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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
1940 ACT FILE NO. 811-07567
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 1 /X/
(CHECK APPROPRIATE BOX OR BOXES)
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NAVIGATOR SECURITIES LENDING TRUST
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO INTERNATIONAL PLACE, 31ST FLOOR, BOSTON, MASSACHUSETTS 02110
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 664-2500
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PHILIP H. NEWMAN, ASSISTANT SECRETARY
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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COPY TO:
M. BRADLEY JACOBS
STATE STREET BANK AND TRUST COMPANY
TWO INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
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NAVIGATOR SECURITIES LENDING TRUST
CONTENTS OF REGISTRATION STATEMENT
THIS REGISTRATION STATEMENT CONSISTS OF THE FOLLOWING PAPERS AND DOCUMENTS:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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CROSS REFERENCE SHEET
(REGISTRATION STATEMENT ON FORM N-1A)
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FORM N-1A ITEM NO. PROSPECTUS
PART A HEADING
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1. Cover Page *
2. Synopsis *
3. Condensed Financial Information *
4. General Description of Registrant General Description of Registrant
5. Management of the Trust Management of the Trust
5A. Management's Discussion of Fund Performance *
6. Capital Stock and Other Securities Capital Stock and Other Securities
7. Purchase of Securities Being Offered Purchase of Securities Being Offered
8. Redemption or Repurchase Redemption or Repurchase
9. Pending Legal Proceedings Not Applicable
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies Investment Objectives and Policies
14. Management of the Registrant Management of the Registrant
15. Control Persons and Principal Holders of Control Persons and Principal
Securities Holders of Securities
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* PURSUANT TO GENERAL INSTRUCTION F4 OF FORM N-1A, A REGISTRATION STATEMENT
FILED UNDER ONLY THE INVESTMENT COMPANY ACT OF 1940 SHALL CONSIST OF THE FACING
SHEET OF THE FORM, RESPONSES TO ALL ITEMS OF PARTS A AND B EXCEPT ITEMS 1, 2, 3
AND 5A OF PART A THEREOF, RESPONSES TO ALL ITEMS OF PART C EXCEPT ITEMS
24(b)(6), 24(b)(10), 24(b)(11), 24(b)(12) AND 24(b)(16) REQUIRED SIGNATURES, AND
ALL OTHER DOCUMENTS THAT ARE REQUIRED OR WHICH THE REGISTRANT MAY FILE AS PART
OF THE REGISTRATION STATEMENT.
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SAI
PART B (CONT.) HEADING
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16. Investment Advisory and Other Services Investment Advisory and Other
Services
17. Brokerage Allocation and Other Practices Brokerage Allocation and Other
Practices
18. Capital Stock and Other Securities Capital Stock and Other Securities
19. Purchase, Redemption and Pricing
of Securities Being Offered Purchase, Redemption and Pricing of
Securities Being Offered
20. Tax Status Tax Status
21. Underwriters Not Applicable
22. Calculation of Performance Data Calculation of Performance Data
23. Financial Statements Financial Statements
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PART A
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ITEM 1. COVER PAGE
Not Applicable.
ITEM 2. SYNOPSIS
Not Applicable.
ITEM 3. CONDENSED FINANCIAL INFORMATION
Not Applicable.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
State Street Bank and Trust Company ("State Street") has established a
securities lending program for its clients. Each client that participates in the
securities lending program as a lender (each, a "Lender" and collectively, the
"Lenders") enters into a securities lending authorization agreement with State
Street. Under such agreement, State Street is authorized to invest the cash
collateral securing loans of securities of each Lender in a variety of
investments. Navigator Securities Lending Trust (the "Trust") has been
established primarily for the investment and reinvestment of cash collateral on
behalf of Lenders participating in State Street's securities lending program.
The Trust is an open-end management investment company registered
with the Securities and Exchange Commission ("SEC") under the Investment
Company Act of 1940, as amended (the "1940 Act"). It is an association with
transferable shares organized pursuant to a Master Trust Agreement, dated
June 15, 1995 (the Master Trust Agreement), under the laws of the
Commonwealth of Massachusetts (commonly referred to as a Massachusetts
business trust). 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 (each, a "Portfolio" and collectively, the "Portfolios"). Navigator
Securities Lending Government Portfolio and Navigator Securities Lending
Short-Term Bond Portfolio, however, are not yet operational. Each Portfolio
is diversified within the meaning of the 1940 Act.
Shares of Navigator Securities Lending Prime Portfolio are being offered to the
Lenders in connection with State Street's securities lending program. Shares of
that Portfolio are sold on a private placement basis in accordance with
Regulation D under the Securities Act of 1933, as amended (the "1933 Act").
Shares of the Trust are sold directly by the Trust without a distributor and are
not subject to a sales load or redemption fee; assets of the Trust are not
subject to a Rule 12b-1 fee.
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THE PORTFOLIOS
Set forth below is a summary of the investment objectives and policies of
each Portfolio. The investment objectives of each Portfolio may be changed at
any time by the Board of Trustees of the Trust (the "Board of Trustees" or the
"Trustees") upon at least 30 days' prior written notice to shareholders of the
Portfolio. See the Statement of Additional Information for a description of each
Portfolio's investment restrictions.
NAVIGATOR SECURITIES LENDING GOVERNMENT PORTFOLIO. Navigator Securities
Lending Government Portfolio will seek to (i) maximize current income to the
extent consistent with the preservation of capital and liquidity and (ii)
maintain a stable $1.00 per share net asset value by investing in dollar
denominated securities with remaining maturities of one year or less. This
Portfolio will invest exclusively in securities issued or backed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Securities")
and in repurchase agreements collateralized with U.S. Government Securities. All
investments will qualify as "eligible securities" within the meaning of Rule 2a-
7 under the 1940 Act. Navigator Securities Lending Government Portfolio will
seek to maintain a stable net asset value per share of $1.00 by valuing its
portfolio using the amortized cost method and will comply with the requirements
of Rule 2a-7 under the 1940 Act.
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO. Navigator Securities Lending
Prime Portfolio will seek to (i) maximize current income to the extent
consistent with the preservation of capital and liquidity and (ii) maintain a
stable $1.00 per share net asset value by investing in dollar denominated
securities with remaining maturities of one year or less. This Portfolio will
invest in a variety of high quality U.S. dollar-denominated instruments,
including (a) U.S. Government Securities; (b) instruments of U.S. and foreign
banks, including certificates of deposit, banker's acceptances and time deposits
(including Eurodollar certificates of deposit, Eurodollar time deposits and
Yankee certificates of deposit); (c) corporate debt obligations, including
commercial paper of U.S. and foreign companies; (d) variable amount master
demand notes; (e) debt obligations of foreign governments and foreign government
subdivisions and their agencies and instrumentalities and supranational
organizations; (f) repurchase agreements; (g) mortgage-backed securities; (h)
asset-backed securities; (i) floating-rate notes, medium term notes and master
term notes; and (j) shares of other money market funds and similar commingled
investment funds. All investments will qualify as "eligible securities" within
the meaning of Rule 2a-7 under the 1940 Act. Navigator Securities Lending Prime
Portfolio will seek to maintain a stable net asset value per share of $1.00 by
valuing its portfolio using the amortized cost method and will comply with the
requirements of Rule 2a-7 under the 1940 Act.
NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO. Navigator
Securities Lending Short-Term Bond Portfolio will seek to maximize current
income to the extent consistent with the preservation of capital and liquidity.
Navigator Securities Lending Short-Term Bond Portfolio, however, will not seek
to maintain a stable net asset value per share. Accordingly, the investment
return and principal value of an investment in Navigator Securities Lending
Short-Term Bond Portfolio will fluctuate and
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an investor's shares, when redeemed, may be worth more or less than their
original cost. This Portfolio will invest in the same U.S. dollar-denominated
instruments in which Navigator Securities Lending Prime Portfolio invests. In
addition, Navigator Securities Lending Short-Term Bond Portfolio may invest in
mortgage-backed and asset-backed securities and other U.S. dollar-denominated
corporate, governmental and supranational debt obligations with maturities in
excess of 13 months, subject to certain quality and duration requirements
established for the Portfolio. Navigator Securities Lending Short-Term Bond
Portfolio may invest in forward contracts, futures, options and swap agreements
for the purpose of modifying the average effective duration of the portfolio and
creating synthetic floating-rate securities. At the time of purchase, the
maximum effective duration of any security will not exceed five years. The
average effective duration of Navigator Securities Lending Short-Term Bond
Portfolio, after giving effect to all duration shortening positions, will be
managed to be between one and 120 days. At the time of purchase, (i) all
securities with remaining maturities of 13 months or less will qualify as "first
tier securities" within the meaning of Rule 2a-7(a)(6) under the 1940 Act; and
(ii) all securities with remaining maturities in excess of 13 months will (x) be
rated "A" or better by at least two nationally recognized statistical rating
organizations (each, an "NRSRO"), or (y) if rated by only one NRSRO, be rated
"A" or better by such NRSRO, or (z) if unrated, be determined by State Street to
be of comparable quality. The Portfolio will not acquire any security (other
than a U.S. Government Security) if, as a result thereof, such security would
represent more than five percent of the Portfolio's assets.
Navigator Securities Lending Short-Term Bond Portfolio will not seek to
maintain a stable net asset value per share by means of the amortized cost
method. By means of managing the average effective duration of Navigator
Securities Lending Short-Term Bond Portfolio, however, State Street will seek to
minimize fluctuations in the value of the Portfolio. Securities with maturities
of 60 days or less will be valued based upon the amortized cost method. The
value of all other securities will be determined based upon market value or, in
the absence of market value, at fair value as determined by the Board of
Trustees of the Trust.
INVESTMENT POLICIES
The investment policies described below reflect the current practices of
each Portfolio, are not fundamental, and may be changed by the Board of Trustees
of the Trust without shareholder approval. To the extent consistent with each
Portfolio's investment objective and other stated policies and restrictions, and
unless otherwise indicated, each Portfolio may invest in the following
instruments and may use the following investment techniques:
U.S. GOVERNMENT SECURITIES. The types of U.S. Government securities in
which the Portfolios may at times invest include obligations issued or
guaranteed by U.S. Government agencies and instrumentalities that are supported
by any of the following: (i) the full faith and credit of the U.S. Treasury,
(ii) the right of the issuer to borrow an amount limited to a specific line of
credit from the U.S. Treasury, (iii) discretionary authority of the U.S.
Government agency or instrumentality or (iv) the credit of the instrumentality
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(examples of agencies and instrumentalities are: Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Federal Home Loan Banks, General Services Administration, Maritime
Administration, Tennessee Valley Authority, Asian-American Development Bank,
Student Loan Marketing Association, International Bank for Reconstruction and
Development and Federal National Mortgage Association). No assurance can be
given that in the future the U.S. Government will provide financial support to
such U.S. Government agencies or instrumentalities described in (ii), (iii) and
(iv), other than as set forth above, since it is not obligated to do so by law.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements,
whereby the Portfolio purchases securities from a financial institution that
agrees to repurchase the securities within a specified time (normally one day)
at the Portfolio's cost plus interest. A Portfolio will enter into repurchase
agreements only with financial institutions that State Street determines are
creditworthy in accordance with guidelines established by the Board of Trustees.
No Portfolio will invest more that 10% of its net assets (taken at current
market value) in repurchase agreements maturing in more than seven days. Should
the counterparty to a repurchase agreement transaction fail financially, the
Portfolio may experience delays in realizing on the collateral securing the
counterparty's obligations or a loss of rights in such collateral. Further, any
amounts realized upon the sale of collateral may be less than that necessary to
compensate the Portfolio fully. The Portfolio must take possession of collateral
either directly or through a third-party custodian. All repurchase transactions
must be collateralized at a minimum of 102% and counterparties are
required to deliver additional collateral in the event the market value of the
collateral falls below 102%.
STRIPPED SECURITIES. Each Portfolio may invest in stripped securities,
which are U.S. Treasury bonds and notes, the unmatured interest coupons of which
have been separated from the underlying obligation. Stripped securities are zero
coupon obligations that are normally issued at a discount from their face value.
A Portfolio may invest no more than 25% of its assets in stripped securities
that have been stripped by their holder, typically a custodian bank or
investment brokerage firm. A number of securities firms and banks have stripped
the interest coupons and resold them in custodian receipt programs with
different names such as Treasury Income Growth Receipts ("TIGRS") and
Certificates of Accrual on Treasuries ("CATS"). The Trust intends to rely on the
opinions of counsel to the sellers of these certificates or other evidences of
ownership of U.S. Treasury obligations that, for Federal tax and securities
purposes, purchasers of such certificates most likely will be deemed the
beneficial holders of the underlying U.S. Government securities. Privately-
issued stripped securities such as TIGRS and CATS are not themselves guaranteed
by the U.S. Government, but the future payment of principal or interest on U.S.
Treasury obligations which they represent is so guaranteed.
ELIGIBLE DERIVATIVE INSTRUMENTS (NAVIGATOR SECURITIES LENDING SHORT-TERM
BOND PORTFOLIO ONLY). Navigator Securities Lending Short-Term Bond Portfolio may
invest in forwards, futures, options and swap agreements
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within the following parameters. Derivative instruments may be used to create
synthetic fixed income securities and to modify portfolio average duration.
Derivative positions within the Portfolio will be managed so that the average
effective duration remains below the 120 day upper limit specified for the
Portfolio. The total absolute value of the option adjusted duration dollars of
the derivative positions shall be less than or equal to 10% of the option
adjusted duration dollars of the underlying investment positions.
VARIABLE AND FLOATING RATE INSTRUMENTS. A floating rate security provides
for the automatic adjustment of its interest rate whenever a specified interest
rate changes. A variable rate security provides for the automatic establishment
of a new interest rate on set dates. Interest rates on these securities are
ordinarily tied to, and represent a percentage of, a widely recognized interest
rate, such as the yield on 90-day U.S. Treasury bills or the prime rate of a
specified bank. These rates may change as often as twice daily. Generally,
changes in interest rates will have a smaller effect on the market value of
variable and floating rate securities than on the market value of comparable
fixed income obligations. Thus, investing in variable and floating rate
securities generally affords less opportunity for capital appreciation and
depreciation than investing in comparable fixed income securities. Navigator
Securities Lending Prime Portfolio may purchase variable and floating rate non-
U.S. Government securities that have a stated maturity in excess of 13 months
only if the Portfolio has a right to demand payment of the principal of the
instrument at least once every thirteen months upon not more that 30 days'
notice.
Variable and floating rate instruments may include variable amount master
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Portfolio will approximate their par value.
Illiquid variable and floating rate instruments (instruments that are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by a Portfolio are subject to a Portfolio's percentage limitations
regarding securities that are illiquid or not readily marketable. State Street
will continuously monitor the creditworthiness of issuers of variable and
floating rate instruments in which the Trust invests and their ability to repay
principal and interest.
AFFILIATED BANK TRANSACTIONS. Pursuant to exemptive orders issued by the
Securities and Exchange Commission (the "SEC"), the Portfolios may engage in
certain transactions with banks that are, or may be considered to be, affiliated
persons of the Portfolios under the 1940 Act. Such transactions may be entered
into only pursuant to procedures established, and periodically reviewed by, the
Board of Trustees. These transactions may include purchases, as principal, of
short-term obligations of, and repurchase agreements with, the 50 largest U.S.
banks (measured by deposits); transactions in municipal securities; and
transactions in U.S. Government securities with affiliated banks that are
primary dealers in these securities.
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WHEN-ISSUED TRANSACTIONS. New issues of securities are often offered on a
when-issued basis. This means that delivery and payment for the securities
normally will take place several days after the date the buyer commits to
purchase them. The payment obligation and the interest rate that will be
received on securities purchased on a when-issued basis are each fixed at the
time the buyer enters into the commitment.
Each Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but a Portfolio
may sell these securities or dispose of the commitment before the settlement
date if it is deemed advisable as a matter of investment strategy. Cash or
marketable high quality debt securities equal to the amount of the above
commitments will be segregated on each Portfolio's records. For the purpose of
determining the adequacy of these securities, the segregated securities will be
valued at market. If the market value of such securities declines, additional
cash or securities will be segregated on the Portfolio's records on a daily
basis so that the market value of the account will equal the amount of such
commitments by the Portfolio. No Portfolio will invest more than 25% of its net
assets in when-issued securities.
Securities purchased on a when-issued basis and the securities held by each
Portfolio are subject to changes in market value based upon the public's
perception of changes in the level of interest rates. Generally, the value of
such securities will fluctuate inversely to changes in interest rates (i.e.,
they will appreciate in value when interest rates decline and decrease in value
when interest rates rise). Therefore, if in order to achieve higher interest
income a Portfolio remains substantially fully invested at the same time that it
has purchased securities on a "when-issued" basis, there will be a greater
possibility of fluctuation in the Portfolio's net asset value.
When payment for when-issued securities is due, each Portfolio will meet
its obligations from then-available cash flow, the sale of segregated
securities, the sale of other securities or, and although it would not normally
be expect to do so, from the sale of the when-issued securities themselves
(which may have a market value greater or less than the Portfolio's payment
obligation). The sale of securities to meet such obligations carries with it a
greater potential for the realization of capital gains, which are subject to
federal income taxes.
FORWARD COMMITMENTS (NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO AND
NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO ONLY). Each of Navigator
Securities Lending Prime Portfolio and Navigator Securities Lending Short-Term
Bond Portfolio may contract to purchase securities for a fixed price at a future
date beyond the customary settlement time, provided that the forward commitment
is consistent with the Portfolio's ability to manage its investment portfolio,
maintain a stable net asset value and honor redemption requests. When effecting
such transactions, cash or liquid high quality debt obligations held by the
Portfolio of a dollar amount sufficient to make payment for the portfolio
securities to be purchased will be segregated on the Portfolio's records at the
trade date and maintained until the transaction is settled. The failure of the
other party to the transaction to complete the
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transaction may cause the Portfolio to miss an advantageous price or yield. The
Portfolio bears the risk of price fluctuations during the period between the
trade and settlement dates.
SECTION 4(2) COMMERCIAL PAPER (NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
AND NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO ONLY). Navigator
Securities Lending Prime Portfolio and Navigator Securities Lending Short-Term
Bond Portfolio may invest in commercial paper issued in reliance on the so-
called private placement exemption from registration afforded by Section 4(2) of
the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the federal securities laws and generally is sold to
institutional investors, such as Navigator Securities Lending Prime Portfolio
and Navigator Securities Lending Short-Term Bond Portfolio, that agree they are
purchasing the paper for investment and not with a view to distribution. Any
resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of the issuer or investment dealers that make a market in Section
4(2) paper. Section 4(2) paper will not be subject to a Portfolio's 10%
limitation on illiquid securities, set forth below, where State Street (pursuant
to guidelines established by the Board of Trustees) determines that a liquid
trading market exists for the securities.
ILLIQUID SECURITIES. A Portfolio will not invest more than 10% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more that seven days'
duration. The absence of a regular trading market for securities imposes
additional risks on investments in these securities. Illiquid securities may be
difficult to value and may often be disposed of only after considerable expense
and delay.
VARIABLE AMOUNT MASTER DEMAND NOTES (NAVIGATOR SECURITIES LENDING PRIME
PORTFOLIO AND NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO ONLY).
Navigator Securities Lending Prime Portfolio and Navigator Securities Lending
Short-Term Bond Portfolio may invest in variable amount master demand notes,
which are unsecured obligations that are redeemable upon demand and are
typically unrated. These instruments are issued pursuant to written agreements
between their issuers and holders. The agreements permit the holders to increase
(subject to an agreed maximum) and the holders and issuers to decrease the
principal amount of the notes, and specify that the rate of interest payable on
the principal fluctuates according to an agreed formula.
MORTGAGE-RELATED PASS-THROUGH SECURITIES (NAVIGATOR SECURITIES LENDING
PRIME PORTFOLIO AND NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO
ONLY). Navigator Securities Lending Prime Portfolio and Navigator Securities
Lending Short-Term Bond Portfolio may invest in mortgage-related securities.
Mortgage pass-through certificates are issued by governmental, government-
related and private organizations and are backed by pools of mortgage loans.
These mortgage loans are made by savings and loan associations, mortgage
bankers, commercial banks and other lenders to residential home buyers
throughout the
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United States. The securities are "pass-through" securities because they provide
investors with monthly payments of principal and interest that, in effect, are a
"pass-through" of the monthly payments made by the individual borrowers on the
underlying mortgage loans, net of any fees paid to the issuer or guarantor of
the pass-through certificates. The principal governmental issuer of such
securities is the Government National Mortgage Association ("GNMA"), which is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. Government-related issuers include the Federal Home Loan
Mortgage Corporation ("FHLMC"), a corporate instrumentality of the United States
created pursuant to an act of Congress, which is owned entirely by the Federal
Home Loan Bank, and the Federal National Mortgage Association ("FNMA"), a
government sponsored corporation owned entirely by private stockholders.
Commercial banks, savings and loan associations, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may be
the originators of the underlying mortgage loans as well as the guarantors of
the mortgage-related securities.
a. GNMA MORTGAGE PASS-THROUGH CERTIFICATES ("GINNIE
MAES"). Ginnie Maes represent an undivided interest in a
pool of mortgage loans that are insured by the Federal
Housing Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. Ginnie Maes
entitle the holder to receive all payments (including
prepayments) of principal and interest owed by the
individual mortgagors, net of fees paid to GNMA and to the
issuer which assembles the loan pool and passes through the
monthly mortgage payments to the certificate holders
(typically, a mortgage banking firm), regardless of whether
the individual mortgagor actually makes the payment. Because
payments are made to certificate holders regardless of
whether payments are actually received on the underlying
loan, Ginnie Maes are of the "modified pass-through"
mortgage certificate type. GNMA is authorized to guarantee
the timely payment of principal and interest on the Ginnie
Maes as securities backed by an eligible pool of mortgage
loans. The GNMA guaranty is backed by the full faith and
credit of the United States, and GNMA has unlimited
authority to borrow funds from the U.S. Treasury to make
payments under the guaranty. The market for Ginnie Maes is
highly liquid because of the size of the market and the
active participation in the secondary market by securities
dealers and a variety of investors.
b. FHLMC MORTGAGE PARTICIPATION CERTIFICATES
("FREDDIE MACS"). Freddie Macs represent interests in
groups of specified first lien residential conventional
mortgage loans underwritten and owned by FHLMC. Freddie
Macs entitle the holder to timely payment of interest,
which is guaranteed by FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. In cases
where FHLMC has not guaranteed timely payment of
principal, FHLMC may remit the amount due on account of
its guarantee of ultimate payment of principal at any
time after default on an underlying loan, but in no
event later than one year after it becomes payable.
Freddie Macs are not guaranteed by the United States or
by any of the Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or
of any Federal Home Loan Bank. The
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secondary market for Freddie Macs is highly liquid because of the
size of the market and the active participation in the secondary
market by FHLMC, securities dealers and a variety of investors.
c. FNMA GUARANTEED MORTGAGE PASS-THROUGH
CERTIFICATES ("FANNIE MAES"). Fannie Maes represent an
undivided interest in a pool of conventional mortgage
loans secured by first mortgages or deeds of trust, on
one-family to four-family residential properties. FNMA
is obligated to distribute scheduled monthly
installments of principal and interest on the loans in
the pool, whether or not received, plus full principal
of any foreclosed or otherwise liquidated loans. The
obligation of FNMA under its guaranty is solely the
obligation of FNMA and is not backed by, nor entitled
to, the full faith and credit of the United States.
The market value of mortgage-related securities depends on, among other
things, the level of interest rates, the certificates' coupon rates and the
payment history of the underlying borrowers.
Although the mortgage loans in a pool underlying a mortgage pass-through
certificate will have maturities of up to 30 years, the average life of a
mortgage pass-through certificate will be substantially less because the loans
will be subject to normal principal amortization and also may be prepaid prior
to maturity. Prepayment rates vary widely and may be affected by changes in
mortgage interest rates. In periods of falling interest rates, the rate of
prepayment on higher interest mortgage rates tends to increase, thereby
shortening the actual average life of the mortgage pass-through certificate.
Conversely, when interest rates are rising, the rate of prepayment tends to
decrease, thereby lengthening the average life of the mortgage pass-through
certificate. Accordingly, it is not possible to predict accurately the average
life of a particular pool. However, based on current statistics, it is
conventional to quote yields on mortgage pass-through certificates based on the
assumption that they have effective maturities of 12 years. Reinvestment of
prepayments may occur at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to reinvest prepayments
of principal at current rates, mortgage pass-through certificates with
underlying loans bearing interest rates in excess of the market rate can be less
effective than typical noncallable bonds with similar maturities at "locking in"
yields during periods of declining interest rates, although they may have
comparable risks of declining in value during periods of rising interest rates.
ZERO COUPON SECURITIES. These securities are notes, bonds and debentures
that: (i) do not pay current interest and are issued at a substantial discount
from par value; (ii) have been stripped of their unmatured interest coupons and
receipts; or (iii) pay no interest until a stated date one or more
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years into the future. These securities also include certificates representing
interests in such stripped coupons and receipts.
Because the Portfolios accrue taxable income from zero coupon securities
without receiving regular interest payments in cash, each Portfolio may be
required to sell portfolio securities in order to pay a dividend depending,
among other things, upon the number of shareholders who elect to receive
dividends in cash rather than reinvesting dividends in additional shares of the
Portfolio. Investing in these securities might also force the Portfolio to sell
portfolio securities to maintain portfolio liquidity.
Because a zero coupon security pays no interest to its holder during its
life or for a substantial period of time, it usually trades at a deep discount
from its face or par value and will be subject to greater fluctuations in market
value in response to changing interest rates than debt obligations of comparable
maturities that make regular distributions of interest.
EURODOLLAR CERTIFICATES OF DEPOSIT (ECDS), EURODOLLAR TIME DEPOSITS (ETDS)
AND YANKEE CERTIFICATES OF DEPOSIT (YCDS) (NAVIGATOR SECURITIES LENDING PRIME
PORTFOLIO AND NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO ONLY). ECDs
are U.S. dollar-denominated certificates of deposit issued by foreign branches
of domestic banks. ETDs are U.S. dollar denominated time deposits in foreign
branches of U.S. banks and foreign banks. YCDs are U.S. dollar denominated
certificates of deposit issued by U.S. branches of foreign banks. Different
risks than those associated with the obligations of domestic banks may exist for
ECDs, ETDs and YCDs because the banks issuing these instruments, or their
domestic or foreign branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as loan limitations,
examinations and reserve, accounting, auditing, recordkeeping and public
reporting requirements.
RATINGS OF DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") -- LONG TERM DEBT RATINGS. The
following is a description of Moody's debt instrument ratings.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
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Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a midrange ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
STANDARD & POOR'S CORPORATION ("S&P"). The ratings are based, in varying
degrees, on the following considerations: (i) the likelihood of default --
capacity and willingness of the obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of the obligation; (ii) the
nature of and provisions of the obligation; and (iii) the protection afforded
by, and relative position of, the obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
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A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
RATINGS OF COMMERCIAL PAPER
MOODY'S. Moody's short-term debt ratings are opinions of the ability of
issuers to repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted. Moody's
employs the following three designations, all judged to be investment grade, to
indicate the relative repayment ability of rated issuers:
- Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
- Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
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variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
- Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
- Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P. An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from A-1 for the
highest quality obligations to D for the lowest. These categories are as
follows:
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are deemed with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH'S INVESTORS SERVICE, INC. ("FITCH"). Commercial paper rated by Fitch
reflects Fitch's current appraisal of the degree of assurance of timely payment
of such debt. An appraisal results in the rating of an issuer's paper as F-1, F-
2, F-3, or F-4.
F-1 -- This designation indicates that the commercial paper is regarded as
having the strongest degree of assurance for timely payment.
F-2 -- Commercial paper issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than those issues rated F-1.
DUFF AND PHELPS, INC. Duff & Phelps' short-term ratings are consistent with
the rating criteria utilized by money market participants. The ratings apply to
all obligations with maturities of under one year, including commercial paper,
the uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial paper is also rated
according to this scale.
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Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term debt
issuers carry the highest rating, yet quality differences exist within that
tier. As a consequence, Duff & Phelps has incorporated gradations of '1+' (one
plus) and '1-' (one minus) to assist investors in recognizing those differences.
Duff 1+--Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free US Treasury short-term
obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- -- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3--Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Duff 4--Speculative investment characteristics. Liquidity is not sufficient
to ensure against disruption in debt service. Operating factors and market
access may be subject to a high degree of variation.
Duff 5--Issuer failed to meet scheduled principal and/or interest payments.
IBCA, INC. In addition to conducting a careful review of an institution's
reports and published figures, IBCA's analysts regularly visit the companies for
discussions with senior management. These meetings are fundamental to the
preparation of individual reports and ratings. To keep abreast of any
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<PAGE>
changes that may affect assessments, analysts maintain contact throughout the
year with the management of the companies they cover.
IBCA's analysts speak the languages of the countries they cover, which is
essential to maximize the value of their meetings with management and to
properly analyze a company's written materials. They also have a thorough
knowledge of the laws and accounting practices that govern the operations and
reporting of companies within the various countries.
Often, in order to ensure a full understanding of their position, companies
entrust IBCA with confidential data. While these data cannot be disclosed in
reports, they are taken into account when assigning ratings. Before dispatch to
subscribers, a draft of the report is submitted to each company to permit
correction of any factual errors and to enable clarification of issues raised.
IBCA's Rating Committees meet at regular intervals to review all ratings
and to ensure that individual ratings are assigned consistently for institutions
in all the countries covered. Following the Committee meeting, ratings are
issued directly to subscribers. At the same time, the company is informed of the
ratings as a manner of courtesy, but not for discussion.
Al+--Obligations supported by the highest capacity for timely repayment.
A1--Obligations supported by a very strong capacity for timely repayment.
A2--Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
Bl--Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.
B2--Obligations for which the capacity for timely repayment is susceptible
to adverse changes in business, economic or financial conditions.
C1--Obligations for which there is an inadequate capacity to ensure timely
repayment.
D1 --Obligations which have a high risk of default or which are currently
in default.
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RISK FACTORS
The shares of the Trust have not been registered under the 1933 Act and,
because they will be offered only to a limited number of qualified investors, it
is anticipated that they will be exempt from the registration provisions
thereof. Shares of the Trust may not be transferred or resold without
registration under the 1933 Act or pursuant to an exemption from such
registration. However, shares of the Trust may be redeemed in accordance with
the terms of the Master Trust Agreement and the Confidential Offering Memorandum
provided to shareholders.
Investments in shares of the Trust are neither insured nor guaranteed by
the government. There is no assurance that either Navigator Securities Lending
Government Portfolio or Navigator Securities Lending Prime Portfolio Series of
the Trust will maintain a stable net asset value of $1.00 per share. Shares in
the Trust are not deposits or obligations of, or guaranteed or endorsed by,
State Street, and shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency, and
involve investment risks including the possible loss of principal.
ITEM 5. MANAGEMENT OF THE TRUST
THE BOARD OF TRUSTEES
Under Massachusetts law, the Board of Trustees of the Trust has overall
responsibility for managing the Trust in good faith and in a manner that
represents the best interests of the Trust. This management responsibility may
be delegated. Accordingly, the Board of Trustees supervises the management,
activities and affairs of the Trust and has approved contracts with State Street
to provide day-to-day management required by the Trust.
THE ADVISER
The Trustees, including a majority of the Trustees that are not "interested
persons" of the Trust, as such term is defined in Section 2(a)(19) of the 1940
Act ("Independent Trustees"), have authorized State Street to serve as the
investment adviser, custodian, transfer agent and administrator of the Trust
with respect to Navigator Securities Lending Prime Portfolio. The Trustees have
not yet authorized an investment adviser with respect to Navigator Securities
Lending Government Portfolio and Navigator Securities Lending Short-Term Bond
Portfolio.
State Street is a Massachusetts-chartered trust company and a member of the
Federal Reserve System. It is a wholly owned subsidiary of State Street
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Corporation, a publicly-held corporation and holding company registered
under the Federal Bank Holding Company Act of 1956, as amended. State Street
is among the world's largest providers of institutional custody services,
with assets under custody at December 31, 1996 of approximately $2.9
trillion. State Street also provides asset management services for numerous
pension plans, foundations, governmental plans and high net worth
individuals, and serves as the investment adviser or subadviser for several
registered management investment companies, including SSgA Funds (formerly
The Seven Seas Series Funds). At December 31, 1996, State Street had
discretionary investment management authority with respect to approximately
$292 billion in assets.
State Street, which was the first custodian bank to provide securities
lending services on a 24-hour basis through non-U.S. lending offices,
currently administers the world's largest securities lending program. On
average, during fiscal year 1996, State Street served as securities lending
agent with respect to loan transactions involving in excess of $76.3 billion
on loan.
For the services it provides as adviser for each Portfolio, State Street
will receive a fee equal on an annual basis to 0.0175% of each Portfolio's the
average daily net assets. For the services it provides as administrator for
each Portfolio, State Street will receive equal on an annual basis to 0.035%
of each Portfolio's average daily net assets for the first $300 million, plus
0.02% of each Portfolio's average daily net assets for the next $300 million
and 0.005% of each Portfolio's average daily net assets thereafter (with a
minium annual fee of $125,000 per Portfolio). The contractual arrangements
between the Trust and State Street have been approved initially for a
two-year term by the Trustees, including a majority of the Independent
Trustees, and will continue thereafter from year to year provided that the
arrangements are approved by the Trustees, including a majority of the
Independent Trustees. Shares of Navigator Securities Lending Prime Portfolio
will be registered with the Trust's transfer agent in the name of State Street,
as agent for each Lender, or the name of the Lender's custodian. State Street
will pass through to each beneficial owner all voting rights with respect to
the shares. No officer, director or employee of State Street will be an
officer, trustee or employee of the Trust, unless permitted by applicable law.
The name and title of the persons employed by State Street to manage the
day-to-day operations of Navigator Securities Lending Prime Portfolio, the
length of time that each person has had such responsibility and each person's
business experience during the past five years are set forth below:
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<TABLE>
<CAPTION>
PORTFOLIO PRIMARY PORTFOLIO BUSINESS EXPERIENCE
MANAGER AND TITLE MANAGER SINCE DURING THE PAST FIVE YEARS
------------------ ------------------ ---------------------------
<S> <C> <C>
Robert Fort, Portfolio Manager March 21, 1996 Portfolio Manager at the Dreyfus
Corp. through 3/96; State Street
from 3/96 to present
</TABLE>
TRUST EXPENSES
The Trust will pay all of its expenses other than those expressly assumed
by State Street. The principal expenses of the Trust are the fees for advisory
services, administration, custody and transfer agency services, all of which are
payable to State Street. Other expenses include: (i) amortization of deferred
organizational costs; (ii) taxes, if any; (iii) expenses for legal, auditing and
financial accounting services; (iv) expense of preparing (including typesetting,
printing and mailing) reports and notices to existing shareholders; (v) expense
of issuing and redeeming Trust shares; (vi) the fees, travel expenses and other
out-of-pocket expenses of Trustees who are not affiliated with State Street or
any of its affiliates; (vii) extraordinary expenses as may arise, including
expenses incurred in connection with litigation proceedings and claims and the
legal obligations of the Trust to indemnify its Trustees, shareholders and
agents; and (viii) other expenses properly payable by the Trust.
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Not Applicable.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
ATTRIBUTES OF PORTFOLIO SHARES
The Trust issues a single class of shares divisible into an unlimited
number of portfolio series, each of which is a separate and distinct sub-trust
of the Trust. Each share of each sub-trust represents an equal proportionate
interest in that sub-trust, has a par value of $.001 per share and is entitled
to such dividends and distributions earned on assets belonging to such sub-trust
as may be declared by the Trustees. Shares of the Trust are fully paid and non-
assessable by the Trust and shareholders have no preemptive or appraisal rights.
Each Trust share has one vote. Shareholders of the Trust have power to vote
only (i) for the election or removal of Trustees, (ii) with respect to contracts
as to which shareholder approval is required by the 1940 Act, (iii) with respect
to any termination or reorganization of the Trust, (iv) with
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respect to the amendment of the Master Trust Agreement, (v) to the same
extent as stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
sub-trust thereof or the shareholders (provided, however, that a shareholder
of a particular sub-trust shall not be entitled to a derivative or class
action on behalf of any other sub-trust (or shareholder of any other
sub-trust) of the Trust and (vi) with respect to such additional matters
relating to the Trust as may be required by the 1940 Act, the Master Trust
Agreement, the Trust's Bylaws or as the Trustees may consider necessary or
desirable.
No annual or regular meeting of shareholders is required. Special meetings
of shareholders may be called by the Trustees from time to time for the purpose
of taking action upon any matter requiring the vote or authority of the
shareholders as provided in the Master Trust Agreement or as deemed necessary or
desirable by the Trustees.
Shares of the Trust are not registered under the 1933 Act or the securities
law of any state and are sold in reliance upon an exemption from registration.
Shares may not be transferred or resold without registration under the 1933 Act,
except pursuant to an exemption from registration. However, shares may be
redeemed on any day on which State Street is open for business (a "Business
Day").
CONTROL PERSONS
As of April 1, 1997, Caisse de depot et Placement du Quebec beneficially
owned more than 25 per centum of the voting securities of the Navigator
Securities Lending Prime Portfolio.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to State Street.
DIVIDENDS AND DISTRIBUTIONS
The Trustees intend to declare dividends daily on shares of each Portfolio
from net investment income and to pay such dividends as of the last business day
of each month. Distributions from net long-term capital gains, if any, will be
made at least annually. In most instances, distributions will be declared and
paid in mid-October with additional distributions declared and paid in December,
if required for a Portfolio to avoid imposition of a 4% federal excise tax on
distributed capital gains. It is anticipated that the Portfolios will not
realize any material long-term capital gains or losses. Income dividends and
capital gains distributions, if any, will be paid in
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additional shares at their net asset value on the payment date of the dividend
or distribution. A shareholder's right to receive dividends and distributions
with respect to shares purchased commences on the effective date of the purchase
of such shares and continues through the day immediately preceding the effective
date of redemption of such shares.
TAX CONSEQUENCES
Each Portfolio intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a RIC, a Portfolio will not be subject to federal income taxes to
the extent it distributes its net investment income and capital gain net income
(capital gains in excess of capital losses) to shareholders. The Board of
Trustees intends to distribute each year substantially all of each Portfolio's
net investment income and capital gain net income. No Portfolio expects to be
subject to any state or local taxes.
Dividends from net investment income and distributions of net short-term
capital gains are taxable to shareholders as ordinary income under federal
income tax laws whether paid in cash or in additional shares. Distributions from
net long-term capital gains are taxable as long-term capital gains regardless of
the length of time a shareholder has held such shares.
Each Portfolio may purchase bonds at market discount (i.e., bonds with a
purchase price less than original issue price or adjusted issue price). If such
bonds are subsequently sold at a gain, then a portion of that gain equal to the
amount of market discount, which should have been accrued through the sale date,
will be taxable to shareholders as ordinary income.
Under federal law, the income derived from U.S. Government Securities
is exempt from state income taxes. All states that tax personal income, other
than Pennsylvania, permit mutual funds to pass this tax exemption through to
their shareholders under certain circumstances. Income from repurchase
agreements in which the underlying securities are U.S. Government Securities
does not receive this exempt treatment.
The sale of Trust shares by a shareholder is a taxable event and may
result in capital gain or loss. A capital gain or loss may be realized from an
ordinary redemption of shares or an exchange of shares between two Portfolios.
Any loss incurred on a sale or exchange of Trust shares, held for one year
or more, will be treated as a long-term capital loss to the extent of capital
gain dividends received with respect to such shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of a
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Portfolio's income attributable to U.S. Government Securities. Each Portfolio is
required to withhold 31% of all taxable dividends, distributions and redemption
proceeds payable to any noncorporate shareholder that does not provide the
Portfolio with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting each Portfolio and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss an
investment in a Portfolio with such investor's tax adviser.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
Shares of each operating Portfolio are available for purchase on each
Business Day. Purchases are effected on behalf of a Lender by State Street, in
its capacity as securities lending agent for the Lender. All shares are
purchased at the net asset value per share of the Portfolio next determined
after the purchase is communicated to the Trust. Each of Navigator Securities
Lending Government Portfolio and Navigator Securities Lending Prime Portfolio
will seek to maintain a stable net asset value per share of $1.00 by valuing its
investment portfolio using the amortized cost method and will comply with the
requirements of Rule 2a-7 under the 1940 Act. Navigator Securities Lending
Short-Term Bond Portfolio will not seek to maintain a stable net asset value per
share by means of the amortized cost method. By means of managing the average
effective duration of Navigator Securities Lending Short-Term Bond Portfolio,
however, State Street will seek to minimize fluctuations in the value of the
Portfolio. Securities with maturities of 60 days or less will be valued based
upon the amortized cost method. The value of all other securities will be
determined based upon market value or, in the absence of market value, at fair
value as determined by the Board of Trustees of the Trust.
ITEM 8. REDEMPTION OR REPURCHASE
Shares of each operating Portfolio may be redeemed on each Business Day at
the net asset value per share of the Portfolio next determined after the
redemption is communicated to the Trust. Redemptions are effected on behalf of a
Lender by State Street, in its capacity as lending agent for the Lender.
The net asset value per share of each operating Portfolio is determined as
of 5:00 p.m. New York City time.
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ITEM 9. PENDING LEGAL PROCEEDINGS
None.
22
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PART B
<PAGE>
ITEM 10. COVER PAGE
NAVIGATOR SECURITIES LENDING TRUST
TWO INTERNATIONAL PLACE, 31ST FLOOR
BOSTON, MASSACHUSETTS 02110
(617) 664-2500
STATEMENT OF ADDITIONAL INFORMATION
NAVIGATOR SECURITIES LENDING GOVERNMENT PORTFOLIO
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO
APRIL 30, 1997
Navigator Securities Lending Trust (the "Trust") is a registered open-end
investment company organized as a Massachusetts business trust offering shares
of beneficial interest in separate investment portfolios. In addition, each
series of the Trust is diversified as defined in the Investment Company Act of
1940, as amended (the "1940 Act").
This Statement of Additional Information supplements information concerning
the Trust and its portfolios, Navigator Securities Lending Government Portfolio,
Navigator Securities Lending Prime Portfolio and Navigator Securities Lending
Short-Term Bond Portfolio (each, a "Portfolio" and collectively, the
"Portfolios"), contained in the Trust's Prospectus dated April 30, 1997. As of
the date hereof, Navigator Securities Lending Government Portfolio and Navigator
Securities Lending Short-Term Bond Portfolio are not operational. This Statement
is not a Prospectus and should be read in conjunction with the Trust's
Prospectus, which may be obtained by telephoning or writing the Trust at the
number or address shown above.
<PAGE>
ITEM 11. TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . B-2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . B-2
MANAGEMENT OF THE REGISTRANT . . . . . . . . . . . . . . . . . B-4
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. . . . . . B-6
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . B-7
BROKERAGE ALLOCATION AND OTHER PRACTICES . . . . . . . . . . . B-8
CAPITAL STOCK AND OTHER SECURITIES . . . . . . . . . . . . . . B-9
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED . B-11
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . B-12
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . B-14
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . . B-14
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . B-16
ITEM 12. GENERAL INFORMATION AND HISTORY
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT RESTRICTIONS
The Trust has adopted the following fundamental investment policies, which,
with respect to a Portfolio, may not be changed without the approval of a
majority of the shareholders of the Portfolio. No Portfolio may:
1. Borrow money, except as a temporary measure for extraordinary or
emergency purposes or to facilitate redemptions (not for leveraging or
investment), provided that borrowing does not exceed an amount equal
to 33 1/3% of the current value of the Portfolio's assets taken at
market value, less liabilities, other than borrowings. If at any time
the Portfolio's borrowings exceed this limitation due to a decline in
net assets, such borrowings will, within three days, be reduced to the
extent necessary to comply with this limitation. The Portfolio will
not purchase investments once borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
B-2
<PAGE>
2. Make loans to any person or firm; provided, however, that the
making of a loan shall not include (i) the acquisition for
investment of bonds, debentures, notes or other evidence of
indebtedness which is publicly distributed or of a type
customarily purchased by institutional investors, or (ii) the
entering into repurchase agreements, and provided further that a
Portfolio may lend its portfolio securities to broker-dealers or
other institutional investors if the aggregate value of all
securities loaned does not exceed 33 1/3% of the value of the
Portfolio's total assets.
3. Engage in the business of underwriting securities issued by
others, except that a Portfolio will not be deemed to be an
underwriter or to be underwriting on account of the purchase or
sale of securities subject to legal or contractual restrictions
on disposition.
4. Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the
1940 Act.
5. Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities); provided, however,
that concentration may occur as a result of changes in the market
value of portfolio securities. Foreign and domestic branches of U.S.
banks and U.S. branches of foreign banks are not considered a single
industry for purposes of this restriction.
6. With respect to 75% of its total assets, invest in securities of any
one issuer (other than securities issued by the U.S. Government, its
agencies and instrumentalities), if immediately thereafter and as a
result of such investment (i) the current market value of the
Portfolio's holdings in the securities of such issuer exceeds 5% of
the value of the Portfolio's assets or (ii) the Portfolio owns more
than 10% of the outstanding voting securities of the issuer.
7. Purchase or sell real estate or real estate mortgage loans; provided,
however, that a Portfolio may invest in securities secured by real
estate or interests therein or issued by companies which invest in
real estate or interests therein.
8. Invest in commodities, except that a Portfolio may purchase and sell
financial futures contracts and options thereon.
INVESTMENT POLICIES
B-3
<PAGE>
See Item 4 in Part A for a description of the Trust's investment
policies.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Portfolio is calculated by dividing
the lesser of purchases or sales of the Portfolio's securities for the
particular year, by the monthly average value of the Portfolio's securities
owned during the year. For purposes of determining the rate, all short-term
securities, including options, futures, forward contracts and repurchase
agreements, are excluded.
ITEM 14. MANAGEMENT OF THE REGISTRANT
BACKGROUND INFORMATION
The Board of Trustees is responsible for overseeing generally the operation
of the Portfolios. State Street serves as the Trust's adviser, custodian,
transfer agent and administrator.
The following table sets forth the name, address and age of the Trust's
Trustees and officers, their positions with the Trust and their present and
principal occupations during the past five years. An asterisk (*) indicates that
a Trustee is an "interested person" of the Trust, as defined in the 1940 Act.
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE TRUST DURING PAST 5 YEARS
- --------------------- ----- ---------------------
<S> <C> <C>
*Michael A. Jessee, (50) Trustee President and Chief Executive
One Financial Center, 20th Floor Officer of the Federal Home
Boston, Massachusetts 02110 Loan Bank of Boston since June
5, 1989; member of National
Association of Home Builders'
Mortgage Round Table; Director
of Financial Institutions
Retirement Fund; Vice Chairman
of the Board of the Bank System
Office of Finance; Chairman
of the Financing Corporation;
member of the Multifamily
Housing Institute
George J. Sullivan, Jr., (54) General Partner, Teton Partners,
260 Franklin Street Trustee L.P.; prior to 1992, an officer at
Boston, Massachusetts 02110 Fidelity Accounting and Custody
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE TRUST DURING PAST 5 YEARS
- --------------------- ----- ---------------------
<S> <C> <C>
Service Company and Fidelity
Service Company; member of
the American Institute and
Massachusetts Society of CPAs
Peter Tufano, (40) Associate Professor of Business
Graduate School of Administration at Harvard
Business Administration Trustee Business School since 1994;
Harvard University Faculty Research Fellow at the
Boston, Massachusetts 02168 National Bureau of Economic
Research
Raymond P. Boulanger, (53) Secretary Partner, Goodwin, Procter &
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109 Hoar LLP
Philip H. Newman, (44) Assistant Secretary Partner, Goodwin, Procter &
Goodwin, Procter & Hoar LLP. Hoar LLP
Exchange Place
Boston, Massachusetts 02109
</TABLE>
COMPENSATION
The following table describes the compensation received by the Trustees
from the Trust for the fiscal period ended December 31, 1996. During the fiscal
period ended December 31, 1996, the Trust paid an aggregate of $45,000 to the
Independent Trustees.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
AGGREGATE RETIREMENT COMPENSATION
COMPENSATION BENEFIT ACCRUED ESTIMATED FROM
FROM AS PART OF ANNUAL INVESTMENT
INVESTMENT INVESTMENT BENEFITS COMPANY PAID
TRUSTEE COMPANY COMPANY EXPENSES UPON TO TRUSTEES
-------- ------------ ----------------- -------- --------------
<S> <C> <C> <C> <C>
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
RETIREMENT
----------
<S> <C> <C> <C> <C>
Michael A. Jessee *$15,000 None None *$11,250
George J. Sullivan, Jr *$15,000 None None *$11,250
Peter Tufano *$15,000 None None *$11,250
</TABLE>
*Each Trustee receives a fee of $3,750 for each meeting of the
Board of Trustees he attends and is reimbursed for expenses
incurred in attending such meetings.
B-6
<PAGE>
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CONTROLLING SHAREHOLDERS
As of April 1, 1997, Caisse de depot et Placement du Quebec beneficially
owned more than 25 per centum of the voting securities of the Navigator
Securities Lending Prime Portfolio.
In connection with State Street's securities lending program, State Street
holds certain collateral on behalf of its securities lending clients to secure
the return of loaned securities. Such collateral may be invested in Trust shares
from time to time. State Street, however, will pass through voting rights to its
securities lending clients that have a beneficial interest in a Portfolio.
Consequently, State Street will not be a controlling person of the Trust for
purposes of the 1940 Act.
PRINCIPAL SHAREHOLDERS
As of April 1, 1997, there were no shares outstanding for Navigator
Securities Lending Government Portfolio or Navigator Securities Lending
Short-Term Bond Portfolio, and the following shareholders owned of record 5%
or more of the issued and outstanding shares of Navigator Securities Lending
Prime Portfolio:
PERCENTAGE OF
SHAREHOLDER PRINCIPAL ADDRESS SHARES HELD
- ------------ ----------------- -----------
Caisse de depot et 1981 Avenue McGill 25.0%
Placement du Quebec College, Fiemeetage
Montreal, Quebec H3A 3C7
ICMA Retirement Corp. 1750 K Street, 8.3%
Washington, D.C. 20006
State of Nebraska 107 Terminal Building, 945 7.6%
Investment Council `O' Street, Lincoln, NE 68508
The Kaufmann Fund Inc. 140 East 45th Street, 43rd 7.5%
Floor, New York, NY 10017
The Trustees and officers of the Trust, as a group, own less than 1% of the
Trust's voting securities.
B-7
<PAGE>
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
SERVICE PROVIDERS
Most of the Portfolios' necessary day-to-day operations are performed by
separate business organizations under contract to the Trust. The principal
service providers for the Portfolios are:
Investment Adviser, Custodian, State Street Bank and Trust
Transfer Agent and Administrator: Company
Independent Accountants: Price Waterhouse LLP
ADVISER
State Street (or the "Adviser") serves as the investment adviser to
the Portfolios pursuant to an Advisory Agreement dated as of March 4, 1996
("Advisory Agreement") by and between State Street and the Trust. State
Street Bank and Trust Company is a wholly owned subsidiary of State Street
Corporation, a publicly held bank holding company. State Street's mailing
address is 225 Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, the Adviser directs each Portfolio's
investments in accordance with its investment objectives, policies and
limitations. For these services, the Portfolio pays a fee to the Adviser at
the rates stated in the Prospectus. The advisory fees for the fiscal period
ended December 31, 1996 were $195,582.
The contractual arrangements between the Trust and the Adviser have been
approved initially for a two-year term by the Trustees, including a majority
of the Trustees that are not "interested persons" of the Trust, as such term
is defined in Section 2(a)(19) of the 1940 Act ("Independent Trustees"), and
will continue thereafter from year to year provided that the arrangements are
approved by the Trustees, including a majority of the Independent Trustees.
The Agreement may be terminated without penalty by the Adviser upon 90 days'
written notice or by the Trust on behalf of each Portfolio, upon 60 days'
written notice and will terminate automatically upon its assignment.
B-8
<PAGE>
ADMINISTRATOR
State Street (or the "Administrator") serves as the Portfolios
administrator pursuant to an Administration Agreement dated March 4, 1996
("Administration Agreement') by and between State Street and the Trust. Under
the Administration Agreement, the Administrator will, among other things: (i)
provide each Portfolio with administrative and clerical services, including
the maintenance of certain of the Portfolio's books and records; (ii) arrange
the periodic updating of the Portfolio's Prospectuses and any supplements
thereto; and (iii) provide proxy materials and reports to Portfolio
shareholders and the Securities and Exchange Commission (the "SEC"). For
these services, the Trust pays to the Administrator an annual fee based on
the average daily net assets value of the Trust. The fee will be calculated
by multiplying the first $300 million of each Portfolio's average daily net
assets by 0.035%, the next $300 million of each Portfolio's average daily net
assets by 0.02% and any amounts above $600 million of each Portfolio's
average daily net assets by 0.005%.
The Administration Agreement has been approved initially for a two-year
term by the Trustees, and will continue from year to year unless terminated in
writing by either the Administrator or the Trust at the end of such period or
thereafter on 60 days' prior written notice given by either party to the other
party.
CUSTODIAN AND TRANSFER AGENT
State Street serves as the custodian ("Custodian") and transfer agent
("Transfer Agent") for the Trust. State Street also provides the basic portfolio
recordkeeping required by the Trust for regulatory and financial reporting
purposes.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as the Trust's independent accountants. Price
Waterhouse LLP is responsible for performing annual audits of the financial
statements and financial highlights in accordance with generally accepted
auditing standards, a review of federal tax returns, and, pursuant to Rule 17f-2
of the 1940 Act, three security counts. The mailing address of Price Waterhouse
LLP is 160 Federal Street, Boston, MA 02110.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
B-9
<PAGE>
All portfolio transactions are placed on behalf of the Portfolios by the
Adviser. There is generally no stated commission in the purchase or sale of
securities traded in the over-the-counter markets, including most debt
securities and money market instruments. Rather, the price of such securities
includes an undisclosed commission in the form of a mark-up or mark-down. The
cost of securities purchased from underwriters includes an underwriting
commission or concession.
Subject to the arrangements and provisions described below, the selection
of a broker or dealer to execute portfolio transactions is usually made by the
Adviser. The Advisory Agreement provides, in substance and subject to specific
directions from the Trust's Board of Trustees, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective is to
seek the best net price and execution for the Trust. Ordinarily, securities will
be purchased from primary markets, and the Adviser shall consider all factors it
deems relevant in assessing the best overall terms available for any
transaction, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, for the specific
transaction and other transactions on a continuing basis.
The Advisory Agreement authorizes the Adviser to select brokers or dealers
to execute a particular transaction, including principal transactions. Also, in
evaluating the best overall terms available, the Adviser may consider the
"brokerage and research services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934, as amended) provided to the Portfolios
and/or the Adviser (or its affiliates). The Adviser is authorized to cause the
Portfolios to pay a commission to a broker or dealer who provides such brokerage
and research services for executing a portfolio transaction which is in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction. The Adviser must determine in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided.
The Trustees periodically review the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Portfolios and review the prices paid by the Portfolios over
representative periods of time to determine if such prices are reasonable in
relation to the benefits provided to the Portfolios. Certain services received
by the Adviser attributable to a particular Portfolio transaction may benefit
one or more other accounts for which the Adviser exercises investment
discretion, or a Portfolio other than that for which the transaction was
effected. The Adviser's fees are not reduced by the Adviser's receipt of such
brokerage and research services.
B-10
<PAGE>
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
The Trust was organized as a Massachusetts business trust on June 15, 1995
and operates under a Master Trust Agreement, dated June 15, 1995. The Trust is
authorized to issue shares of beneficial interest, par value $.001 per share,
which may be divided into one or more series, each of which evidences pro rata
ownership interest in a different investment portfolio. The Trustees may create
additional portfolio series at any time without shareholder approval. The shares
of each portfolio series may have such rights and preferences as the Trustees
may establish from time to time, including the right of redemption (including
the price, manner and terms of redemption), special and relative rights as to
dividends and distributions, liquidation rights, sinking or purchase fund
provisions, conversion rights and conditions under which any portfolio series
may have separate voting rights or no voting rights.
As of the date of this Statement of Additional Information, the Trust is
comprised of the following portfolio series, each of which commenced operations
on the date set forth opposite the Portfolio's name:
COMMENCEMENT OF
NAME OPERATIONS
------ ----------------
Navigator Securities Lending Prime Portfolio May 15, 1996
Navigator Securities Lending Government Portfolio *
Navigator Securities Lending Short-Term Bond Portfolio *
- --------------
* As of the date of this Statement of Additional Information, these
Portfolios have not commenced operations.
The Trust is authorized, without shareholder approval, to divide shares of
any series into two or more classes of shares, each class having such different
dividend, liquidation, voting and other rights as the Trustees may determine.
Any amendment to the Master Trust Agreement that would materially and
adversely affect shareholders of the Trust as a whole, or shareholders of a
particular portfolio series, must be approved by the holders of a majority of
the shares of the Trust or the portfolio series, respectively. All other
amendments may be effected by the Trust's Board of Trustees.
The Master Trust Agreement provides that shareholders shall not be subject
to any personal liability for the acts or obligations of a portfolio series and
that every written agreement, obligation, or other undertaking of a
B-11
<PAGE>
portfolio series shall contain a provision to the effect that the shareholders
are not personally liable thereunder. If any present or past shareholder of any
portfolio series of the Trust is charged or held personally liable for any
obligation or liability of the Trust solely by reason of being or having been a
shareholder and not because of such shareholder's acts or omissions or for some
other reason, the portfolio series, upon request, shall assume the defense
against such charge and satisfy any judgment thereon, and the shareholder or
former shareholder shall be entitled out of the assets of such portfolio series
to be held harmless from and indemnified against all loss and expense arising
from such liability. Thus, the risk to shareholders of incurring financial loss
beyond their investments is limited to circumstances in which the portfolio
series itself would be unable to meet its obligations.
The Trust will not have an Annual Meeting of Shareholders. Special Meetings
may be convened: (i) by the Board of Trustees; (ii) upon written request to the
Board of Trustees by the holders of at least 10% of the outstanding shares; or
(iii) upon the Board of Trustee's failure to honor the shareholders' request
described above, by holders of at least 10% of the outstanding shares giving
notice of the special meeting to the shareholders.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
MANNER IN WHICH SHARES ARE OFFERED
Shares of Navigator Securities Lending Prime Portfolio are being offered to
clients of State Street's securities lending program. Shares are sold on a
private placement basis in accordance with Regulation D under the 1933 Act, are
sold directly by the Trust without a distributor and are not subject to a sales
load or redemption fee; assets of the Trust are not subject to a Rule 12b-1 fee.
VALUATION OF FUND SHARES
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO AND NAVIGATOR SECURITIES
LENDING GOVERNMENT PORTFOLIO. Net asset value per share for the shares of
each of Navigator Securities Lending Prime Portfolio and Navigator Securities
Lending Government Portfolio is calculated as of 5:00 p.m. New York City
time on each day on which the Boston Federal Reserve is open for business
which excludes the following busness holidays: New Year's Day, Martin Luther
King Day, President's Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
B-12
<PAGE>
It is the policy of each of the Portfolios to use its best efforts to
maintain a constant price per share of $1.00, although there can be no assurance
that the $1.00 net asset value per share will be maintained. In accordance with
this effort and pursuant to Rule 2a-7 under the 1940 Act, each Portfolio uses
the amortized cost valuation method to value its portfolio instruments. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium even though the
portfolio security may increase or decrease in market value generally in
response to changes in interest rates. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Portfolio would receive if
it sold the instrument.
The Trustees have established procedures reasonably designed to stabilize
each Portfolio's price per share at $1.00. These procedures include: (i) the
determination of the deviation from $1.00, if any, of each Portfolio's net asset
value using market values; (ii) periodic review by the Trustees of the amount of
and the methods used to calculate the deviation; and (iii) maintenance of
records of such determination. The Trustees will promptly consider what action,
if any, should be taken if such deviation exceeds 1/2 of one percent.
NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO. Net asset
value per share is calculated for Navigator Securities Lending Short-Term
Bond Portfolio as of the close of the regular trading session on the New York
Stock Exchange (currently 4:00 p.m. Eastern time)on each day on which the New
York Stock Exchange is open for business. Currently, the New York Stock
Exchange is open for trading every weekday except New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day.
With the exceptions noted below, the Portfolio values its investment
portfolio at market value. This generally means that equity securities and fixed
income securities listed and traded principally on any national securities
exchange are valued on the basis of the last sale price or, lacking any sales,
at the closing bid price, on the primary exchange on which the security is
traded. United States equity and fixed-income securities traded principally
over-the-counter and options are valued on the basis of the last reported bid
price. Futures contracts are valued on the basis of the last reported sale
price.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities may
be valued using prices provided by a pricing service when such prices
B-13
<PAGE>
are determined by the Custodian to reflect the market value of such securities.
International securities traded over-the-counter are valued on the basis of
best bid or official bid, as determined by the relevant securities exchange. In
the absence of a last sale or best or official bid price, such securities may be
valued on the basis of prices provided by a pricing service if those prices are
believed to reflect the market value of such securities.
The Portfolio values securities maturing within 60 days of the valuation
date at amortized cost unless the Board of Trustees determines that amortized
cost does not represent market value. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, even though the portfolio security may increase or decrease
in market value generally in response to changes in interest rates. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument.
ITEM 20. TAX STATUS
FEDERAL TAXES
Each Portfolio intends to qualify for treatment as
a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As a RIC, each Portfolio will
not be liable for federal income taxes on taxable net investment income and
capital gain net income (capital gains in excess of capital losses) that it
distributes to its shareholders, provided that the Portfolio distributes
annually to its shareholders at least 90% of its net investment income and
net short-term capital gain in excess of net long-term capital losses
("Distribution Requirement"). For a Portfolio to qualify as a RIC it must
abide by all of the following requirements: (i) at least 90% of the
Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock, securities or
currencies ("Income Requirement"); (ii) less than 30% of the Portfolio's
gross income each taxable year must be derived from the sale or other
disposition of securities and certain options, futures contracts, forward
contracts and foreign currencies held for less than three months
("Short-Short Limitation"); (iii) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. Government securities, securities
of other
B-14
<PAGE>
RICS, and other securities, with such other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the total assets
of the Portfolio and that does not represent more than 10% of the outstanding
voting securities of such issuer, and (iv) at the close of each quarter of
the Portfolio's taxable year, not more than 25% of the market value of its
total assets may be invested in the securities of any one issuer or two or
more issuers in the same industry and which are controlled by the Portfolio
(other than U.S. Government securities or the securities of other RICS).
Each Portfolio will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year an amount at
least equal to the sum of: (a) 98% of its ordinary income for that year; (b)
98% of its capital gain net income for the one-year period ending on October
31 of that year; and (c) certain undistributed amounts from the preceding
calendar year. For this and other purposes, dividends declared in October,
November or December of any calendar year and made payable to shareholders of
record in such month will be deemed to have been received on December 31 of
such year if the dividends are paid by the Portfolio subsequent to December
31 but prior to February 1 of the following year.
If a shareholder receives a distribution taxable as long-term capital gain
with respect to shares of a Portfolio and redeems or exchanges the shares
without having held the shares for more than six months, then any loss on the
redemption or exchange will be treated as long-term capital loss to the extent
of the capital gain distribution.
STATE AND LOCAL TAXES
Depending upon the extent of each Portfolio's activities in states and
localities in which its offices are maintained, its agents or independent
contractors are located or it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities.
The foregoing discussion is only a summary of certain federal and state
income tax issues generally affecting the Portfolios and their shareholders.
Circumstances among investors may vary and each investor is encouraged to
discuss investments in the Portfolios with the investor's tax adviser.
ITEM 21. UNDERWRITERS
Not Applicable.
B-15
<PAGE>
ITEM 22. CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN
NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO. Navigator
Securities Lending Short-Term Bond Portfolio computes average annual total
return by using a standardized method of calculation required by the SEC.
Average annual total return is computed by finding the average annual compounded
rates of return on a hypothetical initial investment of $1,000 over the one-,
five- and ten-year periods (or the life of the Portfolio as appropriate), that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P (1+T)[n]=ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a $1,000 payment made at
the beginning of the 1-, 5- and 10-year periods
at the end of the year or period
The calculation assumes that all dividends and distributions of the
Portfolio are reinvested at the price calculated in the manner described in the
Prospectus on the dividend dates during the period, and includes all recurring
and nonrecurring fees that are charged to all shareholder account.
YIELD AND EFFECTIVE YIELD
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO AND NAVIGATOR SECURITIES
LENDING GOVERNMENT PORTFOLIO. The yield for each Portfolio is calculated daily
based upon the seven days ending on the date of calculation ("base period"). The
yields are computed by determining the net change, exclusive of capital changes,
in the value of a hypothetical pre-existing account having a balance of one
share at the beginning of the base period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts and dividing the net change in
the account value by the value of the account at the beginning of the base
period to obtain the base period return, and then multiplying the base period
return by (365/7) with the resulting yield figure carried to the nearest
hundredth of one percent. An effective yield is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing
B-16
<PAGE>
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
EFFECTIVE ~ YIELD=[(BASE ~ PERIOD RETURN+1)[365/7]]-1
The following are the current and effective yields for Navigator Securities
Lending Prime Portfolio for the seven-day period ended December 31, 1996:
NAVIGATOR SECURITIES LENDING
PRIME PORTFOLIO
Current Yield . . . . . . . . . . . . 5.49%
Effective Yield . . . . . . . . . . . 5.64%
The yields quoted are not indicative of future results. Yields will depend
on the type, quality, maturity, and interest rate of money market instruments
held by the Portfolios.
NAVIGATOR SECURITIES LENDING SHORT-TERM BOND PORTFOLIO. Yields are computed
by using standardized methods of calculation required by the SEC. Yields are
calculated by dividing the net investment income per share earned during a 30-
day (or one month) period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b+1)[6]-1]
-----
cd
where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding
during the period that were entitled to
receive dividends; and
d = the maximum offering price per share on the
last day of the period.
Any yield quoted by the Portfolio is not indicative of future results.
Yields will depend on the type, quality, maturity and interest rate of
instruments held by the Portfolio.
B-17
<PAGE>
ITEM 23. FINANCIAL STATEMENTS
Following are the Navigator Securities Lending Trust's audited financial
statements for the fiscal period ended December 31, 1996, including the notes
thereto and the report of Price Waterhouse LLP thereon.
B-18
<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.
10
<PAGE>
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.
11
<PAGE>
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
<PAGE>
PART C
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Financial Statements included in this Part B of this Registration
Statement:
Audited Financial Statements for the period ended
December 31, 1996 as follows:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits:
1 Master Trust Agreement (Agreement and Declaration of
Trust), effective as of June 15, 1995, and amendments thereto
incorporated by reference to original registration statement on
Form N-1A (File No. 811-0756) filed on June 20, 1996 (the
"Registration Statement").
2 By-Laws incorporated by reference to the Registration Statement
filed on June 20, 1996.
3 None.
4 None.
5 Investment Advisory Agreement between Navigator Securities
Lending Trust (the "Trust") and State Street Bank and Trust
Company incorporated by reference to the Registration Statement
filed on June 20, 1996.
6 (*)
7 Not Applicable.
- ------------------
* Pursuant to General Instruction F4 of Form N-1A, a registration
statement filed under only the Investment Company Act of 1940 shall
consist of the facing sheet of the Form, responses to all items of
Parts A and B except Items 1, 2, 3 and 5A of Part A thereof, responses
to all items of Part C except Items 24(b)(6), 24(b)(10), 24(b)(11),
24(b)(12) and 24(b)(16), required signatures, and all other documents
that are required or which the Registrant may file as part of the
registration statement.
C-1
<PAGE>
8 Custodian Agreement between Navigator Securities Lending Trust
(the "Trust") and State Street Bank and Trust Company
incorporated by reference to the Registration Statement filed on
June 20, 1996.
9(a) Transfer Agency Agreement Navigator Securities Lending Trust (the
"Trust") and State Street Bank and Trust Company incorporated by
reference to the Registration Statement filed on June 20, 1996.
9(b) Administrative Services Agreement Navigator Securities Lending
Trust (the "Trust") and State Street Bank and Trust Company
incorporated by reference to the Registration Statement filed on
June 20, 1996.
10 (*)
11 Consent of Independent Accountants.
12 (*)
13 None.
14 Not Applicable.
15 Not Applicable
16 (*)
17 Financial Data Schedule for Navigator Securities Lending Prime
Portfolio incorporated by reference in Exhibit 27 to the
Registration Statement filed on June 20, 1996.
18 Not Applicable.
19 Certificate of Assistant Secretary incorporated by reference to
the Registration Statement filed on June 20, 1996.
- ------------------
* Pursuant to General Instruction F4 of Form N-1A, a registration
statement filed under only the Investment Company Act of 1940 shall
consist of the facing sheet of the Form, responses to all items of
Parts A and B except Items 1, 2, 3 and 5A of Part A thereof, responses
to all items of Part C except Items 24(b)(6), 24(b)(10), 24(b)(11),
24(b)(12) and 24(b)(16), required signatures, and all other documents
that are required or which the Registrant may file as part of the
registration statement.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not directly or indirectly controlled by or under common
control with any person other than the Trustees. It does not have any
subsidiaries.
C-3
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of April 1, 1997, the record holders of each class of Registrant's
securities were as follows:
Title of Class Number of Record Holders
-------------- -----------------------
Navigator Securities Lending Prime Portfolio 179
Navigator Securities Lending Government Portfolio None
Navigator Securities Lending Short-Term Bond Portfolio None
ITEM 27. INDEMNIFICATION
Under Article VI of the Registrant's Master Trust Agreement, the Trust shall
indemnify each of its Trustees and officers (including persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")) against all liabilities,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including reasonable
accountants' and counsel fees, incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a Trustee or
officer, director or trustee, except with respect to any matter as to which it
has been determined that such Covered Person had acted with willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (such conduct referred to hereafter as
"Disabling Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in section
2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933, as amended (the "1933 Act"), may be permitted
C-4
<PAGE>
to Trustees, officers, underwriters and controlling persons of the Registrant,
pursuant to Article VI of the Registrant's Master Trust Agreement, or otherwise,
the Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The Investment Management Area of State Street Bank and Trust Company ("State
Street") serves as adviser to the Registrant. State Street, a Massachusetts
trust company, currently manages large institutional accounts and collective
investment funds. The business, profession, vocation or employment of a
substantial nature that each director or officer of the investment adviser is or
has been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee,
is as follows:
<TABLE>
<CAPTION>
POSITION BUSINESS AND OTHER
WITH POSITIONS WITHIN
NAME ADVISER LAST TWO YEARS*
----- ------ ---------------
<S> <C> <C>
Tenley E. Albright, MD. . . . Director Chairman, Vital Sciences, Inc.
Joseph A. Baute . . . . . . . Director Former Chairman and CEO, Markem Corporation
I. MacAlister Booth . . . . . Director Chairman, President and CEO, Polaroid Corporation
Marshall N. Carter. . . . . . Director Chairman and CEO, State Street Bank and Trust Company
James I. Cash, Jr . . . . . . Director The James E. Robison Professor of Business
Administration, Harvard Business School
Truman S. Casner. . . . . . . Director Partner, Ropes & Gray
Nader F. Darehshori . . . . . Director Chairman, President and CEO, Houghton Mifflin Company
Arthur L. Goldstein . . . . . Director Chairman and CEO, Ionics, Inc.
Charles F. Kaye . . . . . . . Director President, Transportation Investments, Inc.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION BUSINESS AND OTHER
WITH POSITIONS WITHIN
NAME ADVISER LAST TWO YEARS*
----- ------ ---------------
<S> <C> <C>
John M. Kucharski . . . . . . Director Chairman, President and CEO, EG&G, Inc.
Charles R. LaMantia, MD . . . Director President and CEO, Arthur D. Little, Inc.
David B. Perini . . . . . . . Director Chairman and President, Perini Corporation
Dennis J. Picard. . . . . . . Director Chairman and CEO, Raytheon Company
David A. Spina. . . . . . . . Director President and COO, State Street Bank and Trust Company
Robert E. Weissman. . . . . . Director President and COO, The Dun & Bradstreet Corp.
</TABLE>
* Address of all individuals: State Street Corporation, 225 Franklin Street,
Boston, Massachusetts 02110
ITEM 29. PRINCIPAL UNDERWRITERS
Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, records and documents required by Rule 31a-1 are
maintained in the physical possession of State Street, the Registrant's
investment adviser, administrator, custodian and transfer agent, 225 Franklin
Street, Boston, Massachusetts 02110.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Amendment No. 1 to the Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereto
duly authorized in the City of Boston, and Commonwealth of Massachusetts on the
30th day of April, 1997.
NAVIGATOR SECURITIES LENDING TRUST
/s/ M. Bradley Jacobs
- -----------------------------
M. Bradley Jacobs, Attorney-In-Fact
C-7
<PAGE>
INDEX TO EXHIBITS
-----------------
11. Consent of Independent Accountants
<PAGE>
EXHIBIT 11
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituing part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement")of our report dated
February 17, 1997, relating to the finanacial statements and financial
highlights of Navigator Securities Lending Prime Portfolio, a series of
Navigator Securities Lending Trust, which appears in such Statement of
Additional Information. We also consent to the references to us under the
headings "Financial Statements," "Service Providers" and "Independent
Accountants" in such Statement of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
April, 25, 1997
