<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NAVIGATOR SECURITIES LENDING
PRIME PORTFOLIO
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
- -------------------------------------------------------------------------------
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
ANNUAL REPORT AS OF DECEMBER 31, 1996
- -------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
The Navigator Securities Lending Prime Portfolio (the "Fund") is a special
purpose money market fund. 100% of Fund balances are derived from securities
lending. Due to the potentially volatile nature of securities lending balances,
the Fund was managed consistently with the objective of providing liquidity and
preserving capital, while investing in high quality instruments and offering
competitive returns.
In 1997, gains in consumer spending and inventory restocking should sustain the
growth momentum of 1996. The pace of growth, however, may slow from the fourth
quarter 1996's Gross Domestic Product (GDP) rate of 4.7% to a GDP growth between
2.0% and 2.5%.
The outlook on inflation will remain critical in determining the need of any
Federal Reserve tightening and the frequency of such tightenings. Wage and
price pressures will be significant determinations of inflation. Two other
indicators which the market will monitor closely during the coming months are
energy prices, and the employment cost index (ECI). The (ECI) is one of the
indicators which Alan Greenspan has openly acknowledged as being a meaningful
part of his inflation forecasting. Comments made by several Federal Reserve
Board members have served as notification to the markets that the Fed will react
quickly to any signs of inflation. Investments in the Fund throughout 1997 will
be made taking into consideration economic growth, outlooks on inflation, and
market response to Federal Reserve Policy.
Fund investments during this reporting period included floating rate and fixed
rate securities. The decisions to purchase these assets were based on relative
values in the marketplace. A steepening of the yield curve in the fixed income
market during the second and third quarters of 1996, provided opportunities to
extend, increasing the average maturity to roughly forty five days. This
portfolio extension is consistent with the Donoghues' Money Fund Report first
tier institutional category. During the fourth quarter, floating rate
securities offered a higher rate of return to the London Interbank Offer Rate
(Libor) than comparable effective duration fixed rate securities. A seasonal
rise in issuances of floating rate securities drove yields upwards, and the Fund
increased its exposure to floaters to approximately 38%.
We will continue to manage the Fund to meet objectives of offering competitive
returns, adequate liquidity, and a stable net asset value.
Robert P. Fort
Portfolio Manager
February 17, 1997
1
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE +
------------------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS--31.5%
ASSET BACKED STRUCTURE--3.5%
Restructured Asset Certificates
With Enhanced Returns,
Ser 1996-MM-12-3* (a) . . . . . . . . . . . . . . 5.594% 12/15/1997 $25,000,000 $25,000,000
Tiers Trust Ser DCMT 1996 A* (a). . . . . . . . . . 5.635% 10/15/1997 75,000,000 75,000,000
--------------
100,000,000
--------------
BANKING--17.5%
Bank of Boston. . . . . . . . . . . . . . . . . . . 5.530% 06/18/1997 15,000,000 14,998,619
Colorado National Bank. . . . . . . . . . . . . . . 5.577% 01/15/1997 10,000,000 9,999,886
Comerica Bank (Detroit, Michigan) . . . . . . . . . 5.750% 05/13/1997 25,000,000 24,993,511
Comerica Bank (Detroit, Michigan) (a) . . . . . . . 5.505% 08/19/1997 29,000,000 28,983,775
Comerica Bank (Detroit, Michigan) (a) . . . . . . . 5.536% 09/23/1997 30,000,000 29,980,717
Comerica Bank (Detroit, Michigan) (a) . . . . . . . 5.540% 10/24/1997 30,000,000 29,979,591
Comerica Bank (Detroit, Michigan) (a) . . . . . . . 5.520% 11/20/1997 25,000,000 24,980,401
Corestates Bank NA Philadelphia (a) . . . . . . . . 5.533% 11/05/1997 25,000,000 25,000,000
Corestates Capital Corporation (a). . . . . . . . . 5.540% 08/01/1997 50,000,000 50,000,000
First National Bank of Chicago. . . . . . . . . . . 5.650% 05/16/1997 10,000,000 9,996,811
Key Bank of New York (a). . . . . . . . . . . . . . 5.590% 08/20/1997 50,000,000 49,974,685
Key Bank of New York (a). . . . . . . . . . . . . . 4.820% 09/04/1997 25,200,000 25,181,225
Key Bank of Washington. . . . . . . . . . . . . . . 5.580% 05/14/1997 10,000,000 9,996,054
Morgan Guaranty Trust Company
of New York (a) . . . . . . . . . . . . . . . . . 5.375% 11/14/1997 75,000,000 74,952,515
NationsBank (Dallas, Texas) (a) . . . . . . . . . . 5.605% 06/18/1997 11,550,000 11,554,557
PNC Bank NA (a) . . . . . . . . . . . . . . . . . . 5.498% 05/13/1997 15,000,000 14,994,556
PNC Bank NA (a) . . . . . . . . . . . . . . . . . . 5.505% 05/15/1997 10,000,000 9,996,783
PNC Bank NA (a) . . . . . . . . . . . . . . . . . . 5.463% 09/03/1997 10,000,000 9,995,377
PNC Bank NA (a) . . . . . . . . . . . . . . . . . . 5.390% 10/01/1997 25,000,000 24,989,076
PNC Bank NA (a) . . . . . . . . . . . . . . . . . . 5.504% 12/11/1997 25,000,000 24,983,676
--------------
505,531,815
--------------
FINANCIAL/BANKS--COMMERCIAL--3.4%
First National Bank of Boston . . . . . . . . . . . 5.470% 01/08/1997 25,000,000 25,000,000
First National Bank of Boston . . . . . . . . . . . 5.440% 01/07/1997 15,000,000 15,000,000
First National Bank of Boston . . . . . . . . . . . 5.440% 03/06/1997 10,000,000 10,000,000
First National Bank of Boston . . . . . . . . . . . 5.440% 04/11/1997 35,000,000 35,000,000
Fleet Financial Group Inc.. . . . . . . . . . . . . 7.250% 10/15/1997 14,155,000 14,309,615
--------------
99,309,615
--------------
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE +
------------------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
FINANCIAL SERVICES--6.2%
CIT Group Hlds Inc. (a) . . . . . . . . . . . . . . 5.375% 09/17/1997 $50,000,000 $49,970,535
CIT Group Hlds Inc. . . . . . . . . . . . . . . . . 5.500% 02/28/1997 10,000,000 9,993,462
CIT Group Hlds Inc. (a) . . . . . . . . . . . . . . 5.764% 02/28/1997 15,000,000 15,003,231
CIT Group Hlds Inc. (a) . . . . . . . . . . . . . . 5.400% 08/11/1997 25,000,000 24,991,025
General Motors Acceptance Corp. . . . . . . . . . . 7.250% 05/19/1997 7,000,000 7,035,420
General Motors Acceptance Corp. (a) . . . . . . . . 5.370% 06/06/1997 15,000,000 14,990,693
Household Financial Corp. (a) . . . . . . . . . . . 5.670% 08/11/1997 30,000,000 30,034,918
IBM Credit Corporation. . . . . . . . . . . . . . . 5.740% 08/14/1997 25,000,000 24,955,326
--------------
176,974,610
--------------
SAVINGS AND LOANS--0.9%
Abbey National Treasury Services. . . . . . . . . . 5.680% 10/27/1997 25,000,000 24,986,270
--------------
TOTAL CORPORATE OBLIGATIONS--(Cost $906,802,310) 906,802,310
--------------
COMMERCIAL PAPER--31.5%
AUTOMOBILES AND TRUCKS--4.6%
Daimler Benz North America. . . . . . . . . . . . . 5.380% 01/15/1997 19,000,000 18,960,248
Daimler Benz North America. . . . . . . . . . . . . 5.310% 02/06/1997 30,000,000 29,840,700
Hertz Corp. . . . . . . . . . . . . . . . . . . . . 5.410% 01/09/1997 25,000,000 24,969,945
Hertz Corp. . . . . . . . . . . . . . . . . . . . . 5.420% 01/24/1997 25,000,000 24,913,431
Hertz Corp. . . . . . . . . . . . . . . . . . . . . 5.300% 02/18/1997 10,000,000 9,929,333
Hertz Corp. . . . . . . . . . . . . . . . . . . . . 5.480% 03/24/1997 25,000,000 24,687,944
--------------
133,301,601
--------------
BANKING--2.6%
Chase Manhattan Corporation . . . . . . . . . . . . 5.280% 03/25/1997 50,000,000 49,391,333
Toronto Dominion Holdings . . . . . . . . . . . . . 5.270% 05/28/1997 25,000,000 24,462,021
--------------
73,853,354
--------------
FINANCIAL/BANKS--COMMERCIAL/FOREIGN--6.0%
Bank of Scotland. . . . . . . . . . . . . . . . . . 5.490% 06/13/1997 50,000,000 50,000,000
Bank of Scotland. . . . . . . . . . . . . . . . . . 5.580% 02/25/1997 30,000,000 29,744,250
Commonwealth Bank Australia . . . . . . . . . . . . 5.330% 01/27/1997 34,000,000 33,869,119
Commonwealth Bank Australia . . . . . . . . . . . . 5.470% 02/12/1997 35,000,000 34,776,641
Woolwich Building . . . . . . . . . . . . . . . . . 5.340% 02/28/1997 25,000,000 24,784,917
--------------
173,174,927
--------------
FINANCIAL/BANKS/MONEY CENTERS--1.2%
Pacificorp. . . . . . . . . . . . . . . . . . . . . 5.470% 02/19/1997 35,000,000 34,739,415
--------------
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE +
------------------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
FINANCIAL SERVICES--9.2%
Caisse Des D' Amortissement
De La Depte Sociale . . . . . . . . . . . . . . . 5.320% 01/21/1997 $25,000,000 $24,926,111
General Electric Cap Corp.. . . . . . . . . . . . . 5.310% 01/30/1997 25,000,000 24,893,063
General Electric Credit Capital Serv of
Puerto Rico . . . . . . . . . . . . . . . . . . . 5.310% 01/22/1997 50,000,000 49,845,125
General Motors Acceptance Corp. . . . . . . . . . . 5.330% 01/21/1997 50,000,000 49,851,944
General Motors Acceptance Corp. . . . . . . . . . . 5.340% 02/24/1997 25,000,000 24,799,750
Sears Roebuck Acceptance Corporation. . . . . . . . 5.340% 01/13/1997 25,000,000 24,955,500
Sears Roebuck Acceptance Corporation. . . . . . . . 5.340% 01/16/1997 25,000,000 24,944,375
UBS Finance Delaware Inc. . . . . . . . . . . . . . 5.550% 01/22/1997 40,000,000 39,870,500
--------------
264,086,368
--------------
TELECOMMUNICATIONS--6.4%
GTE Corporation . . . . . . . . . . . . . . . . . . 5.520% 01/17/1997 21,000,000 20,948,480
GTE Corporation . . . . . . . . . . . . . . . . . . 5.500% 02/07/1997 65,000,000 64,632,570
MCI Communications. . . . . . . . . . . . . . . . . 5.290% 03/18/1997 20,000,000 19,776,644
MCI Communications. . . . . . . . . . . . . . . . . 5.330% 04/24/1997 80,000,000 78,661,578
--------------
184,019,272
--------------
WASTE DISPOSAL--0.9%
Browning Ferris Industries Inc. . . . . . . . . . . 5.600% 01/17/1997 25,000,000 24,937,778
--------------
FOOD--0.6%
Heinz H J Company . . . . . . . . . . . . . . . . . 5.450% 03/03/1997 18,000,000 17,833,775
--------------
TOTAL COMMERCIAL PAPER--(Cost $905,946,490). . . . . . 905,946,490
--------------
CERTIFICATES OF DEPOSIT--14.6%
FINANCIAL/BANKS--COMMERCIAL--6.4%
Bank America Illinois . . . . . . . . . . . . . . . 5.700% 05/28/1997 7,000,000 6,993,451
Bayerische Vereinsbank AG New York. . . . . . . . . 5.520% 01/23/1997 50,000,000 50,000,000
Canadian Imperial . . . . . . . . . . . . . . . . . 5.570% 01/31/1997 50,000,000 50,000,000
Canadian Imperial Bank Yankee CD. . . . . . . . . . 5.390% 02/03/1997 29,000,000 28,998,845
National Westminster Bank NA. . . . . . . . . . . . 5.540% 01/27/1997 50,000,000 50,001,329
--------------
185,993,624
--------------
FINANCIAL/BANKS--COMMERCIAL/FOREIGN--7.3%
Bayer Hypobank London . . . . . . . . . . . . . . . 5.480% 01/07/1997 25,000,000 25,000,041
Bayerische Vereinsbank. . . . . . . . . . . . . . . 5.430% 03/13/1997 85,000,000 85,000,000
Dresdner Bank . . . . . . . . . . . . . . . . . . . 5.470% 01/08/1997 25,000,000 25,000,048
Svenska Handelsbanken Inc.. . . . . . . . . . . . . 5.450% 02/03/1997 25,000,000 24,875,104
Westdeutcshe Landesbank Giroz . . . . . . . . . . . 5.400% 03/07/1997 50,000,000 50,000,000
--------------
209,875,193
--------------
FINANCIAL/BANKS/MONEY CENTERS--0.9%
Bayerische Hypotheken . . . . . . . . . . . . . . . 5.650% 02/28/1997 25,000,000 24,993,372
--------------
TOTAL CERTIFICATES OF DEPOSIT--(Cost $420,862,189) . . 420,862,189
--------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE +
------------------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--13.0%
Federal Farm Credit Banks (a) . . . . . . . . . . . 5.445% 05/22/1997 $30,000,000 $29,985,131
Federal Home Loan Banks (a) . . . . . . . . . . . . 5.486% 05/23/1997 120,000,000 119,955,137
Federal National Mortgage Assn. (a) . . . . . . . . 5.700% 05/19/1997 25,000,000 25,025,811
Federal National Mortgage Assn. (a) . . . . . . . . 5.310% 06/10/1997 50,000,000 49,978,580
Federal National Mortgage Assn. (a) . . . . . . . . 5.351% 09/12/1997 50,000,000 49,971,121
Federal National Mortgage Assn. (a) . . . . . . . . 5.458% 09/15/1997 50,000,000 49,977,777
Federal National Mortgage Assn. (a) . . . . . . . . 5.320% 11/19/1997 50,000,000 49,965,595
--------------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS--(Cost $374,859,152) . . . 374,859,152
--------------
TIME DEPOSITS--5.5%
FINANCIAL/BANKS--COMMERCIAL--5.5%
Branch Bank & Trust Co. . . . . . . . . . . . . . . 5.750% 01/02/1997 58,981,000 58,981,000
Chase Bank. . . . . . . . . . . . . . . . . . . . . 7.000% 01/02/1997 50,000,000 50,000,000
Keybank National Association (a). . . . . . . . . . 7.000% 01/02/1997 50,000,000 50,000,000
--------------
158,981,000
--------------
TOTAL TIME DEPOSITS--(Cost $158,981,000) . . . . . . . 158,981,000
--------------
REPURCHASE AGREEMENTS--3.5%
Repurchase Agreement dated 12/31/96 with
Goldman Sachs & Co. 6.20% due 1/2/97
collateralized by $102,460,000 par U.S. Treasury
Note due 5/31/98 (market value, $102,050,160)
(repurchase proceeds $100,034,444). . . . . . . . . 6.200% 01/02/1997 100,000,000 100,000,000
--------------
TOTAL REPURCHASE AGREEMENTS--(Cost $100,000,000) . . . 100,000,000
--------------
TOTAL INVESTMENTS--(Cost $2,867,451,141). . . . . . . 2,867,451,141
OTHER ASSETS LESS LIABILITIES--0.4%. . . . . . . . . . 10,449,939
--------------
NET ASSETS--100.0% . . . . . . . . . . . . . . . . . . $2,877,901,080
--------------
--------------
</TABLE>
* Pursuant to Rule 144A of the Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1996, these securities amounted to
$100,000,000 or 3.5% of the Fund's net assets.
(a) Floating Rate Note - Interest rate shown is rate in effect at December 31,
1996.
+ See note 2 to the financial statements.
See Notes to Financial Statements.
5
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
ASSETS:
Investments in securities, at amortized cost . . . . . . . . $2,867,451,141
Interest receivable. . . . . . . . . . . . . . . . . . . . . 10,836,336
Deferred organization expense. . . . . . . . . . . . . . . . 171,027
Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . 34,209
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 6,530
--------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . 2,878,499,243
--------------
LIABILITIES:
Payable for fund shares repurchased. . . . . . . . . . . . . 440,660
Administration fee payable . . . . . . . . . . . . . . . . . 53,491
Advisory Fee Payable . . . . . . . . . . . . . . . . . . . . 45,045
Custodian fee payable. . . . . . . . . . . . . . . . . . . . 13,583
Trustees Fees Payable. . . . . . . . . . . . . . . . . . . . 12,250
Transfer agent fee payable . . . . . . . . . . . . . . . . . 5,426
Other accrued expenses and liabilities . . . . . . . . . . . 27,708
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . . 598,163
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $2,877,901,080
--------------
NET ASSETS CONSIST OF:
Capital stock, $0.001 par value;
2,877,900,011 shares issued and outstanding . . . . . . $ 2,877,900
Capital paid in excess of par. . . . . . . . . . . . . . . . 2,875,023,180
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $2,877,901,080
--------------
Net asset value, offering, and redemption price per share. . $1.00
-----
See Notes to Financial Statements.
6
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 15, 1996* THROUGH DECEMBER 31, 1996
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $61,728,251
--------------
EXPENSES:
Advisory fee . . . . . . . . . . . . . . . . . . . . . . . . 195,582
Administration fee . . . . . . . . . . . . . . . . . . . . . 142,360
Insurance expense. . . . . . . . . . . . . . . . . . . . . . 106,791
Custodian fee. . . . . . . . . . . . . . . . . . . . . . . . 53,227
Trustees fees. . . . . . . . . . . . . . . . . . . . . . . . 46,000
Transfer agent fee . . . . . . . . . . . . . . . . . . . . . 32,658
Amortization of organization expenses. . . . . . . . . . . . 24,651
Legal fee. . . . . . . . . . . . . . . . . . . . . . . . . . 14,547
Audit fee. . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Miscellaneous expense. . . . . . . . . . . . . . . . . . . . 6,608
--------------
Total expenses before waiver. . . . . . . . . . . . . . 632,424
Expenses waived by the Administrator. . . . . . . . . . (5,889)
--------------
Expenses, net of waiver . . . . . . . . . . . . . . . . 626,535
--------------
Net investment income. . . . . . . . . . . . . . . . . . . . 61,101,716
--------------
Net increase in net assets resulting from operations . . . . $61,101,716
--------------
* Commencement of investment operations.
See Notes to Financial Statements.
7
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 15, 1996* THROUGH DECEMBER 31, 1996
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . . $ 61,100,394
Net realized gain on investments . . . . . . . . . . . . . . 1,322
--------------
Net increase in net assets resulting from operations . . . . 61,101,716
--------------
DISTRIBUTIONS FROM:
Net investment income . . . . . . . . . . . . . . . . . (61,100,647)
--------------
Net decrease in net assets from distributions. . . . . . . . (61,100,647)
--------------
FROM FUND SHARE TRANSACTIONS (AT CONSTANT $1.00 PER SHARE):
Proceeds from shares sold. . . . . . . . . . . . . . . . . . 9,723,270,848
Issued to shareholders in reinvestment of dividends. . . . . 61,100,647
Cost of redemptions. . . . . . . . . . . . . . . . . . . . . (6,906,481,384)
--------------
Net increase in net assets from Fund share transactions 2,877,890,111
--------------
Net increase in net assets . . . . . . . . . . . . . . . . . 2,877,891,180
NET ASSETS:
Beginning of period (Initial Capital and Offering
of Shares) (Note 6) . . . . . . . . . . . . . . . . . . . . 9,900
--------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . $2,877,901,080
--------------
* Commencement of investment operations.
8
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD MAY 15, 1996* THROUGH DECEMBER 31, 1996
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . . . . . . . $ 1.000
--------
Net investment income . . . . . . . . . . . . . . . . . 0.0342
Distributions from net investment income . . . . . . . (0.0342)
--------
Net increase from investment operations. . . . . . . . . . . 0.0000
--------
Net asset value, end of period . . . . . . . . . . . . . . . $ 1.000
--------
--------
TOTAL INVESTMENT RETURN (a). . . . . . . . . . . . . . . . . 3.47%
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets. . . . . . . . . . . 0.06% (b)(c)
Ratio of net investment income to average net assets . . . . 5.47% (b)(c)
Net assets, end of period (in millions) . . . . . . . . . . $2,878
* Commencement of investment operations.
(a) Total investment return is calculated assuming an initial investment made
at net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(b) Annualized.
(c) Net of administration waiver of expenses, amounting to less than 0.001% of
net assets for the period.
9
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ORGANIZATION AND FUND DESCRIPTION
The Navigator Securities Lending Trust (the "Trust") was organized as a
Massachusetts business trust on June 15, 1995 and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Trust has established three series of shares
of beneficial interest representing interests in three separate portfolios:
Navigator Securities Lending Government Portfolio, Navigator Securities Lending
Prime Portfolio and Navigator Securities Lending Short-Term Bond Portfolio.
Currently, only Navigator Securities Lending Prime Portfolio ("the Fund") has
commenced operations. The Fund is a money market pooled fund used as a vehicle
for the investment of cash collateral received in conjunction with securities
loans under the Global Securities Lending Program maintained by State Street
Bank and Trust Company. The Fund's objective is to maximize current income to
the extent consistent with the preservation of capital and liquidity.
Participation in the Trust is limited to participants in the Global Securities
Lending Program.
Effective November 14, 1996, the name of the Fund was changed from Navigator
Prime Portfolio.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund:
SECURITY VALUATION: Investments are valued at amortized cost, which approximates
market value.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities transactions are
recorded on trade date. Realized gains and losses on sales of securities are
determined on the basis of identified cost. Interest income is recorded on the
accrual basis. Interest income is increased by accretion of discount and
reduced by amortization of premium.
REPURCHASE AGREEMENTS: A repurchase agreement customarily obligates the seller
at the time it sells securities to the Fund to repurchase the securities at a
mutually agreed upon price and time which, in the case of the Fund's
transactions, is within seven days. The total amount received by the Fund on
repurchase would be calculated to exceed the price paid by the Fund, reflecting
an agreed upon market rate of interest for the period of time to the settlement
date, and would not necessarily be related to the interest rate on the
underlying securities. The underlying securities are ordinarily United States
government securities, but may consist of other securities in which the Fund is
permitted to invest. Repurchase agreements will be fully collateralized at all
times. The use of repurchase agreements involves certain risks. For example,
if the seller of securities under a repurchase agreement defaults on its
obligation to repurchase the underlying securities, as a result of its
bankruptcy or otherwise, the Fund will seek to dispose of such securities, which
action could involve costs or delays. The Fund may enter into repurchase
agreements maturing within seven days with domestic dealers, banks and other
financial institutions deemed to be creditworthy by the Adviser, State Street
Global Advisors, a subsidiary of State Street Bank and Trust Company.
ORGANIZATION EXPENSES: The Fund bears all costs in connection with its
organization. All such costs are being amortized using the straight line method
over a period of five years from commencement of the Fund's operations.
FEDERAL INCOME TAXES: It is the policy of the Fund to distribute all of its
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the Fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore no provision has been made for federal taxes on income, capital
gains or unrealized appreciation of securities held and excise tax on income and
capital gains.
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DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and pays
dividends daily from net investment income. Distributions from long-term
capital gains, if any, will be made at least annually. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. FEES AND COMPENSATION PAID TO AFFILIATES
State Street Bank and Trust Company serves as the Fund's Administrator, Adviser,
Custodian, and Transfer Agent.
ADVISORY FEE: Under the terms of the investment advisory agreement, the Fund
pays an advisory fee at an annual rate of .0175% of the Fund's average daily net
assets.
ADMINISTRATION FEE: Under the terms of the administration agreement, the Fund
pays an annual administration fee equal to .035% of the Fund's average daily net
assets up to $300 million, .020% of the next $300 million and .005% in excess of
$600 million, subject to certain minimum requirements. The minimum fee was
waived for the first year of operations. The Administrator has agreed to waive
a portion of the fee for the first year of the Fund's operations. For the
period ended December 31, 1996, the Administrator waived $5,889.
CUSTODIAN FEE: Under the terms of the custody agreement, the Fund pays an
annual accounting fee equal to $30,000 plus a custodian fee equal to .0025% of
the Fund's average daily net assets up to $1 billion, .0020% on the next $9
billion, and .0015% in excess of $10 billion, plus transaction costs.
TRANSFER AGENT FEE: Under the terms of the transfer agency agreement, the Fund
pays a monthly fee of $2,500 plus transaction costs.
4. TRUSTEE FEES
The Trust pays each trustee who is not an officer or employee of the Fund's
Investment Adviser or Administrator $3,750 for each meeting of the Board of
Trustees. Each trustee will be reimbursed for out of pocket and travel
expenses.
5. INVESTMENT TRANSACTIONS
At December 31, 1996, the cost of investments for federal income tax purposes
was the same as the cost for financial reporting purposes
6. BENEFICIAL INTEREST
At December 31, 1996, there were five shareholders who each owned over 5% of the
Fund's outstanding shares, amounting to 60% of total shares. A redemption by
one or more of the Fund's shareholders may cause the remaining shareholders to
bear proportionately higher operating expenses and otherwise affect the Fund's
future liquidity and investment operations.
7. INITIAL CAPITALIZATION AND OFFERING OF SHARES
During the period March 21, 1996 to May 15, 1996 the Fund had no operations
other than those related to organizational matters, including the initial
capital contribution of $9,900 and the issuance of 9,900 shares. There were no
additional transactions until regular investment operations commenced on May 15,
1996.
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REPORT OF INDEPENDENT ACCOUNTANTS
February 17, 1997
To the Board of Trustees
and Shareholders of the
Navigator Securities Lending
Prime Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
change in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Navigator Securities Lending
Prime Portfolio (the "Fund") at December 31, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
period May 15, 1996 (commencement of operations) through December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, MA
<PAGE>
TRUSTEES
Michael A. Jessee
George J. Sullivan Jr.
Peter Tufano
ADMINISTRATOR, CUSTODIAN, LEGAL COUNSEL AND TRANSFER AGENT
State Street Bank and Trust Company
Two Heritage Drive
North Quincy, MA 02171
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal St.
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
State Street Bank and Trust Company
Global Securities Lending
Two International Place
Boston, MA 02110
