<PAGE>
- --------------------------------------------------------------------------------
NAVIGATOR SECURITIES LENDING
PRIME PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
ANNUAL REPORT AS OF DECEMBER 31, 1997
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
The Navigator Prime Portfolio (the "Fund") is a special purpose money market
fund. 100% of Fund balances are derived from the collateral received from
securities lending. Due to the unique characteristics of securities lending
balances, the Fund has been managed consistently with the objective of
providing liquidity and preserving capital, while investing in high quality
instruments and offering competitive returns.
The economic environment in the third quarter showed signs of moderate growth
with no apparent inflation pressures, which was consistent with that of the
second quarter. However, there were still concerns that a low unemployment rate
coupled with increased wage pressure would ultimately make its way to the
consumer. These concerns were apparent in the market as many participants held
duration's short and the yield curve had built in a premium for a potential rate
increase by the Federal Reserve.
While the fourth quarter economic data was a continuation of the previous two
quarters, the international markets played an important role in the direction of
US markets. The Asian equity markets and their currencies began to show weakness
as several years of strong growth created by lenient lending policies and
inflated stock prices were corrected in a short time span. Countries such as
Hong Kong, Indonesia and Japan had corrections of ten to twenty-five percent.
Implications were widespread among US and foreign equity markets as investors
evaluated these countries' exposure to Asia. Estimates of the impact of the drop
in the Asian equity markets on US GDP are .5% to 1.5%, essentially putting the
Federal Reserve on hold until the full ramifications of the Asian crisis can be
determined.
Obviously, the portfolio strategy had to be adjusted to accommodate for the
change in the economic environment during the second half. The shorter duration
carried early in the second half of 1997 was extended in anticipation of a
neutral policy by the Federal Reserve and a flattening in the yield curve. The
Fund's average maturity was lengthened from forty-six days to the mid fifties by
year-end. The yield curve, which had offered an incremental yield pick up of
fifty basis points from one month to twelve months, had narrowed to twenty-two
basis points. The extension of the portfolio's average maturity was consistent
with similar repositioning moves made by other funds tracked in the Donoghues'
first tier institutional category and has allowed the Fund to maintain its
competitive advantage. The Fund was also able to take advantage of a year-end
opportunity provided by the Asian crisis. Pressure provided by the Asian banks'
uncertainty to finance themselves over the potentially volatile year-end time
frame created a substantial yield opportunity. Many domestic issuers began to
sell securities in early December anticipating a Federal Funds rate between ten
and eleven percent for year-end however, this never materialized and the
portfolio was able to benefit from this situation.
We will continue to manage the Fund to meet objectives of offering competitive
returns, adequate liquidity and a stable net asset value.
Robert P. Fort
Portfolio Manager
January 30, 1998
1
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AMORTIZED
AND TITLE OF ISSUE RATE DATE AMOUNT COST+
------------------ ---- ---- ------ ----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER - 43.29%
ASSET BACKED SECURITIES CONSUMER - 4.54%
Monte Rosa Capital Corp. 5.840% 01/22/1998 $ 79,000,000 $ 78,730,873
Monte Rosa Capital Corp. 5.840% 01/26/1998 36,000,000 35,854,000
Monte Rosa Capital Corp. 5.830% 01/28/1998 100,000,000 99,562,750
Monte Rosa Capital Corp. 5.790% 02/10/1998 40,000,000 39,742,667
-------------
253,890,290
-------------
ASSET BACKED SECURITIES DIVERSIFIED - 7.88%
Asset Securitization Cooperative Corp. 5.800% 02/13/1998 50,000,000 49,653,611
Delaware Funding Corp. 5.650% 01/13/1998 12,381,000 12,357,682
Delaware Funding Corp. 5.640% 01/16/1998 38,301,000 38,210,993
Delaware Funding Corp. 5.950% 01/16/1998 50,000,000 49,876,042
Delaware Funding Corp. 5.680% 02/11/1998 33,004,000 32,790,501
Falcon Asset Securitization 5.880% 01/13/1998 19,675,000 19,636,437
Falcon Asset Securitization 5.980% 01/13/1998 17,565,000 17,529,987
Falcon Asset Securitization 5.750% 01/14/1998 37,700,000 37,621,720
Falcon Asset Securitization 5.980% 01/14/1998 5,740,000 5,727,605
Falcon Asset Securitization 5.750% 01/15/1998 23,375,000 23,322,731
Falcon Asset Securitization 5.750% 01/20/1998 31,275,000 31,180,089
Falcon Asset Securitization 5.850% 01/20/1998 20,000,000 19,938,250
Falcon Asset Securitization 6.000% 01/20/1998 18,975,000 18,914,912
Falcon Asset Securitization 6.100% 01/20/1998 50,000,000 49,839,028
Falcon Asset Securitization 5.745% 01/26/1998 34,370,000 34,232,878
-------------
440,832,466
-------------
AUTOMOTIVE - 2.37%
Daimler Benz North America 5.510% 01/22/1998 25,000,000 24,919,646
Daimler Benz North America 5.540% 02/26/1998 79,785,000 79,097,430
Daimler Benz North America 5.540% 03/12/1998 28,900,000 28,588,683
-------------
132,605,759
-------------
BANK FOREIGN - 10.64%
Abbey National North America 5.520% 03/16/1998 25,000,000 24,716,333
Den Danske Corp. 5.570% 01/06/1998 50,000,000 49,961,319
Den Danske Corp. 5.660% 03/05/1998 50,000,000 50,000,000
Den Danske Corp. 5.687% 04/02/1998 150,000,000 150,000,000
Nordbanken North America Inc. 5.580% 01/12/1998 50,000,000 49,914,750
Nordbanken North America, Inc. 5.770% 03/12/1998 73,217,000 72,395,546
Toronto Dominion Grand Cayman 6.750% 01/02/1998 100,000,000 100,000,000
Toronto Dominion Holdings 5.540% 02/06/1998 25,000,000 24,861,500
Woolwich Building 5.690% 06/09/1998 75,000,000 73,115,188
-------------
594,964,636
-------------
BANK REGIONAL - 0.18%
National City Corporation 5.720% 02/02/1998 10,000,000 9,949,156
-------------
2
See Notes to Financial Statements.
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AMORTIZED
AND TITLE OF ISSUE RATE DATE AMOUNT COST+
------------------ ---- ---- ------ ----
<S> <C> <C> <C> <C>
COMMERICAL PAPER - (CONTINUED)
FINANCE CAPTIVE - 11.57%
Ford Motor Credit Company 6.750% 01/02/1998 $ 100,000,000 $ 99,981,250
Ford Motor Credit Company 5.540% 01/09/1998 25,000,000 24,969,222
General Motors Acceptance Corp. 5.650% 01/23/1998 75,000,000 74,741,042
General Motors Acceptance Corp. 5.530% 02/05/1998 50,000,000 49,731,180
Grand Metro Capital Corp. 5.540% 01/07/1998 25,000,000 24,976,917
Grand Metro Capital Corp. 5.500% 03/31/1998 50,000,000 49,320,139
IBM Credit Corp. 5.530% 03/18/1998 75,000,000 74,124,417
Sears Roebuck Acceptance Corp. 5.650% 01/09/1998 50,000,000 49,937,222
Sears Roebuck Acceptance Corp. 5.560% 01/12/1998 50,000,000 49,915,055
Sears Roebuck Acceptance Corp. 5.950% 01/13/1998 50,000,000 49,900,833
Sears Roebuck Acceptance Corp. 5.950% 02/03/1998 50,000,000 49,727,292
Sears Roebuck Acceptance Corp. 5.600% 02/23/1998 50,000,000 49,587,778
-------------
646,912,347
-------------
FINANCE NON-CAPTIVE DIVERSIFIED - 3.92%
General Electric Capital Corp. 6.800% 01/02/1998 100,000,000 99,981,111
General Electric Capital Corp. 5.710% 01/13/1998 25,000,000 24,952,417
General Electric Capital Corp. 5.690% 02/11/1998 30,000,000 29,805,591
General Electric Capital Corp. 5.700% 03/11/1998 25,000,000 24,726,875
General Electric Capital Corp. 5.525% 03/13/1998 40,000,000 39,564,139
-------------
219,030,133
-------------
INSURANCE - 0.45%
Prudential Funding Corp. 5.560% 01/23/1998 25,000,000 24,915,056
-------------
SOVEREIGN - 1.74%
Caisse Des D' Amortissement
De La Depte Sociale 5.700% 06/11/1998 100,000,000 97,450,833
-------------
TOTAL COMMERCIAL PAPER 2,420,550,676
-------------
3
See Notes to Financial Statements.
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AMORTIZED
AND TITLE OF ISSUE RATE DATE AMOUNT COST+
------------------ ---- ---- ------ ----
<S> <C> <C> <C> <C>
BANK NOTES - 21.80%
BANK FOREIGN - 2.24%
Abbey National Treasury 5.875% 12/22/1998 $ 50,000,000 $ 50,008,090
National Australia Bank 5.735% 10/13/1998 25,000,000 24,985,988
WESTPAC Banking Corp. (a) 5.660% 04/21/1998 50,000,000 49,994,120
-------------
124,988,198
-------------
BANK MULTINATIONAL - 2.24%
BankBoston NA 5.610% 01/08/1998 100,000,000 100,000,000
First National Bank of Chicago 6.140% 05/13/1998 25,000,000 24,992,844
-------------
124,992,844
-------------
BANK REGIONAL - 16.51%
Branch Banking & Trust Company (a) 5.650% 03/20/1998 25,000,000 24,997,923
Branch Banking & Trust Company (a) 5.690% 12/16/1998 50,000,000 49,990,672
Comerica Bank (Detroit, Michigan) (a) 5.635% 06/10/1998 25,000,000 24,994,089
Comerica Bank (Detroit, Michigan) (a) 5.643% 11/09/1998 50,000,000 49,974,432
Corestates Bank NA, Philadelphia (a) 5.928% 03/20/1998 40,000,000 40,000,000
First Bank NA (a) 5.567% 07/15/1998 100,000,000 99,958,589
Key Bank of New York (a) 6.150% 04/15/1998 25,000,000 24,993,208
Key Bank of New York (a) 5.620% 08/20/1998 85,000,000 84,963,248
Key Bank of New York (a) 5.838% 09/23/1998 70,000,000 69,960,000
NationsBank NA (a) 5.781% 12/21/1998 50,000,000 49,965,029
Old Kent Bank Trust Company Grand
Rapids Michigan (a) 5.630% 10/14/1998 25,000,000 24,994,106
Old Kent Bank Trust Company Grand
Rapids Michigan (a) 5.650% 11/19/1998 50,000,000 49,982,797
PNC Bank NA, Pittsburgh (a) 6.120% 07/02/1998 40,000,000 39,982,087
PNC Bank NA, Pittsburgh (a) 5.620% 08/28/1998 40,000,000 39,987,153
PNC Bank NA, Pittsburgh (a) 5.600% 09/23/1998 40,000,000 39,980,165
United States Bank National Association (a) 5.830% 10/21/1998 52,000,000 51,969,407
United States Bank National Association (a) 5.830% 11/16/1998 37,000,000 36,974,882
Wells Fargo & Company (a) 5.771% 10/05/1998 50,000,000 49,976,441
Wells Fargo & Company (a) 5.761% 10/20/1998 70,000,000 69,960,085
-------------
923,604,313
-------------
FINANCE CAPTIVE - 0.36%
Ford Motor Credit Company (a) 5.700% 12/23/1998 20,000,000 19,992,470
-------------
FINANCE NON-CAPTIVE DIVERSIFIED - 0.45%
CIT Group Holdings, Inc. (a) 5.640% 11/30/1998 25,000,000 24,988,877
-------------
TOTAL BANK NOTES 1,218,566,702
-------------
4
See Notes to Financial Statements.
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AMORTIZED
AND TITLE OF ISSUE RATE DATE AMOUNT COST+
------------------ ---- ---- ------ ----
<S> <C> <C> <C> <C>
CERTIFICATES OF DEPOSITS - 16.65%
BANK FOREIGN - 15.35%
Bank of Scotland 5.730% 03/18/1998 $ 27,000,000 $ 27,001,967
Barclays Bank Plc (a) 5.620% 02/20/1998 6,000,000 5,999,088
Barclays Bank Plc (a) 5.600% 02/25/1998 35,000,000 34,996,392
Barclays Bank Plc (a) 5.670% 12/16/1998 25,000,000 24,986,011
Bayerische Hypotheken-und Wechsel Bank 5.700% 01/12/1998 45,000,000 44,999,867
Bayerische Hypotheken-und Wechsel Bank 5.850% 08/07/1998 25,000,000 24,990,003
Bayerische Landesbank 5.860% 07/17/1998 26,500,000 26,504,704
Bayerische Landesbank 5.775% 07/27/1998 50,000,000 49,996,119
Bayerische Vereinsbank AG 5.680% 03/30/1998 100,000,000 100,000,000
Bayerische Vereinsbank AG 5.850% 12/18/1998 89,000,000 88,926,339
Canadian Imperial Bank Commerce 5.940% 10/23/1998 25,000,000 25,022,725
Canadian Imperial Bank Commerce 5.800% 03/31/1998 100,000,000 100,000,000
Deutsche Bank AG 6.170% 05/22/1998 45,000,000 44,995,028
Deutsche Bank AG 5.950% 06/16/1998 57,000,000 57,007,026
National Westminster Bank 5.770% 02/27/1998 70,000,000 70,000,000
Rabobank Nederland N. V. 6.200% 04/10/1998 27,800,000 27,795,687
Svenska Handelsbanken, Inc. 5.550% 01/16/1998 25,000,000 24,942,187
Union Bank Of Switzerland 5.840% 02/05/1998 50,000,000 50,006,300
Westdeutcshe Landesbank Giroz (a) 5.600% 03/06/1998 30,000,000 29,995,946
-------------
858,165,389
-------------
BANK MULTINATIONAL - 0.89%
Morgan Guaranty Trust Company of New
York (a) 5.815% 01/13/1998 50,000,000 49,999,135
-------------
FINANCE CAPTIVE - 0.41%
General Motors Acceptance Corp. 7.200% 01/29/1998 23,000,000 23,021,489
-------------
TOTAL CERTIFICATES OF DEPOSITS 931,186,013
-------------
CORPORATE OBLIGATIONS - 9.73%
BANK FOREIGN - 1.79%
Abbey National Treasury Services (a) 5.665% 02/13/1998 100,000,000 100,000,000
-------------
BANK MULTINATIONAL - 0.89%
Morgan Guaranty Trust Company of New York 5.630% 01/30/1998 50,000,000 49,998,452
-------------
BANK REGIONAL - 2.06%
Comerica Bank (Detroit, Michigan) 5.805% 01/21/1998 25,000,000 24,999,410
Key Bank of New York 5.660% 01/05/1998 20,000,000 19,999,811
PNC Bank NA, Pittsburgh 5.566% 01/09/1998 10,000,000 9,999,847
PNC Bank NA, Pittsburgh (a) 5.617% 02/20/1998 60,000,000 59,994,199
-------------
114,993,267
-------------
5
See Notes to Financial Statements.
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AMORTIZED
AND TITLE OF ISSUE RATE DATE AMOUNT COST+
------------------ ---- ---- ------ ----
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS - (CONTINUED)
FINANCE CAPTIVE - 2.19%
Caterpillar Financial Services 5.690% 01/12/1998 $ 30,000,000 $ 30,000,000
Ford Motor Credit Company 6.250% 02/26/1998 8,000,000 8,000,381
General Motors Acceptance Corp. 5.375% 03/09/1998 9,900,000 9,850,500
General Motors Acceptance Corp. (a) 6.270% 04/17/1998 35,000,000 35,002,441
General Motors Acceptance Corp. (a) 5.786% 09/21/1998 30,000,000 29,975,546
IBM Credit Corp. 5.650% 02/27/1998 10,000,000 9,999,297
-------------
122,828,165
-------------
FINANCE NON-CAPTIVE DIVERSIFIED - 1.46%
Avco Financial Services Inc. (a) 5.815% 11/17/1998 25,000,000 25,000,000
CIT Group Holdings, Inc. (a) 5.610% 01/28/1998 56,500,000 56,496,363
-------------
81,496,363
-------------
INSURANCE - 1.34%
Tiers Trust (a) (b) 5.980% 10/15/2003 75,000,000 75,000,000
-------------
TOTAL CORPORATE OBLIGATIONS 544,316,247
-------------
6
See Notes to Financial Statements.
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AMORTIZED
AND TITLE OF ISSUE RATE DATE AMOUNT COST+
------------------ ---- ---- ------ ----
<S> <C> <C> <C> <C>
TIME DEPOSITS - 9.63%
BANK MULTINATIONAL - 4.47%
Chase Bank 5.000% 01/02/1998 $ 100,000,000 $ 100,000,000
Chase Bank 6.250% 01/02/1998 150,000,000 150,000,000
-------------
250,000,000
-------------
BANK REGIONAL - 5.16%
First Union National Bank, Charlotte, North
Carolina 4.500% 01/02/1998 50,000,000 50,000,000
Pittsburgh National Bank Nassau 6.750% 01/02/1998 50,000,000 50,000,000
National City Bank Grand Cayman 5.000% 01/02/1998 88,194,000 88,194,000
Wachovia Bank & Trust 5.500% 01/02/1998 100,000,000 100,000,000
-------------
288,194,000
-------------
TOTAL TIME DEPOSITS 538,194,000
-------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 1.61%
AGENCY - 1.61%
Federal Farm Credit Banks (a) 5.550% 02/03/1998 90,000,000 89,994,813
-------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 89,994,813
-------------
7
See Notes to Financial Statements.
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL AMORTIZED
AND TITLE OF ISSUE RATE DATE AMOUNT COST+
------------------ ---- ---- ------ ----
<S> <C> <C> <C> <C>
VARIABLE RATE MEDIUM TERM NOTES - 1.25%
BANK REGIONAL - 1.25%
NationsBank Corporation (a) 5.828% 12/01/1998 $ 40,000,000 $ 40,000,000
NationsBank Corporation (a) 5.887% 12/14/1998 30,000,000 30,000,000
----------------
TOTAL VARIABLE RATE MEDIUM TERM NOTES 70,000,000
----------------
TOTAL INVESTMENTS --103.96% 5,812,808,451
OTHER ASSETS LESS LIABILITIES --(3.96)% (221,397,294)
----------------
NET ASSETS -- 100.0% $ 5,591,411,157
----------------
----------------
</TABLE>
+ See note 2 to the financial statements.
(a) Floating Rate Note - Interest rate shown is rate in effect at December 31,
1997. Maturity date shown represents actual maturity date of security. The
effective maturity date determined by the next reset date falls within the
guidelines of Rule 2a-7.
(b) Pursuant to Rule 144A of the Securities Act of 1933, the security may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1997, this security amounted to
$75,000,000 or 1.34% of the Fund's net assets.
8
See Notes to Financial Statements.
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at amortized cost . . . . . $ 5,812,808,451
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 682
Interest receivable. . . . . . . . . . . . . . . . . . 29,927,061
Deferred organization expense. . . . . . . . . . . . . 131,865
Prepaid insurance. . . . . . . . . . . . . . . . . . . 13,490
----------------
Total Assets. . . . . . . . . . . . . . . . . . . 5,842,881,549
----------------
LIABILITIES:
Payable for investments purchased. . . . . . . . . . . 250,233,411
Dividend Payable . . . . . . . . . . . . . . . . . . . 891,462
Advisory fee payable . . . . . . . . . . . . . . . . . 156,972
Administration fee payable . . . . . . . . . . . . . . 69,177
Custodian fee payable. . . . . . . . . . . . . . . . . 31,057
Transfer agent fee payable . . . . . . . . . . . . . . 27,917
Trustees fees payable. . . . . . . . . . . . . . . . . 8,044
Other accrued expenses and liabilities . . . . . . . . 52,352
----------------
Total Liabilities . . . . . . . . . . . . . . . . 251,470,392
----------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 5,591,411,157
----------------
----------------
NET ASSETS CONSIST OF:
Capital stock, $0.001 par value;
5,591,412,802 shares issued and outstanding . . . $ 5,591,413
Capital paid in excess of par. . . . . . . . . . . . . 5,585,821,389
Accumulated net realized loss on investments . . . . . (1,645)
----------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . $ 5,591,411,157
----------------
----------------
Net asset value, offering, and redemption
price per share . . . . . . . . . . . . . . . . . . . $ 1.00
------
------
</TABLE>
See Notes to financial statements.
9
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 249,120,173
----------------
EXPENSES:
Advisory fee . . . . . . . . . . . . . . . . . . . . . 770,265
Administration fee . . . . . . . . . . . . . . . . . . 355,777
Custodian fee. . . . . . . . . . . . . . . . . . . . . 153,783
Insurance expense. . . . . . . . . . . . . . . . . . . 146,219
Transfer agent fee . . . . . . . . . . . . . . . . . . 91,621
Trustees fees. . . . . . . . . . . . . . . . . . . . . 40,823
Amortization of organization expenses. . . . . . . . . 39,162
Audit fee. . . . . . . . . . . . . . . . . . . . . . . 28,900
Legal fee. . . . . . . . . . . . . . . . . . . . . . . 19,972
Miscellaneous expense. . . . . . . . . . . . . . . . . 3,329
----------------
Total expenses. . . . . . . . . . . . . . . . . . 1,649,851
----------------
Net investment income. . . . . . . . . . . . . . . . . 247,470,322
----------------
NET REALIZED LOSS ON INVESTMENTS
Net realized loss on investments . . . . . . . . . . . (2,714)
----------------
Net increase in net assets resulting from operations . $ 247,467,608
----------------
----------------
</TABLE>
See notes to financial statements.
10
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FOR THE PERIOD
MAY, 15 1996*
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . $ 247,470,322 $ 61,100,394
Net realized gain (loss) on investments. . . . . . . . . . (2,714) 1,322
----------------- ----------------
Net increase in net assets resulting from operations . . . 247,467,608 61,101,716
----------------- ----------------
DISTRIBUTIONS FROM:
Net investment income . . . . . . . . . . . . . . . . (247,470,322) (61,100,647)
----------------- ----------------
Net decrease in net assets from distributions. . . . . . . (247,470,322) (61,100,647)
----------------- ----------------
FROM FUND SHARE TRANSACTIONS (AT CONSTANT $1.00 PER SHARE):
Proceeds from shares sold. . . . . . . . . . . . . . . . . 27,389,659,804 9,723,270,848
Issued to shareholders in reinvestment of dividends. . . . 246,578,860 61,100,647
Cost of redemptions . . . . . . . . . . . . . . . . . . . (24,922,725,873) (6,906,481,384)
----------------- ----------------
Net increase in net assets from Fund share transactions 2,713,512,791 2,877,890,111
----------------- ----------------
Net increase in net assets . . . . . . . . . . . . . . . . 2,713,510,077 2,877,891,180
NET ASSETS:
Beginning of period (See Note 7) . . . . . . . . . . . . . 2,877,901,080 9,900
----------------- ----------------
End of period . . . . . . . . . . . . . . . . . . . $ 5,591,411,157 $ 2,877,901,080
----------------- ----------------
----------------- ----------------
</TABLE>
* Commencement of investment operations
See notes to financial statements.
11
<PAGE>
NAVIGATOR SECURITIES LENDING PRIME PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FOR THE PERIOD
MAY 15, 1996*
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . . . . . . $ 1.000 $ 1.000
------------ ------------
Net investment income . . . . . . . . . . . . . . . . 0.0560 0.0342
Distributions from net investment income . . . . . . (0.0560) (0.0342)
------------ ------------
Net asset value, end of period . . . . . . . . . . . . . . $ 1.000 $ 1.000
------------ ------------
------------ ------------
TOTAL INVESTMENT RETURN (a). . . . . . . . . . . . . . . . 5.75% 3.47%
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets. . . . . . . . . . 0.04% 0.06%(b)(c)
Ratio of net investment income to average net assets . . . 5.62% 5.47%(b)(c)
Net assets, end of period (in millions). . . . . . . . . . $5,591 $2,878
</TABLE>
* 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.
See notes to financial statements.
12
<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 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.
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 is 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 is not necessarily 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 are 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
division 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.
13
<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.
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 is reimbursed for out of pocket and travel expenses.
5. INVESTMENT TRANSACTIONS
At December 31, 1997, 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, 1997, there were four shareholders who each owned over 5% of the
Fund's outstanding shares, amounting to 34% 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.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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
changes 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, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, 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 audits. We conducted our audits 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 audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, MA
February 12, 1998
15
