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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-21786

 

ING Risk Managed Natural Resources Fund

(Exact name of registrant as specified in charter)

 

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

 

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

(Name and address of agent for service)

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

Date of fiscal year end:                    February 29

Date of reporting period:                   August 31, 2012

 

 

 

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Item 1.

Reports to Stockholders.

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

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Semi-Annual Report

August 31, 2012

ING Risk Managed Natural Resources Fund

 

		E-Delivery Sign-up – details inside

 

MUTUAL FUNDS

 

 

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President’s Letter			1
Market Perspective			2
Portfolio Managers’ Report			4
Statement of Assets and Liabilities			6
Statement of Operations			7
Statements of Changes in Net Assets			8
Financial Highlights			9
Notes to Financial Statements			10
Summary Portfolio of Investments			19
Shareholder Meeting Information			23
Additional Information			24

 

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

PROXY VOTING INFORMATION

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

QUARTERLY PORTFOLIO HOLDINGS

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

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PRESIDENT’S LETTER

 

 

 

 

Dear Shareholder,

ING Risk Managed Natural Resources Fund (the “Fund”) is a non-diversified, closed-end management investment company whose shares are traded on the New York Stock Exchange under the symbol “IRR.” The Fund’s investment objective is total return through a combination of current income, capital gains and capital appreciation.

The Fund will seek to achieve its investment objective by investing in a portfolio of equity securities of companies in the energy and natural resources industries and by employing an integrated options “collar” strategy. The Fund’s collar strategy seeks to reduce the volatility of total returns relative to the natural resources equity sector and to help the Fund achieve its investment objective by seeking to generate capital gains in declining markets from the purchase of put options and premiums from writing call options.

For the period ended August 31, 2012, the Fund made quarterly distributions totaling $0.66 per share, characterized as $0.60 per share return of capital and $0.06 per share net investment income.

Based on net asset value (“NAV”), the Fund provided a total return of (4.55)% for the period

ended August 31, 2012.⁽¹⁾ This NAV return reflects a decrease in the Fund’s NAV from $13.12 on

February 29, 2012 to $11.83 on August 31, 2012. Based on its share price as of August 31, 2012, the Fund provided a total return of (6.25)% for the period ended August 31, 2012.⁽²⁾ This share price return reflects a decrease in the Fund’s share price from $12.50 on February 29, 2012 to $11.07 on August 31, 2012.

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

At ING our mission is to help you grow, protect and enjoy your wealth. 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, 2012

 

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

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

 

(1)

Total investment return at net asset value has been calculated assuming a purchase at net asset value at the beginning of each period and a sale at net asset value at the end of each period and assumes reinvestment of dividends, capital gain distributions, and return or capital distributions/allocations, if any, in accordance with the provisions of the Fund’s dividend reinvestment plan. Total investment return an net asset value is not annualized for periods less than one year.

 

(2)

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

 

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MARKET PERSPECTIVE:  SIX MONTHS ENDED AUGUST 31, 2012

 

 

 

 

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BENCHMARK DESCRIPTIONS

 

 

 

Index		Description
MSCI World IndexSM		An unmanaged index that measures the performance of over 1,400 securities listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East.
Barclays Capital U.S. Aggregate Bond Index		An unmanaged index of publicly issued investment grade U.S. Government, mortgage-backed, asset-backed and corporate debt securities.
Barclays Capital U.S. Corporate Investment Grade Bond Index		An unmanaged index consisting of publicly issued, fixed rate, nonconvertible, investment grade debt securities.
Barclays Capital U.S. Treasury Index		An unmanaged index that includes public obligations of the U.S. Treasury. Treasury bills, certain special issues, such as state and local government series bonds (SLGs), as well as U.S. Treasury TIPS and STRIPS, are excluded.
Barclays Capital High Yield Bond — 2% Issuer Constrained Composite Index		An unmanaged index that includes all fixed-income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $150 million, and at least one year to maturity.
S&P 500® Index		An unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets.
MSCI Japan® Index		A free float-adjusted market capitalization index that is designed to measure developed market equity performance in Japan.
MSCI Europe ex UK® Index		A free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe, excluding the UK.
MSCI UK® Index		A free float-adjusted market capitalization index that is designed to measure developed market equity performance in the UK.
S&P North American Natural Resources Sector Index		An unmanaged market-capitalization-weighted index of 112 stocks designed to measure the performance of companies in the natural resources sector, which includes energy, precious metals, timber and other sub-sectors.
Energy Select Sector Index®		A modified market capitalization-based index intended to track the movements of companies that are components of the S&P 500® Index and are involved in the development or production of energy products. Energy companies in the Index develop and produce crude oil and natural gas and provide drilling and other energy related services.
Materials Select Sector Index®		A modified market capitalization-based index intended to track the movements of companies that are components of the S&P 500® Index and are involved in materials. Materials include integrated steel product, chemicals, fibers, paper and gold.

 

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ING RISK MANAGED NATURAL RESOURCES  FUND		PORTFOLIO MANAGERS’ REPORT

 

integrated options “collar” strategy which seeks to partially reduce the exposure of the Fund to declines in the value of the equity securities in its portfolio and helps the Fund achieve its investment objective by seeking to generate capital gains in declining markets from employing put spreads and generating premiums from writing call options.

Equity Portfolio Construction: In order to implement the Fund’s collar strategy, the Fund employs a risk-managed style on a portion of the underlying equity portfolio. Approximately 70% of the value of the equity portfolio is invested in securities in the energy and materials indices in which the Fund’s collar strategy is implemented and the portfolio weights for these stocks generally reflect index weights. When selecting equity investments for the remaining 30% of the Fund, the Sub-Adviser uses fundamental and quantitative research provided by its analysts. The Sub-Adviser normally seeks to identify securities of companies that it believes to be undervalued relative to the value of the energy and natural resources assets they hold or their business fundamentals and outlook. The Sub-Adviser believes that the best investment candidates are those that feature superior capital allocation, strong competitive position and operations in industries with robust demand. Furthermore, the Sub-Adviser favors companies that can grow their production rather than those that simply rely upon strengthening commodity prices to improve their earnings outlooks. In constructing the portfolio, the Sub-Adviser takes into account the objectives of the Fund’s collar strategy and the instruments through which it is implemented. Under normal market conditions, the Fund generally holds approximately 80-130 equity securities in its portfolio.

“Collar” Strategy: Under normal market conditions, the Fund seeks to manage risk by employing an integrated options collar strategy. The Fund’s collar strategy includes: employing put spreads by purchasing and selling put options and writing call options on energy and materials indices (“Resource Indices”) and/or ETFs, correlated with the Fund’s portfolio.

The Fund typically creates a put spread position by purchasing put options approximately 5% “out-of-the-money” usually on a three-month basis and for an amount approximating 100% of the value of the Fund’s underlying assets while simultaneously, selling put options approximately 10-20% “out-of-the-money” and the same maturity and amount. The Fund retains the flexibility to create put spreads for an amount approximating 0-100% of the value of the Fund’s underlying assets.

The Fund generally also writes call options “at-the-money” or “near to-the-money,” usually on a one-month basis and for an amount equal to 40-100% of the value of the Fund’s underlying assets.

 

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PORTFOLIO MANAGERS’ REPORT		ING RISK MANAGED NATURAL RESOURCES  FUND

 

Performance: Based on net asset value (“NAV”) as of August 31, 2012, the Fund provided a total return of (4.55)% for the period. This NAV return reflects a decrease in the Fund’s NAV from $13.12 on February 29, 2012 to $11.83 on August 31, 2012. Based on its share price as of August 31, 2012, the Fund provided a total return of (6.25)% for the period. This share price return reflects a decrease in the Fund’s share price from $12.50 on February 29, 2012 to $11.07 on August 31, 2012. The reference index, a composite of 80% Energy Select Sector Index^® (“IXE”) and 20% Materials Select Sector Index^® (“IXB”) returned (3.42)% for the reporting period. The portfolio is designed to generally participate in only a part of an upside of the market and help protect against part of the downside. During the period, the Fund made quarterly total distributions totaling $0.66 per share, characterized as $0.60 per share return of capital and $0.06 per share net investment income. As of August 31, 2012, the Fund had 22,766,049 shares outstanding.

Overview: The Fund had a challenging six-month period. Broader energy indices underperformed in the second quarter as oil prices tumbled due to fears of a weakening global economy and bolstered petroleum supply. Demand trends in both OECD and non-OECD markets faltered compared to earlier expectations.

Equity Portfolio: To implement the collar strategy effectively, the Fund employs a risk-managed style in a portion of the underlying equity portfolio. To reduce basis risk between the portfolio and the collar, the portfolio generally holds the securities in the energy and materials indices in which the collar is implemented and the portfolio weights for stocks reflect index weights. These securities generally represent 70% of the value of the equity portfolio.

The actively managed equity portion of the strategy underperformed its reference index. Security selection detracted from results for the period.

Within the energy sector, security selection in the oil and gas equipment and services sub-sector hurt returns as our positions in stocks such as Key Energy Services Inc. and Basic Energy Services Inc. were unfavorable for the period. Both stocks were negatively impacted by their exposure to North American onshore oil services, where there has been mobilization of capacity from natural gas to oil. Also within energy, our position in Arch Coal Inc., in the coal and consumable fuels sub-sector, detracted from returns. The company lagged significantly as the coal sector underperformed due to depressed natural gas pricing which caps the pricing for coal. Concern about the slowdown in China’s growth exacerbated the stock’s underperformance.

Within the materials sector, our position in Cliffs Natural Resources Inc., a producer of iron ore and metallurgical coal, was unfavorable for returns. The stock was hurt by weakness in coal and iron ore due to falling steel demand from China. We think there will be demand for natural resources as growth comes back in emerging markets.

On the positive side, our position in Occidental Petroleum Corp. was favorable to returns. Also, underweighting Apache Corp., an oil and gas exploration company, was beneficial to returns. Apache has significant exposure to Egypt, which hurt the stock as the company had difficulty meeting its operational targets.

Options Portfolio: For the period, the Fund’s option strategy had a positive impact on relative returns. The Fund’s option strategy seeks to exploit the high volatility of the natural resources sector — it attempts to protect the portfolio from large NAV declines while seeking to generate premiums and retain some potential for upside appreciation. From the end of February to mid-June, the Fund purchased put options and wrote call options on the XLE and XLB ETFs to implement a collar. During the period, the Fund generally held put options against 100% of the value of the underlying equity portfolio, with strike prices roughly 5% out of the money and expiration dates three months or shorter at inception. The Fund typically wrote calls on 50–70% of the value of the underlying equity portfolio. These options were generally at or near the money and had expirations of about one month at inception.

In mid-June, the Fund implemented its new strategic option overlay strategy, a put spread collar. The Fund invested in put spread collars whereby it purchases put options that were roughly 5% out of the money and sold put options that were roughly 12.5% out-of-the-money. Both put options had expiration dates of about three months at inception, and the notional amounts of both generally represented 100% of the value of the underlying equity portfolio. The call overwrite portion of the strategy remains similar.

These option strategies contributed to relative returns as the energy and materials sectors were weak, most notably during the middle of the period. As a result of this weakness, the call options were generally worthless at expiration and the put options expired with some value.

Outlook and Current Strategy: In the energy sector, we believe demand for oil and gas will continue to increase as growing demand among developing nations offsets slowing in the developed world. The supply of these resources is constrained and new sources of supply are costlier to develop. We believe that the indiscriminate sell-off has resulted in undervalued companies with improved business models, stronger customer bases, pronounced competitive advantages and sturdier returns through an economic cycle. Specifically, we have positioned the portfolio to benefit from industry trends in more resilient oil-directed drilling activity onshore and offshore, the globalization of natural gas markets and the modernization of drilling equipment.

In the materials sector, we like exposure to iron ore given the consolidated nature of the market among the top three producers. We are cautious about mining companies’ quarterly results, however, as we expect byproduct credits to decline, increasing operating costs; what’s more, we believe use of free cash flow for acquisitions may be received poorly. We are more conservative in our outlook for copper, with a marginal cost well below the current price and tough quarterly reports to come along with reinvestment risk. Longer term, however, we do like copper and wait for the right opportunity amid the sell-off. In precious metals we are generally weighted in line with the benchmark.

 

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.

 

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STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 2012 (UNAUDITED)

 

 

 

ASSETS:
Investments in securities at fair value*		$	268,335,178
Short-term investments at fair value**			2,147,924
Total Investments at fair value		$	270,483,102
Cash			2,259
Foreign currencies at value***			165,010
Receivables:
Investments securities sold			38,296
Dividends			924,041
Prepaid expenses			1,150
Total assets			271,613,858
LIABILITIES:
Payable for investment securities purchased			93,833
Payable for investment management fees			229,410
Payable for administrative fees			22,941
Payable for trustee fees			1,926
Other accrued expenses and liabilities			175,513
Written options, at fair value^			1,832,764
Total liabilities			2,356,387
NET ASSETS		$	269,257,471
NET ASSETS WERE COMPRISED OF:
Paid-in capital		$	306,999,216
Distributions in excess of net investment income			(10,418	)
Accumulated net realized loss			(61,581,282	)
Net unrealized appreciation			23,849,955
NET ASSETS		$	269,257,471
*      Cost of investments in securities		$	251,213,793
**    Cost of short-term investments		$	2,147,924
*** Cost of foreign currencies		$	163,174
^      Premiums received on written options		$	8,559,366
Net assets		$	269,257,471
Shares authorized			unlimited
Par value		$	0.01
Shares outstanding			22,766,049
Net asset value and redemption price per share		$	11.83

 

See Accompanying Notes to Financial Statements

 

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STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 2012 (UNAUDITED)

 

 

 

INVESTMENT INCOME:
Dividends, net of foreign taxes withheld*		$	2,771,965
Total investment income			2,771,965
EXPENSES:
Investment management fees			1,384,279
Transfer agent fees			15,888
Administrative service fees			138,426
Shareholder reporting expense			43,020
Professional fees			28,252
Custody and accounting expense			46,110
Trustee fees			5,318
Miscellaneous expense			23,579
Total expenses			1,684,872
Net investment income			1,087,093
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments			6,327,372
Foreign currency related transactions			4,861
Written options			2,589,498
Net realized gain			8,921,731
Net change in unrealized appreciation (depreciation) on:
Investments			(30,072,428	)
Foreign currency related transactions			1,315
Written options			5,620,437
Net change in unrealized appreciation (depreciation)			(24,450,676	)
Net realized and unrealized loss			(15,528,945	)
Decrease in net assets resulting from operations		$	(14,441,852	)
*      Foreign taxes withheld		$	41,671

 

See Accompanying Notes to Financial Statements

 

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STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)

 

 

 

		Six Months Ended August 31, 2012				Year Ended February 29, 2012
FROM OPERATIONS:
Net investment income		$	1,087,093			$	1,371,828
Net realized gain			8,921,731				27,964,541
Net change in unrealized (depreciation)			(24,450,676	)			(47,426,104	)
Decrease in net assets resulting from operations			(14,441,852	)			(18,089,735	)
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income			(1,434,892	)			(23,028,322	)
Return of capital			(13,590,699	)			(9,235,445	)
Total distributions			(15,025,591	)			(32,263,767	)
FROM CAPITAL SHARE TRANSACTIONS:
Reinvestment of distributions			—				1,126,032
Net increase in net assets resulting from capital share transactions			—				1,126,032
Net decrease in net assets			(29,467,443	)			(49,227,470	)
NET ASSETS:
Beginning of year or period			298,724,914				347,952,384
End of year or period		$	269,257,471			$	298,724,914
Undistributed (distributions in excess of) net investment income at end of year or period		$	(10,418	)		$	337,381

 

See Accompanying Notes to Financial Statements

 

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FINANCIAL HIGHLIGHTS (UNAUDITED)

 

 

 

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

 

		Per Share Operating Performance																																																Ratios and Supplemental Data
						Income (loss) from investment operations												Less distributions																																				Ratios to average net assets
		Net asset value, beginning of period				Net investment income				Net realized and unrealized gain (loss) on investments				Total from investment operations				From net investment income				From net realized gains on investments				From return of capital				Total distributions				Net asset value, end of period				Market value, end of period				Total investment return at net asset value(1)				Total investment return at market value(2)				Net assets, end of period (000’s)				Gross expenses prior to expense waiver(3)				Net expenses after expense waiver(3)				Net investment income after expense waiver(3)				Portfolio turnover rate
Year or period ended		($)				($)				($)				($)				($)				($)				($)				($)				($)				($)				(%)				(%)				($000’s)				(%)				(%)				(%)				(%)
08-31-12			13.12				0.05				(0.68	)			(0.63	)			0.06				—				0.60				0.66				11.83				11.07				(4.55	)			(6.25	)			269,257				1.22				1.22				0.79				17
02-29-12			15.34				0.06				(0.86	)			(0.80	)			1.01				—				0.41				1.42				13.12				12.50				(5.00	)			(14.51	)			298,725				1.22				1.22				0.44				28
02-28-11			15.86				0.12				0.83				0.95				0.12				—				1.35				1.47				15.34				16.24				6.59				7.36				347,952				1.20				1.20	†			0.80	†			30
02-28-10			15.18				0.13	·			2.20				2.33				0.15				0.86				0.64				1.65				15.86				16.67				15.85				46.00				357,347				1.20				1.20	†			0.80	†			28
02-28-09			18.92				0.10	·			(2.14	)			(2.04	)			0.13				1.57				—				1.70				15.18				12.66				(9.88	)			(17.28	)			341,856				1.18				1.18	†			0.59	†			85
02-29-08			19.18				0.17				1.27				1.44				0.12				—				1.58				1.70				18.92				17.19				8.20				0.51				429,235				1.17				1.17				0.86				57
10-24-06(4) - 02-28-07			19.06	(5)			0.06	·			0.20				0.26				0.04				—				0.10				0.14				19.18				18.76				1.38				(5.50	)			433,595				1.23				1.18				0.88				21

 

(1)

Total investment return at net asset value has been calculated assuming a purchase at net asset value at the beginning of each period and a sale at net asset value at the end of each period and assumes reinvestment of dividends, capital gain distributions and return of capital distributions/allocations, if any, in accordance with the provisions of the dividend reinvestment plan. Total investment return at net asset value is not annualized for periods less than one year.

(2)

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

(3)

Annualized for periods less than one year.

(4)

Commencement of operations.

(5)

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.

·

Calculated using average number of shares outstanding throughout the period.

†

Impact of waiving the advisory fee for the ING Institutional Prime Money Market Fund holding has less than 0.005% impact on the expense ratio and net investment income or loss ratio.

 

See Accompanying Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2012 (UNAUDITED)

 

 

 

NOTE 1 — ORGANIZATION

 

ING Risk Managed Natural Resources Fund (the “Fund”) is a non-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 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 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 60 days or less from date of acquisition are valued at amortized cost which approximates fair value.

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

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

 

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

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

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

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

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

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

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

 

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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, 2012, there have been no significant changes to the fair valuation methodologies.

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

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

 

(1)

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

 

(2)

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

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

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

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

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

E. Federal Income Taxes. It is the policy of the Fund to comply with the requirements of subchapter M of the Internal Revenue Code that are applicable to regulated

 

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NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)

 

investment companies and to distribute substantially all of its net investment income and any net realized capital gains to its shareholders. Therefore, a federal income tax or excise tax provision is not required. Management has considered the sustainability of the Fund’s tax positions taken on federal income tax returns for all open tax years in making this determination.

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

G. Risk Exposures and the use of Derivative Instruments. The Fund’s investment objectives 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.

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

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

 

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NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)

 

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

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

The Fund’s maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate unrealized gain in excess of any collateral pledged by the counterparty to the Fund. For purchased OTC options, the Fund bears the risk of loss in the amount of the premiums paid and the change in market value of the options should the counterparty not perform under the contracts. As of August 31, 2012, the total fair value of purchased OTC options subject to counterparty credit risk was $576,065. The counterparty did not post any collateral to the Fund at period end. There were no credit events during the six months ended August 31, 2012 that triggered any credit related contingent features.

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

Written options by the Fund do not give rise to counterparty credit risk, as written options obligate the Fund to perform and not the counterparty. As of August 31, 2012, the total value of written OTC call options subject to Master Agreements in a liability position was $1,832,764. 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, 2012 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 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.

Under normal market conditions, the Fund seeks to manage risk by employing an integrated options collar strategy. The Fund’s collar strategy includes: employing

 

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NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (continued)

 

put spreads by purchasing and selling put options and writing call options on energy and materials indices (“Resource Indices”) and/or ETFs, correlated with the Fund’s portfolio, or securities held in the Fund’s portfolio. The Fund typically creates a put spread position by purchasing put options approximately 5% “out-of-the-money” usually on a three-month basis and for an amount approximating 100% of the value of the Fund’s underlying assets while simultaneously, selling put options approximately 10-20% “out-of-the-money” and the same maturity and amount. The Fund retains the flexibility to create put spreads for an amount approximating 0-100% of the value of the Fund’s underlying assets. The Fund usually also writes call options “at-the-money” or “near to-the-money,” usually on a one-month basis and for an amount equal to 40-100% of the value of the Fund’s underlying assets.

During the period ended August 31, 2012, the Fund utilized the collar strategy. Please refer to Note 6 for the volume of both purchased and written option activity for the period ended August 31, 2012.

I. Forward Foreign Currency Contracts. The Fund may enter into forward foreign currency contracts primarily to hedge against foreign currency exchange rate risks on its non-U.S. dollar denominated investment securities. When entering into a forward foreign currency contract, the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. These contracts are valued daily and the Fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the statement of assets and liabilities. Realized and unrealized gains and losses on forward foreign currency contracts are included on the Statement of Operations. These instruments involve market and/or credit risk in excess of the amount recognized in the statement of assets and liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates.

 

The Fund had no open forward foreign currency contracts as of the period ended August 31, 2012.

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

NOTE 3 — INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES

ING Investments, LLC (“ING Investments” or the “Investment Adviser”), an Arizona limited liability company, is the Investment Adviser of the Fund. The Fund pays the Investment Adviser for its services under the investment management agreement (“Management Agreement”), a fee, payable monthly, based on an annual rate of 1.00% of the Fund’s average daily managed assets. For purposes of the Management Agreement, managed assets are defined as the Fund’s average daily gross asset value, minus the sum of the Fund’s accrued and unpaid dividends on any outstanding preferred shares and accrued liabilities (other than liabilities for the principal amount of any borrowings incurred, commercial paper or notes issued by the Fund and the liquidation preference of any outstanding preferred shares). As of August 31, 2012, there were no preferred shares outstanding.

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

ING Funds Services, LLC (the “Administrator”), a Delaware limited liability company, serves as Administrator to the Fund. The Fund pays the Administrator for its services a fee based on an annual rate of 0.10% of the Fund’s average daily managed assets. The Investment Adviser, ING IM, and the Administrator are indirect, wholly-owned subsidiaries of ING Groep N.V. (“ING Groep”). ING Groep is a global financial institution of Dutch origin offering banking, investments, life insurance and retirement services.

ING Groep has adopted a formal restructuring plan that was approved by the European Commission in November 2009 under which the ING life insurance businesses, including the retirement services and

 

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NOTE 3 — INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES (continued)

 

investment management businesses, which include the Adviser and its immediate affiliates, would be separated from ING Groep by the end of 2013. To achieve this goal, in a series of announcements beginning November 2010, ING Groep announced that it plans to pursue transactions to restructure certain businesses, including an initial public offering for its U.S. based insurance, retirement services, and investment management operations; and other transactions, which could include an initial public offering or other type of transaction, for its European based insurance and investment management operations and Asian based insurance and investment management operations. There can be no assurance that all or part of the restructuring plan will be carried out.

The restructuring plan and the uncertainty about its implementation, whether implemented through the planned public offerings or through other means, in whole or in part, may be disruptive to the businesses of ING entities, including the ING entities that service the Fund, and may cause, among other things, interruption or reduction of business and services, diversion of management’s attention from day-to-day operations, and loss of key employees or customers. A failure to complete the offerings or other means of implementation on favorable terms could have a material adverse impact on the operations of the businesses subject to the restructuring plan. The restructuring plan may result in the Investment Adviser’s loss of access to services and resources of ING Groep, which could adversely affect its businesses and profitability. In addition, the divestment of ING businesses, including the Investment Adviser, may potentially be deemed a “change of control” of each entity. A change of control would result in the termination of the Fund’s advisory and sub-advisory agreements, which would trigger the necessity for new agreements that would require approval of the board, and may trigger the need for shareholder approval. Currently, the Investment Adviser does not anticipate that the restructuring will have a material adverse impact on the Fund or its operations and administration.

NOTE 4 — OTHER TRANSACTIONS WITH AFFILIATED 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.

NOTE 5 — PURCHASES AND SALES OF INVESTMENT SECURITIES

The cost of purchases and proceeds from sales of investments for the period ended August 31, 2012, excluding short-term securities, were $47,025,220 and $53,780,167, respectively.

NOTE 6 — PURCHASED AND WRITTEN OPTIONS

Transactions in both purchased and written options for the period ended August 31, 2012 were as follows:

Transactions in purchased OTC put options on indices were as follows:

 

		Number of Contracts				Cost
Balance at 02/29/12			4,999,118			$	11,393,432
Options Purchased			9,622,979				16,451,705
Options Expired			(6,144,431	)			(11,409,273	)
Options Exercised			—				—
Options Terminated in Closing Sell Transactions			(3,692,481	)			(5,964,808	)
Balance at 08/31/12			4,785,185			$	10,471,056

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

 

		Number of Contracts				Premiums Received
Balance at 02/29/12			3,348,036			$	4,020,480
Options Written			17,512,517				21,896,505
Options Expired			(7,754,343	)			(9,107,947	)
Options Exercised			—				—
Options Terminated in Closing Purchase Transactions			(5,621,410	)			(8,249,672	)
Balance at 08/31/12			7,484,800			$	8,559,366

NOTE 7 — CONCENTRATION OF INVESTMENT RISKS

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

 

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NOTE 7 — CONCENTRATION OF INVESTMENT RISKS (continued)

 

Foreign Securities and Emerging Markets. The Fund makes significant investments in foreign securities and may invest up to 20% of its managed assets, measured at the time of investment, in 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 rates, 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. The Fund also may enter into a working capital facility to facilitate its collar strategy. 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.

Non-Diversified and Natural Resources Companies. The Fund may be subject to large price volatility due to non-diversification and concentration in Natural Resources Companies. Securities of such companies may be subject to broad price fluctuations, reflecting volatility of energy and basic materials’ prices and possible instability of supply of various natural resources. Because many Natural Resources Companies have significant operations in many countries worldwide, the Fund’s portfolio will be more exposed than a more diversified portfolio to unstable political, social and economic conditions, including expropriation and disruption of licenses or operations. This means that the Fund’s portfolio of Natural Resources

Companies may be more exposed to price volatility, liquidity and other risks that accompany an investment in equities of foreign companies than portfolios of international equities generally.

NOTE 8 — CAPITAL SHARES

Transactions in capital shares and dollars were as follows:

 

		Reinvestment of distributions				Net increase in shares outstanding				Reinvestment of distributions				Net increase
Year or period ended		#				#				($)				($)
8/31/2012			—				—				—				—
2/29/2012			76,577				76,577				1,126,032				1,126,032

NOTE 9 — FEDERAL INCOME TAXES

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

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

The tax composition of dividends and distributions in the current period will not be determined until after the Fund’s tax year-end of December 31, 2012. The tax composition of dividends and distributions as of the Fund’s most recent tax year-end was as follows:

 

Tax Year Ended December 31, 2011
Ordinary Income				Return of Capital
$	23,028,322			$	9,235,445

 

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NOTES TO FINANCIAL STATEMENTS AS OF AUGUST 31, 2012 (UNAUDITED) (CONTINUED)

 

 

 

NOTE 9 — FEDERAL INCOME TAXES (continued)

 

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, 2011 are detailed in the table below. Capital loss carryforwards with no expiration, if any, must be utilized prior to those with expiration dates.

 

Unrealized Appreciation/ (Depreciation)				Short-Term Capital Loss Carryforwards				Expiration
$	20,922,883			$	(46,776,520	)			2017
					(5,692,716	)			2018
				$	(52,469,236	)

The Fund’s major tax jurisdictions are U.S. federal and Arizona. The earliest tax year that remains subject to examination by these jurisdictions is 2007.

As of August 31, 2012, no provision for income tax is required in the Fund’s financial statements as a result of tax positions taken on federal and state income tax returns for open tax years. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state department of revenue.

 

NOTE 10 — SUBSEQUENT EVENTS

Dividends: Subsequent to August 31, 2012, the Fund made a distribution of:

 

Per Share Amount

Declaration Date

Payable Date

Record Date

$

0.280

9/17/2012

10/15/2012

10/3/2012

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 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.

 

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ING RISK MANAGED NATURAL RESOURCES FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2012 (UNAUDITED)

 

 

See Accompanying Notes to Financial Statements

 

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ING RISK MANAGED NATURAL RESOURCES FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2012 (UNAUDITED) (CONTINUED)

 

 

Fair Value Measurements^

The following is a summary of the fair valuations according to the inputs used as of August 31, 2012 in valuing the assets and liabilities:

 

		Quoted Prices in Active Markets for Identical Investments (Level 1)				Significant Other Observable Inputs# (Level 2)				Significant Unobservable Inputs (Level 3)				Fair Value at August 31, 2012
Asset Table
Investments, at fair value
Common Stock
Energy		$	211,667,708			$	1,846,258			$	—			$	213,513,966
Materials			52,157,690				2,087,457				—				54,245,147
Total Common Stock		$	263,825,398			$	3,933,715			$	—			$	267,759,113

 

See Accompanying Notes to Financial Statements

 

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ING RISK MANAGED NATURAL RESOURCES FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2012 (UNAUDITED) (CONTINUED)

 

		Quoted Prices in Active Markets for Identical Investments (Level 1)				Significant Other Observable Inputs# (Level 2)				Significant Unobservable Inputs (Level 3)				Fair Value at August 31, 2012
Purchased Options		$	—			$	576,065			$	—			$	576,065
Short-Term Investments			2,147,924				—				—				2,147,924
Total Investments, at fair value		$	265,973,322			$	4,509,780			$	—			$	270,483,102
Liabilities Table
Other Financial Instruments+
Written Options			—				(1,832,764	)			—				(1,832,764	)
Total Liabilities		$	—			$	(1,832,764	)		$	—			$	(1,832,764	)

 

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

+

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

#

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

There were no transfers in or out of Levels 1, 2 or 3 of the fair value hierarchy during the six months ended August 31, 2012.

ING Risk Managed Natural Resources Fund Written OTC Options on August 31, 2012:

 

# of Contracts				Counterparty		Description		Exercise Price								Expiration Date		Premiums Received				Fair Value
	Options on Indices
	1,798,953			Goldman Sachs & Co.		Call on Energy Select Sector SPDR Index			72.570				USD			09/21/12		$	2,428,587			$	(1,475,047	)
	900,662			Goldman Sachs & Co.		Call on Materials Select Sector SPDR Fund			36.240				USD			09/21/12			549,404				(190,113	)
	3,244,207			UBS Warburg LLC		Put on Energy Select Sector SPDR Index			57.400				USD			09/21/12			4,426,720				(90,531	)
	1,540,978			UBS Warburg LLC		Put on Materials Select Sector SPDR Fund			30.210				USD			09/21/12			1,154,655				(77,073	)
						Total Written OTC Options												$	8,559,366			$	(1,832,764	)

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

The fair value of derivative instruments as of August 31, 2012 was as follows:

 

Derivatives not accounted for as hedging instruments		Location on Statement of Assets and Liabilities		Fair Value
Asset Derivatives
Equity contracts		Investments in securities at value*		$	576,065
Total Asset Derivatives				$	576,065
Liability Derivatives
Equity contracts		Written options, at fair value		$	1,832,764
Total Liability Derivatives				$	1,832,764

 

*	Includes purchased options.

 

See Accompanying Notes to Financial Statements

 

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ING RISK MANAGED NATURAL RESOURCES FUND		SUMMARY PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2012 (UNAUDITED) (CONTINUED)

 

The effect of derivative instruments on the Fund’s Statement of Operations for the six months ended August 31, 2012 was as follows:

 

Derivatives not accounted for as hedging instruments		Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
		Investments*				Written options				Total
Equity contracts		$	(2,131,485	)		$	2,589,498			$	458,013
Total		$	(2,131,485	)		$	2,589,498			$	458,013
Derivatives not accounted for as hedging instruments		Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income
		Investments*				Written options				Total
Equity contracts		$	(2,384,439	)		$	5,620,437			$	3,235,998
Total		$	(2,384,439	)		$	5,620,437			$	3,235,998

 

*	Amounts recognized for purchased options are included in net realized gain (loss) on investments and net change in unrealized appreciation or depreciation on investments.

**	Amounts recognized for forward foreign currency contracts are included in net realized gain (loss) on foreign currency related transactions and net change in unrealized appreciation or depreciation on foreign currency related transactions.

Supplemental Option Information (Unaudited)

 

Supplemental Call Option Statistics as of August 31, 2012:
% of Total Net Assets against which calls written			59.96%
Average Days to Expiration at time written			35 days
Average Call Moneyness* at time written			ATM
Premiums received for calls		$	2,977,991
Value of calls		$	(1,665,160	)
Supplemental Put Option Statistics as of August 31, 2012:
% of the Portfolio with Put Spread Options			100%
Average Days to Expiration at time purchased/written			98 days
Average Index Put Moneyness* at time purchased/written			OTM
Premiums paid for purchased put options		$	10,471,056
Value of purchased put options		$	576,065
Premiums received for written put options		$	5,581,375
Value of written put options		$	(167,604	)

 

*

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

 

See Accompanying Notes to Financial Statements

 

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SHAREHOLDER MEETING INFORMATION (UNAUDITED)

 

 

 

An annual meeting of shareholders of the ING Risk Managed Natural Resources Fund was held July 5, 2012, at the offices of ING Funds, 7337 East Doubletree Ranch Road, Suite 100, Scottsdale, AZ 85258.

ING Risk Managed Natural Resources Fund, Class II Trustees

At this meeting, a proposal was submitted to elect three members of the Board of Trustees to represent the interests of the holders of Common Shares of the Fund, with all three individuals to serve as Class II Trustees, for a term of three-years, and until the election and qualification of their successors. The proposal passed with the following votes recorded.

 

		Proposal		Shares voted for				Shares voted against or withheld				Shares abstained				Total Shares Voted
Class II Trustees		Colleen D. Baldwin			20,491,450.206				664,310.096				—				21,155,760.302
		Robert W. Crispin			19,442,144.286				1,713,616.016				—				21,155,760.302
		Peter S. Drotch			20,477,473.911				678,286.391				—				21,155,760.302

 

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ADDITIONAL INFORMATION (UNAUDITED)

 

 

 

 

24

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ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)

 

 

 

 

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ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)

 

 

 

 

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Toll-Free Shareholder Information

Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for account or other information, at (800)-992-0180

 

		SAR-UIRR		(0812-102412)

 

 

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Item 2. Code of Ethics.

Not required for semi-annual filing.

Item 3. Audit Committee Financial Expert.

Not required for semi-annual filing.

Item 4. Principal Accountant Fees and Services.

Not required for semi-annual filing.

Item 5. Audit Committee Of Listed Registrants.

Not required for semi-annual filing.

Item 6. Schedule of Investments.

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		SUMMARY PORTFOLIO OF INVESTMENTS
ING RISK MANAGED NATURAL RESOURCES FUND		as of August 31, 2012 (Unaudited)

 

 

See Accompanying Notes to Financial Statements

 

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		SUMMARY PORTFOLIO OF INVESTMENTS
ING RISK MANAGED NATURAL RESOURCES FUND		as of August 31, 2012 (Unaudited) (Continued)

 

 

See Accompanying Notes to Financial Statements

 

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		SUMMARY PORTFOLIO OF INVESTMENTS
ING RISK MANAGED NATURAL RESOURCES FUND		as of August 31, 2012 (Unaudited) (Continued)

 

Fair Value Measurements^

The following is a summary of the fair valuations according to the inputs used as of August 31, 2012 in valuing the assets and liabilities:

 

		Quoted Prices in Active Markets for Identical Investments (Level 1)				Significant Other Observable Inputs # (Level 2)				Significant Unobservable Inputs (Level 3)				Fair Value at August 31, 2012
Asset Table
Investments, at fair value
Common Stock
Energy		$	211,667,708			$	1,846,258			$	–			$	213,513,966
Materials			52,157,690				2,087,457				–				54,245,147
Total Common Stock			263,825,398				3,933,715				–				267,759,113
Purchased Options			–				576,065				–				576,065
Short-Term Investments			2,147,924				–				–				2,147,924
Total Investments, at fair value		$	265,973,322			$	4,509,780			$	–			$	270,483,102
Liabilities Table
Other Financial Instruments+
Written Options		$	–			$	(1,832,764)			$	–			$	(1,832,764)
Total Liabilities		$	–			$	(1,832,764)			$	–			$	(1,832,764)

 

 

 

^

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

+

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

#

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

There were no transfers in or out of Levels 1, 2 or 3 of the fair value hierarchy during the six months ended August 31, 2012.

 

ING Risk Managed Natural Resources Fund Written OTC Options on August 31, 2012:

# of Contracts				Counterparty		Description		Exercise Price		Expiration Date				Premiums Received				Fair Value
	Options on Indices
	1,798,953			Goldman Sachs & Co.		Call on Energy Select Sector SPDR                       Index		72.570 USD			09/21/12			$	2,428,587			$	(1,475,047)
	900,662			Goldman Sachs & Co.		Call on Materials Select Sector SPDR                       Fund		36.240 USD			09/21/12				549,404				(190,113)
	3,244,207			UBS Warburg LLC		Put on Energy Select Sector SPDR                       Index		57.400 USD			09/21/12				4,426,720				(90,531)
	1,540,978			UBS Warburg LLC		Put on Materials Select Sector SPDR                       Fund		30.210 USD			09/21/12				1,154,655				(77,073)
						Total Written OTC Options								$	8,559,366			$	(1,832,764)

 

See Accompanying Notes to Financial Statements

 

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

Not applicable.

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

Not applicable.

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

Not applicable.

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

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

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

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

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SIGNATURES

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

(Registrant): ING Risk Managed Natural Resources Fund

 

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

Date: November 1, 2012

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

 

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

Date: November 1, 2012

 

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

Date: November 1, 2012

 

50