|
|
4.7
|
|
|
|
|
|
|
|
South Korea: 12.3%
|
|
|
|
|
|
|
96,340
|
|
|
|
|
Hyundai Marine & Fire Insurance Co., Ltd.
|
|
|
2,563,931
|
|
|
|
1.0
|
|
|
10,804
|
|
|
|
|
Hyundai Motor Co.
|
|
|
2,409,231
|
|
|
|
1.0
|
|
|
93,860
|
|
|
|
|
Kangwon Land, Inc.
|
|
|
2,334,147
|
|
|
|
1.0
|
|
|
91,330
|
|
|
|
|
KB Financial Group, Inc.
|
|
|
2,913,600
|
|
|
|
1.2
|
|
|
46,404
|
|
|
|
|
KT&G Corp.
|
|
|
3,031,153
|
|
|
|
1.2
|
|
|
10,392
|
|
|
|
|
POSCO
|
|
|
3,001,466
|
|
|
|
1.2
|
|
|
3,392
|
|
|
|
|
Samsung Electronics Co., Ltd. PRF Shares
|
|
|
2,797,693
|
|
|
|
1.2
|
|
|
39,441
|
|
|
|
|
Samsung Engineering Co. Ltd.
|
|
|
2,972,763
|
|
|
|
1.2
|
|
|
84,750
|
|
|
|
|
Shinhan Financial Group Co., Ltd.
|
|
|
3,080,083
|
|
|
|
1.3
|
|
|
49,716
|
|
|
|
|
Coway Co., Ltd.
|
|
|
2,619,097
|
|
|
|
1.1
|
|
|
100,122
|
|
|
|
|
Other Securities
|
|
|
2,264,680
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
29,987,844
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Value
|
|
|
Percentage
of Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK: (continued)
|
|
|
|
|
|
|
|
Sweden: 1.3%
|
|
|
|
|
|
|
|
|
|
39,691
|
|
|
|
|
Millicom International Cellular S.A.
|
|
$
|
3,216,854
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan: 9.1%
|
|
|
|
|
|
|
|
|
|
1,370,959
|
|
|
|
|
Cheng Uei Precision Industry Co., Ltd.
|
|
|
2,722,695
|
|
|
|
1.1
|
|
|
4,841,390
|
|
|
|
|
CTBC Financial Holding Co. Ltd
|
|
|
3,037,057
|
|
|
|
1.2
|
|
|
245,000
|
|
|
|
|
MediaTek, Inc.
|
|
|
2,990,383
|
|
|
|
1.2
|
|
|
3,749,000
|
|
|
|
|
Mega Financial Holdings Co., Ltd.
|
|
|
2,850,906
|
|
|
|
1.2
|
|
|
1,332,700
|
|
|
|
|
Powertech Technology, Inc.
|
|
|
2,422,958
|
|
|
|
1.0
|
|
|
1,278,000
|
|
|
|
|
Quanta Computer, Inc.
|
|
|
2,675,868
|
|
|
|
1.1
|
|
|
803,000
|
|
|
|
|
Taiwan Semiconductor Manufacturing Co., Ltd.
|
|
|
2,662,247
|
|
|
|
1.1
|
|
|
2,103,000
|
|
|
|
|
TXC Corp.
|
|
|
2,820,139
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
22,182,253
|
|
|
|
9.1
|
|
|
|
|
|
|
|
Thailand: 1.1%
|
|
|
|
|
|
|
259,300
|
|
|
|
|
PTT PCL
|
|
|
2,626,370
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom: 1.8%
|
|
|
|
|
|
|
124,946
|
|
|
|
|
Standard Chartered PLC
|
|
|
2,792,122
|
|
|
|
1.2
|
|
|
944,124
|
|
|
|
|
Other Securities
|
|
|
1,550,823
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
4,342,945
|
|
|
|
1.8
|
|
|
|
|
|
|
|
Total Common Stock (Cost $277,315,759)
|
|
|
236,314,257
|
|
|
|
97.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK: 1.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia: 1.0%
|
|
|
|
|
|
|
1,202,255
|
|
|
|
|
Sberbank of Russia
|
|
|
2,523,025
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea: 0.4%
|
|
|
|
|
|
|
8,851
|
|
|
|
|
Hyundai Motor Co. - Series 2
|
|
|
889,791
|
|
|
|
0.4
|
|
|
|
|
|
|
|
Total Preferred Stock (Cost $3,217,877)
|
|
|
3,412,816
|
|
|
|
1.4
|
|
|
|
|
|
|
|
Total Long-Term Investments (Cost $280,533,636)
|
|
|
239,727,073
|
|
|
|
98.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying
Notes to Financial Statements
21
|
|
|
ING E
MERGING
M
ARKETS
H
IGH
D
IVIDEND
E
QUITY
F
UND
|
|
SUMMARY PORTFOLIO OF INVESTMENTS
AS
OF
A
UGUST
31, 2013
(U
NAUDITED
) (
CONTINUED
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Value
|
|
|
Percentage
of Net
Assets
|
|
|
|
SHORT-TERM INVESTMENTS: 1.1%
|
|
|
|
|
|
|
|
Mutual Funds: 1.1%
|
|
|
|
|
|
|
2,710,197
|
|
|
|
|
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.040% (Cost $2,710,197)
|
|
$
|
2,710,197
|
|
|
|
1.1
|
|
|
|
|
|
|
|
Total Short-Term Investments (Cost $2,710,197)
|
|
|
2,710,197
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments in Securities (Cost $283,243,833)
|
|
$
|
242,437,270
|
|
|
|
99.7
|
|
|
|
|
|
|
|
Assets in Excess of Other Liabilities
|
|
|
722,649
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
|
$
|
243,159,919
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Securities represents issues not identified as the top 50 holdings in terms of market value and issues or
issuers not exceeding 1% of net assets individually or in aggregate respectively as of August 31, 2013.
The following footnotes apply to
either the individual securities noted or one or more of the securities aggregated and listed as a single line item.
|
Rate shown is the 7-day yield as of August 31, 2013.
|
@
|
Non-income producing security
|
ADR
|
American Depositary Receipt
|
|
Cost for federal income tax purposes is $285,813,847.
|
|
|
|
|
|
Net unrealized depreciation consists of:
|
|
|
|
|
Gross Unrealized Appreciation
|
|
$
|
9,626,247
|
|
Gross Unrealized Depreciation
|
|
|
(53,002,824
|
)
|
|
|
|
|
|
Net Unrealized Depreciation
|
|
$
|
(43,376,577
|
)
|
|
|
|
|
|
|
|
|
|
|
Sector Diversification
|
|
Percentage of
Net Assets
|
|
Financials
|
|
|
26.5
|
%
|
Energy
|
|
|
12.2
|
|
Information Technology
|
|
|
10.0
|
|
Materials
|
|
|
9.6
|
|
Consumer Discretionary
|
|
|
9.3
|
|
Industrials
|
|
|
8.8
|
|
Telecommunication Services
|
|
|
8.4
|
|
Utilities
|
|
|
6.3
|
|
Consumer Staples
|
|
|
5.3
|
|
Health Care
|
|
|
2.2
|
|
Short-Term Investments
|
|
|
1.1
|
|
Assets in Excess of Other Liabilities
|
|
|
0.3
|
|
|
|
|
|
|
Net Assets
|
|
|
100.0
|
%
|
|
|
|
|
|
Fair Value Measurements^
The following is a summary of the fair valuations according to the inputs used as of August 31, 2013 in valuing the assets and liabilities:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active Markets
for Identical Investments
(Level
1)
|
|
|
Significant Other
Observable
Inputs #
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Fair Value
at
8/31/2013
|
|
Asset Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
$
|
|
|
|
$
|
1,029,886
|
|
|
$
|
|
|
|
$
|
1,029,886
|
|
Belgium
|
|
|
|
|
|
|
2,664,713
|
|
|
|
|
|
|
|
2,664,713
|
|
Brazil
|
|
|
22,434,468
|
|
|
|
|
|
|
|
|
|
|
|
22,434,468
|
|
Chile
|
|
|
2,683,658
|
|
|
|
|
|
|
|
|
|
|
|
2,683,658
|
|
China
|
|
|
6,051,926
|
|
|
|
37,594,747
|
|
|
|
|
|
|
|
43,646,673
|
|
Colombia
|
|
|
2,246,753
|
|
|
|
|
|
|
|
|
|
|
|
2,246,753
|
|
Czech Republic
|
|
|
|
|
|
|
5,707,916
|
|
|
|
|
|
|
|
5,707,916
|
|
Egypt
|
|
|
|
|
|
|
2,869,020
|
|
|
|
|
|
|
|
2,869,020
|
|
Hong Kong
|
|
|
|
|
|
|
4,712,316
|
|
|
|
|
|
|
|
4,712,316
|
|
Hungary
|
|
|
2,644,419
|
|
|
|
2,769,524
|
|
|
|
|
|
|
|
5,413,943
|
|
India
|
|
|
2,906,935
|
|
|
|
9,675,795
|
|
|
|
|
|
|
|
12,582,730
|
|
Indonesia
|
|
|
|
|
|
|
4,363,890
|
|
|
|
|
|
|
|
4,363,890
|
|
Macau
|
|
|
|
|
|
|
2,924,718
|
|
|
|
|
|
|
|
2,924,718
|
|
Malaysia
|
|
|
2,423,173
|
|
|
|
5,280,655
|
|
|
|
|
|
|
|
7,703,828
|
|
Mexico
|
|
|
2,635,243
|
|
|
|
|
|
|
|
|
|
|
|
2,635,243
|
|
Panama
|
|
|
2,108,854
|
|
|
|
|
|
|
|
|
|
|
|
2,108,854
|
|
Poland
|
|
|
|
|
|
|
8,376,550
|
|
|
|
|
|
|
|
8,376,550
|
|
Qatar
|
|
|
2,534,201
|
|
|
|
2,727,379
|
|
|
|
|
|
|
|
5,261,580
|
|
Russia
|
|
|
14,336,545
|
|
|
|
6,158,925
|
|
|
|
|
|
|
|
20,495,470
|
|
See Accompanying Notes to Financial Statements
22