SHORT GOVERNMENT FUND
SHORT AND INTERMEDIATE
BOND FUND
INTERMEDIATE MORTGAGE FUND
ANNUAL REPORT
DECEMBER 31, 1996
Where Leading Money Managers Converge
MANAGERS SHORT GOVERNMENT FUND
MANAGERS SHORT AND INTERMEDIATE BOND FUND
MANAGERS INTERMEDIATE MORTGAGE FUND
Annual Report
December 31, 1996
TABLE OF CONTENTS
Begins
on Page
President's Message 1
The Managers Funds Performance 3
Complete performance table for all of The Managers Funds as of
December 31, 1996
Investment Manager's Comments 4
Discussion of the Funds' investment results during the year
and
cumulative total return graphs versus relevant index
Schedules of Portfolio Investments 11
Detailed portfolio listings by security type and industry
sector, as
valued at December 31, 1996
Statements of Assets and Liabilities 17
Fund balance sheets, Net Asset Value (NAV) per share
computation
and cumulative undistributed amounts
Statements of Operations 18
Detail of sources of income, fund expenses, and realized and
unrealized
gains (losses) during the year
Statements of Changes in Net Assets 19
Detail of changes in fund assets and distributions to
shareholders for
the past two years
Financial Highlights 21
Historical net asset values, distributions, total returns,
expense ratios,
turnover ratios and net assets
Notes to Financial Statements 24
Accounting and distribution policies, details of agreements
and
transactions with fund management and description of certain
investment risks
Report of Independent Accountants 33
Investments in The Managers Funds are not deposits or obligations
of, or guaranteed or endorsed by, any bank. Shares of the funds
are not federally insure by the Federal Deposit Insurance Corp.,
the Federal Reserve Board, or any governmental agency.
President's Message
Dear Fellow Shareholder:
Although 1996 was a very prosperous year for equity investments,
it was less so for fixed-income securities. Two factors
influencing the exceptional performance of the stock market over
the past two years have been low inflation, and low interest
rates. While low inflation is indeed good for the financial
markets in general and fixed-income securities in particular, the
low level of interest rates merely means that available bond
yields, and thus prospective bond returns, are meager. In
addition, when viewed in a total return context, even a slight
rise in rates from low levels can reduce the prices of fixed-
income securities and mitigate some or all of the return garnered
from the yield, especially for longer term securities.
This is exactly what happened in the first half of 1996. As
signs that the inflation rate might have been rising gave the
market reason to believe the Federal Reserve might tighten,
interest rates for most maturity horizons rose by more than one
full percentage point. The total returns of intermediate and
long-term securities were negative for the first six months of
the year. Shorter-term securities, however, remained in positive
territory. The benefit of the increased rates was that income
could be reinvested in higher yielding securities. During the
second half of the year, as it became clear that the inflation
rate was not rising, and that the Fed was not taking action,
interest rates moved lower, although not back to the earlier
levels, and prices rebounded.
Thus, for the full year, short-term securities outperformed
longer maturity securities, in general. With tightening yield
spreads during the second half of the year, corporate bonds
outperformed U.S. Government and Treasury issues for the year.
High yield bonds, which are affected by the financial soundness
of the underlying companies as well as interest rates, performed
extremely well in the first half of the year, and thus
substantially outperformed investment grade securities for the
year. In the investment grade sectors, bonds of financial
institutions performed slightly better than other corporate
bonds. The market for asset-backed securities flourished as
these relatively short maturity bonds performed well, and a
record $154 billion in new securities was issued with an ever
broadening variety of underlying assets. Although the durations
on mortgage securities extended with the backup in interest rates
in the first half of the year, the spreads over Treasuries
continued to tighten and giving mortgages higher total returns
for the year.
In addition to discussions of each Fund's 1996 performance, this
report provides you with a listing of each Fund's investment
portfolio as of December 31, 1996, audited financial statements
and the financial highlights. Please feel free to contact us or
your financial advisor should you have any questions on this
report or any of our Funds.
Thank you for your continued interest in The Managers Funds.
Sincerely,
/s/Robert p. Watson
Robert P. Watson
President
The Managers Funds Performance (unaudited)
All periods ending December 31, 1996
Average Annualized Total Returns*
-----------------------------------------------
Since Inception Morningstar
1Year 3Years 5Years 10Years Inception Date Rating**
Equity Funds:
Income Equity Fund 17.08% 16.67% 14.45% 12.46% 14.57% Oct. '84 ****
Capital Appreciation
Fund 13.73% 14.32% 14.04% 14.66% 15.48% Jun. '84 ****
Special Equity Fund24.75% 17.87% 17.42% 17.60% 16.47% Jun. '84 *****
International Equity
Fund 12.77% 10.17% 14.02% 10.62% 14.30% Dec. '85 ****
Income Funds:
Short Government
Fund 3.89% 2.27% 2.90% - 5.21% Oct. '87 **
Short & Intermediate
Bond Fund 4.15% 3.32% 5.94% 6.97% 8.56% Jun. '84 ***
Intermediate Mortgage
Fund 3.33% -3.15% 2.27% 6.36% 7.13% May '86 *
Bond Fund 4.97% 8.42% 8.94% 9.36% 11.37% Jun. '84 ****
Global Bond Fund 4.39% - - - 7.48% Mar. '94 NA
Money Market Fund 5.47% 4.70% 3.93% 5.48% 5.9l% Jun. '84 NA
Past performance is no guarantee furure results. Investment
returns and share price will fluctuate. The redemption price of
a mutual fund may be more or less than the purchase price. For
additional or more recent information on;the Managers Income
Funds, or for a prospectus for the Equity Funds or the Money
Market Fund, please call The Managers Funds at (800) 835-3879, or
your investment adviser
* Total return equals income yield plus share price change and
assumes reinvestment of all dividends and capital gain
distributions. No adjustment has been made for taxes payable by
shareholders on their reinvested dividends and capital gain
distributions. Returns for periods greater than one year are
annualized.
** Morningstar proprietary ratings reflect risk-adjusted
performance through December 31, 1996 and are subject to change
every month. The ratings are by asset class and are calculated
from the funds' three-, five- and ten-year returns (with fee
adjustments) in excess of 90-day Treasury bill returns, and a
risk factor that reflects fund performance below 90-day T-bill
returns. For the three-, five- and ten-year periods,
respectively, each of the Equity Funds other than the
International Equity Fund was rated against 1,826, 1,058 and 598
equity funds, the International Equity Fund was rated against
383, 185 and 60 international equity funds, and each of the
Income Funds was rated against 1,104, 597 and 2,42 fixed-income
funds. Ten percent of the funds in each asset class receive five
stars, 22.5% receive 4 stars, 35% receive 3 stars, 22.5% receive
2 stars and 10% receive 1 star.
Managers Short Government Fund
Investment Manager's Comments
Managers Short Government Fund, managed by The Managers Funds,
L.P since its inception in 1987, seeks high current income while
preserving capital by investing primarily in U.S. Government
securities with an average maturity of less than three years.
The Managers Funds currently utilizes a single independent sub-
advisor, Thomas Doyle, of Jennison Associates Capital Corp., to
manage the portfolio. Tom has managed the Fund since December,
1994.
The Portfolio Manager
Tom Doyle specializes in managing high quality, short duration
portfolios. He does not attempt to time the market or forecast
interest rates, and thus maintains the portfolio duration in line
with that of the Fund's benchmark, the Merrill Lynch 1-2.99 Year
Treasury Index. Tom and the team of analyst/portfolio managers
at Jennison attempt to add value through bottom-up analysis of
undervalued securities which will provide the best returns under
a wide range of interest rate scenarios. In making purchase
decisions, the firm models potential returns for a given security
and compares them to the returns for similar duration Treasury
and mortgage securities. Given the high quality, high liquidity,
and short duration parameters of the Fund, Tom concentrates the
portfolio in U.S. Treasury and Government Agency bonds. He also
makes use of collateralized mortgage obligations (CMOs) when
individual CMOs or combinations of CMOs have better risk/return
properties than mortgage pools.
The Year in Review
During the final six months of 1996, Managers Short Government
Fund provided a total return of 3.1% which brought the return for
the full year to 3.9%. For the same periods, the Merrill Lynch 1-
2.99 Year Treasury Index, returned 3.6% and 5.0%, respectively.
Throughout 1996, the portfolio's duration has been managed to
mirror that of its benchmark, the Merrill Lynch 1-2.99 Year
Treasury Index. The Fund's returns have lagged the Index,
primarily due to the impact of Fund expenses and the Fund's
relatively small asset size.
At year end, the Fund's portfolio was concentrated in Treasury
securities, with components of U.S. Government Agencies and CMOs.
The Fund's effective duration and average life at year end were
1.67 and 1.70 years, respectively. It's average yield to
maturity was 5.9% and 30-day SEC yield was 5.1%, at December 31,
1996.
Managers Short Government Fund
Cumulative Total Return Performance
The Managers Short Government Fund's cumulative total return is
based on the monthly change in net asset value (NAV), and assumes
that all distributions were reinvested.
The Merrill Lynch 1-2.99 Year Treasury Index consists of 60 U.S.
Treasury securities with maturities between one and three years.
The Index results assumes reinvestment of all dividends.
This chart compares a hypothetical $10,000 investment made in
Managers Short Government Fund at its inception on October 15,
1987, to a $10,000 investment made in the Merrill Lynch 1-2.99
Year Treasury Index for the same time period. Past performance
is not indicative of future results.
This table shows the average annual total returns for Managers
Short Government Fund for the one-year, five-year and since
inception periods through December 31, 1996, and comparable
returns for the Merrill Lynch 1-2.99 Year Treasury Index.
Average Annual Total Returns
Annualized
Since the Fund's
One Five Inception
Year Years October 15, 1987*
Managers Short Government
Fund 3.9% 2.9% 5.2%
ML 1-2.99 Year
Treasury Index 5.0 5.6 7.4
*Returns since October 31, 1987
Managers Short and Intermediate Bond Fund
Investment Manager's Comments
Managers Short and Intermediate Bond Fund, managed by The
Managers Funds, L.P since its inception in 1984, seeks high
current income by investing in fixed income securities while
maintaining an average portfolio maturity of between one and five
years. The Managers Funds currently utilizes a single
independent sub-advisor, Howard Rubin of Standish, Ayer & Wood,
who has managed a portion of the portfolio since August, 1991,
and the entire portfolio since December, 1995.
The Portfolio Manager
Howard Rubin's investment philosophy involves constructing a
portfolio using active sector positioning and credit analysis.
Howard does not attempt to forecast interest rates or make shifts
in duration in an attempt to add value, rather, he manages the
portfolio's duration within 85% and 115% of the Fund's benchmark,
which is the Merrill Lynch 1-5 Year Government/Corporate Index.
Howard typically constructs a diverse portfolio, using investment
grade bonds including bonds from a variety of corporate sectors,
asset-backed securities, private and agency mortgage securities,
Treasury securities and a small portion of foreign corporate and
government bonds.
The Year in Review
During the final six months of 1996, Managers Short and
Intermediate Bond Fund provided a total return of 3.8%, which
brought the return for the full year to 4.2%. For the same
periods, the Merrill Lynch 1-5 Year Government/Corporate Index,
returned 3.9% and 4.7%, respectively.
The Fund's duration was managed in line with that of the
benchmark throughout 1996. As there were only mild differences
in returns among sectors in intermediate maturities the Fund's
performance generally mirrored that of the benchmark.
Howard's most significant portfolio changes in 1996 were a
redirection of investments from Treasuries and cash into bonds of
financial institutions, which added value as yield spreads
tightened throughout the year. Among the best performers during
the year, were asset-backed securities, due both to their
relatively short duration, and an increase in demand as the
market for these instruments continues to develop. The Fund's
investments in mortgage securities remained fairly constant,
around 15% of the portfolio on average, and consisted primarily
of fixed rate pass-through securities.
The Fund's duration at year end was 2.6 years, virtually
unchanged over the year, and slightly longer than the index at
2.4 years. At December 31, 1996, the portfolio's average yield
to maturity was 6.7% and its 30-day SEC yield was 5.2%.
Managers Short and Intermediate Bond Fund
Cumulative Total Return Performance
The Managers Short and Intermediate Bond Fund's cumulative total
return is based on the monthly change in net asset value (NAV),
and assumes that all distributions were reinvested.
The Merrill Lynch 1-5 Year Government/Corporate Index consists of
over 1,500 government and investment grade corporate bonds with
maturities between one and five
vears. The index is heavily weighted in U.S. Treasury issues,
which make up over 75% of the index. The index assumes
reinvestment of dividends.
This chart compares a hypothetical $10,000 investment made in
Managers Short and Intermediate Bond Fund on December 31, 1986,
to a $10,000 investment made in the Merrill Lynch 1-5 Year
Government/Corporate Index for the same time period. Past
performance is not indicative of future results.
This table shows the average annual total returns for Managers
Short and Intermediate Bond Fund for the one-year, five-year and
ten-year periods through December 31, 1996, and comparable
returns for the Merrill Lynch 1-5 Year Government/Corporate
Index.
Average Annual Total Returns
Annualized
One Five Ten
Year Years Years
Managers Short and
Intermediate Bond Fund 4.2% 6.0% 7.0%
Merrill Lynch 1-5 Year Government/
Corporate Index 4.7 6.1 7.6
Managers Intermediate Mortgage Fund
Investment Manager's Comments
Managers Intermediate Mortgage Fund, managed by The Managers
Funds, L.P since its inception in 1987, seeks high current income
by investing primarily in mortgage related securities. The
Managers Funds currently utilizes the team of John Feingold and
Michael Porreca of Jennison Associates Capital Corp., an
independent outside subadviser, to manage the portfolio. They
have managed the portfolio since October, 1994.
The Portfolio Managers
John Feingold and Michael Forreca specialize in managing mortgage
securities. They utilize an experienced fixed income team as
well as a proprietary analytical system to analyze and select
undervalued securities which will provide stable returns under a
wide range of interest rate scenarios. They make no attempt to
time the market or forecast interest rates, rather, they maintain
the portfolio duration close to that of the Fund's benchmark, the
Salomon Brothers Mortgage Pass-through Index. In making purchase
decisions, the team models potential returns for a given security
and compares them to the returns for similar duration Treasury
and mortgage securities. The managers also make use of the
collateralized mortgage obligation (CMO) market, selecting
individual securities and combinations of securities which have
better risk/return properties than can be found in the generic
mortgage market.
The Year in Review
During the final six months of 1996, Managers Intermediate
Mortgage Fund provided a total return of 4.6%, which brought the
return for the full year to 3.3%. For the same periods, the
Salomon Brothers Mortgage Pass-through Index, returned 5.1% and
5.4%, respectively.
The Fund lagged its benchmark rather significantly in the first
quarter due to maintaining a slightly longer duration in January
when interest rates rose. While it is the portfolio managers'
style to mirror the index, they had not shortened the Fund's
duration quite enough in response to a rise in prepayments on
mortgages which dropped the duration of the index to below 3
years. In addition, the portfolio managers' strategy of
continuously rolling current coupon mortgages was a hindrance to
performance during the first half of the year when premium coupon
mortgages significantly outperformed the current coupon issues.
During the fourth quarter, the Fund benefited from a drop in
yields of approximately 25 basis points on mortgage securities.
With this slight tightening of yield spreads over Treasuries, the
portfolio managers modestly paired back on mortgages while adding
to the Fund's Treasury holdings.
The portfolio has been concentrated in fixed-rate mortgage pools,
with small allocations to short-term
fixed rate CMOs, adjustable rate mortgages and Treasuries. The
average life of the portfolio was 6.9 years at year end, and the
effective duration was 3.9 years. At December 31, 1996, the
Fund's 30-Day SEC yield was 5.64%.
Managers Intermediate Mortgage Fund Cumulative Total Return
Performance
The Managers Intermediate
Mortgage Fund's cumulative total return is based on the monthly
change in net asset value (NAV), and assumes that all
distributions were reinvested.
The Salomon Brothers Mortgage Pass-through Index is designed to
cover the performance of the entire mortgage pass-through market,
including single family pools of GNMA, FHLMC and FNMA mortgage
securities.
This chart compares a hypothetical $10,000 investment made in
Managers Intermediate Mortgage Fund on December 31, 1986, to a
$10,000 investment made in the Salomon Brothers Mortgage Pass-
through Index for the same time period. Past performance is not
indicative of future results.
This table shows the average annual total returns for Managers
Intermediate Mortgage Fund for the one-year, five-year and ten-
year periods through December 31, 1996, and comparable returns
for Salomon Brothers Mortgage Pass-through Index.
Average Annual Total Returns
Annualized
One Five Te n
Year Years Years
Managers Intermediate
Mortgage Fund 3.3% 2.3% 6.4%
Salomon Brothers Mortgage Pass-through
Index 5.4 6.9 8.8
Managers Short Government Fund
Schedule of Portfolio Investments
December 31, 1996
Principal
Amount Value
U.S. Treasury Obligations - 61.7@o
U.S. Treasury Notes - 49.8%
9.250%, 08/15/98$1,725,000$1,814,752
7.250%, 02/15/98 200,000 203,282
7.125%, 09/30/991,000,000+1,027,660
Total U.S. TreasuryNotes 3,045,694
U.S. Treasury Note Principal Strip - 11.9%
0.000%*, 05/15/99835,000 726,367
Total U.S. TreasuryObligations
(cost $3,817,757) 3,772,061
U.S. Government Agency
Obligations - 33.7%
Federal Home Loan Mortgage Corporation,
Series 1295, Class E,
PAC, 7.25%., 03/15/04233,900234,618
Series 1319, Class E,
PAC, 7.000%, 11/15/04328,996329,740
Series 30, Class C, PAC,
GNMA, 5.950%,
06/25/13 100,000 99,647
Series 1542, Class D,
PAC, 5.250%, 03/15/1290,221 89,966
Federal National Mortgage Corporation,
Series 1989-68, Class G,
PAC, 8.750%, 08/25/1849,125 49,217
Series G92-42, Class C,
7.000%, 09/25/19 477,189 476,626
Series 1993-10,
Class PD, PAC,
6.000%, 06/25/02 100,000 99,845
Financing Corporation Coupon Strips,
Series E,
0.000%*, 11/02/98300,000 269,232
0.000%*, 11/02/99486,000 409,129
Total U.S. Government Agency
Obligations
(cost $2,045,723) 2,058,020
Principal
Amount Value
Asset-Backed Securities - 2.1% Green Tree Home
Improvement Loan
Trust, Series 96-F,
Class HIAI, 6.100%,
11/15/27
(cost $129,980) $130,000 $ 129,633
Total Investments - 97.5%
(cost $5,993,460) 5,959,714
Other Assets, less
Liabilities - 2.5% 153,009
Net Assets - 100.0% $6,112,723
Note: Based on the cost of investments of $5,993,460 for
federal income tax purposes at December 31, 1996, the aggregate
gross unrealized appreciation and depreciation was $12,712 and
$46,458, respectively, resulting in net unrealized depreciation
of investments of $33,746.
+ Certain principal amounts held are segregated as collateral
against futures contracts.
*Zero coupon security
Abbreviations:
PAC: Planned Amortization Class (PAC) tranches provide investors
with scheduled payments (PAC Schedule) over a range of prepayment
speeds (PAC band or range). PAC tranches typically are combined
with companion tranches that reduce the risk of prepayments
varying from a constant speed or range.
Futures Contracts Outstanding at December 31, 1996:
3 Two-Year U.S. Treasury Note contracts, expiring 3/97, face
amount 600,000, with unrealized depreciafion of $1,789.
The accompanying notes are an integral part of these financial
statements.
Managers Short and Intermediate Bond Fund
Schedule of Portfolio Investments
December 31, 1996
Principal
Amount Value
Corporate Debt Securities - 68.4%
Asset-Backed Securities - 25.6%
Advanta Home Equity
Loan Trust, Series 92-2,
Class Al, MBIA insured,
7.15%, 06/25/08$441,366 $ 443,427
AFC Home Equity Loan
Trust, Series 93-1,
Class A, 5.900%,
05/20/08 101,740 99,324
AFC Home Equity Loan
Trust, Series 94-3,
Class 1A, 8.000%,
10/25/24 403,884 415,371
AFC Home Equity Loan
Trust, Series 96-3,
Class IA2, 7.220%,
02/25/27 150,000 151,405
Contimortgage Home
Equity Loan Trust,
Series 94-3, Class A4,
MBIA insured, 7.850%,
07/15/10 297,933 304,824
Contimortgage Home
Equity Loan Trust,
Series 94-4, Class A6,
MBIA insured, 8.270%,
12/15/24 202,880 208,413
Contimortgage Home
Equity Loan Trust,
Series 95-3, Class A2,
FGIC insured, 6.860%,
07/15/10 200,000 201,126
Equicon Home Equity
Loan Trust, Series 95-2,
Class A2, FGIC insured,
6.500%, 07/18/10250,000 249,102
EquiCredit Home Equity
Loan Trust, Series 93-4,
Class A, FGIC insured,
5.725%, 12/15/0888,064 85,355
First Sierra Equipment
Lease, Series 96-2,
Class A, 6.290%,
11/10/04 225,000 224,930
Principal
Amount Value
Asset-Backed Securities (continued)
Green Tree Financial
Corp., Series 93-4,
Class A2, 5.850%,
01/15/19 $375,000 $ 373,470
HFC Home Equity Trust,
Series 92-2A, Class A,
MBIA insured, 6.650%,
11/20/12 52,518 52,286
Independent National
Mortgage Corp.,
Series 96-A, Class A3,
6.960%, 09/25/26450,000 452,812
MBNA Master Credit
Card Trust, Series 91-1,
Class A, 7.750%,
10/15/98 83,333 83,411
Newcourt Receivables
Asset Trust, Series 96-2,
Class A, 6.870%,
06/20/04 366,161 369,364
Old Stone Credit Corp.
Home Equity Loan
Trust, Series 92-4,
Class A, FGIC insured,
6.550%, 11/25/0756,847 56,728
Remodelers Home
Improvement Loan
Asset-Backed
Certificates, Series 95-3,
Class A2, 6.800%,
12/20/07 325,000 325,559
The Money Store Home
Equity Loan Trust,
Series 92-B, Class A,
MBIA insured, 6.900%,
07/15/07 95,872 95,396
The Money Store Home
Equity Loan Trust,
Series 95-C, Class A3,
MBIA insured, 6.550%,
06/15/17 475,000 466,987
TLFC Equipment Lease
Trust, Series 96-1,
Class A, 5.98%, 11/20/02361,826 361,374
UCFC Home Equity Loan,
Series 96-Dl, Class A3,
MBIA insured, 6.541%,
11/15/13 400,000 399,000
Managers Short and Intermediate Bond Fund
Schedule of Portfolio Investments (continued)
December 31, 1996
Principa
Principal
Amount Value
Amount Value
Asset-Backed Securities (continued) Banks and Financial
Services (continued)
UCFC Loan Trust, General Motors
Series 93-Bl, Class Al, Acceptance Corp.,
FGIC insured, 6.0757o, Notes, 5.625%, 02/15/01 $200,000
$ 192,846
07/25/14 $317,191$ 310,315Goldman Sachs Group
Total Asset-Backed Securities 5,729,979L.P, Notes, 6.375%,
06/15/00 (a)50,00049,681
Banks and Financial Services - 29.4% Goldman Sachs Group
Advanta National Bank, L.P, Notes, 6.200%,
Senior Notes, 6.440%, 01/15/01 (a)175,000172,195
05/01/98 425,000428,855 Goldman Sachs Group
Anchor Bancorp, Inc., L.P, Notes, 6.200%,
Senior Notes, 8.937%, 12/15/00 (a)250,000 2,45,547
07/09/03 100,000103,398 Greyhound Financial
BankAmerica Corp., Sub. Corp., Notes, 6.750%,
Notes, 9.700%, 08/01/00 275,000 302,26303/25/99 125,000
126,176
Capital One Bank, Huntington
Medium-Terin Notes, Bankshares, Inc.,
6.74%., 05/31/99375,000 376,125Medium-Terrn Notes,
Capital One Bank, Notes, 6.150%, 10/15/98
200,000 199,932
6.660%, 08/17/98100,000 100,355International Lease
Caterpillar Financial Financial Corp., Notes,
Services, Medium-Term 5.750%, 12/15/99200,000 195,774
Notes, 6.100%, 07/15/99 100,000 99,542Merrill Lynch & Co.,
Inc.
ERP Operating LP Notes, 6.700%, 08/01/00 225,000
226,553
Floating Rate Notes, Midlantic Banks Corp.,
6.250%, 12/22/97225,000 226,427Sub. Notes, 9.875%,
Finova Capital Corp., 12/01/9999,000 107,645
Notes, 6.450%, 06/01/00 100,000 99,651NationsBank Corp.,
First Interstate Bancorp., Senior Notes,
5.375%,
Sub. Notes, 9.900%, 04/15/00100,000 96,928
11/15/01 225,000254,693 Reliance Group
First Nationwide Holdings, Inc., Senior
Holdings, Inc., Senior Notes, 9.000%, 11/15/00 200,000
206,000
Notes, 12.250%, 05/15/01 225,000 253,687Salomon, Inc.,
Medium-
First USA Bank, Deposit Term Notes, 6.820%,
Notes, 6.375%, 10/23/00 475,000 468,05607/26/99 300,000
301,518
Fleet Financial Salomon, Inc., 3 Year
Group, Inc., Senior CMT 6.397%, 04/05/99**180,000
177,300
Notes, 7.125%, 05/01/00 225,000 229,153Smith Barney
Ford Motor Credit Corp., Holdings, Inc.,
Notes,
Sr. Notes, 6.375%, 6.625%, 06/01/00100,000 100,237
09/15/99 450,000449,991 United Companies
Franchise Finance Corp. Financial Corp., Senior
of America, Senior Notes, 7.000%, 07/15/98 100,000
100,487
Notes, 7.000%, 11/30/00 200,000 200,058USF&G Corp., Senior
General Motors Notes, 7.000%, 05/15/98 225,000
227,227
Acceptance Corp., Total Banks and Financial
Medium-Term Notes, Services 6,575,058
7.500%, 07/22/99250,000 256,758
Managers Short and Intermediate Bond Fund
Schedule of Portfolio Investments
December 31, 1996
Principal
Amount Value
Industrials - 13.4%
ADT Operations, Inc.,
Senior Notes, 8.250%,
08/01/00 $146,000 $154,395
Comdisco, Inc., Notes,
6.500%, 06/15/00475,000474,207
Hertz Corp., Senior
Notes, 6.500%,
04/01/00 275,000 275,096
Kern River Funding
Corp., Series B, Senior
Notes, 6.720%,
09/30/01 (a) 200,000 199,724
Loewen Group
International, Inc.,
Senior Notes, 7.750%,
10/15/01 (a) 100,000 101,750
News American
Holdings, Inc., Senior
Notes, 7.500%,
03/01/00 225,000 230,143
Occidental Petroleum
Corp., Medium-Term
Notes, 5.950%,
11/09/98 200,000 198,728
Sears Roebuck & Co.,
Medium-Term Notes,
Series 7, 7.940%,
02/06/98 400,000 408,724
Time Warner, Inc.,
Notes, 7.750%,
06/15/05 500,000 502,965
Viacom, Inc., Senior
Notes, 7.750%,
06/01/05 100,000 98,467
WMX Technologies, Inc.,
Notes, 6.250%,
04/01/99 350,000 349,794
Total Industrials 2,993,993
Total Corporate Debt Securities
(cost $15,358,804) 15,299,030
Principal
Amount Value
Foreign Corporate
Obligations - 2.0%
Brascan Ltd., 7.375%,
10/01/02 $225,000 $225,434
Doman Industries Ltd.,
Senior Notes, 8.750%,
03/15/04 125,000 116,875
Malette, Inc., Senior
Notes, 12.250%,
07/15/04 100,000 107,500
Total Foreign Corporate
Obligations
(cost $466,064) 449,809
U.S Government Agency
Obligations - 13.6%
Federal Home Loan Bank - 2.0%
6.900%, 10/01/01 450,000 454,360
Federal Home Loan Mortgage Corporation
(FHLMC) - 2.1 %
8.750@o, 04/01/01
through 10/01/01171,884179,887
7.5007o, 05/01/00
through 10/01/00280,724284,761
Total FHLMCs 464,648
Federal National Mortgage Association - 1.1%
Series 94-85, Class E,
6.000%, 11/25/06 250,000 246,405
Government National Mortgage Association
(GNMA) - 6.7%
12.0007o, 05/15/99
throu h 10/15/00139,339148,133
11.500%., 01/15/99
through 04/15/00104,771111,366
11.000%, 05/15/98
through 12/15/00307,122326,358
10.500%, 09/15/98
through 12/15/00141,684151,335
9.000%, 10/15/16
through 03/15/25720,831764,645
Total GNMAs 1,501,837
Managers Short and Intermediate Bond Fund
Schedule of Portfolio Investments (continued)
December 31, 1996
Principal
Amount Value Value
Resolution Trust Corporation - 1.7% Total
Investments - 99.1%
Series 92-7, Class Al, (cost $22,270,290)
$22,172,734
6,825%, 03/2,5/22$384,685 $381,560Other Assets, less
Total U.S GovernmentAgency Liabilities - 0.9% 206,869
Obligations Net Assets - 100.0%$22,379,603
(cost $3,040,307) 3,048,810
U.S. Treasury Obligations - 13.8% Note: Based
on the cost of investments of
U.S. Treasury Notes - 11.1%
$22,271,032 for federal income tax purposes
6.875%, 03/31/00110,000112475 at December 31, 1996, the aggregate
gross
6.625%, 06/30/011,585,000 1,610,503 unrealized appreciation
and depreciation
6.375%, 03/31/01550,0005,53,696 was $98,707 and $197,005,
respectively, re-
6.250%, 04/30/01200,000200,438 sulting in net unrealized
depreciation of
Total U.S. Treasury Notes 2,477,112 investments of
$98,298.
U.S. Treasury Note Principal Strip - 2.7% Other Information
(unaudited):
0.000%*, 11/15/99 715,000 603,010 The composition of long-
term debt holdings as a
Total U.S. Treasury Obligations percentage of the total
value of investments in
(cost $3,104,648)3,080,122 securities is as follows:
S&P's/Moodv's
Shares Ratings
Preferred Stocks - 0.8% Gov't/AAA50%
Bank United Texas FSB, AA 5
Houston, Series A, A 18
10.120% 4,900130,463 BBB 22
BB 5
Conagra Capital LC, -
Series B, Adjustable 100%
Rate, 6.413%**2,00044,500
Total Preferred Stocks *Zero coupon security.
(cost $180,467) 174,963
** Variable rate security. Coupon
or dividend
Principal rate disclosed is that in effect
at Decem-
Amount ber 31, 1996.
(a) Security exempt from
registration under
Repurchase Agreement - 0.5% Rule 144A of the Securities Act of
1933.
State Street Bank & These securities may be resold in
transac-
Trust Co., dated tions exempt from registrations,
normally
12/31/96, due 01/02/97, to qualified buyers. At December
31, 1996,
6.000%, total to be the value of these securities
amounted to
received $120,040 $768,897, or 3.44% of net assets.
(secured by $125,000
FMNA 6.750% due Abbreviations:
06/25/26, market value CMT Constant Maturity Treasury
Index
$125,117), at cost $120,000 120,000 FGIC:
Financial Guaranty Insurance Cc).
MBIA: Municipal Bond Investors
Assurance Corp.
The accompanying notes are an integral part of these financial
statements.
Managers Intermediate Mortgage Fund
Schedule of Portfolio investments
December 31, 1996
Principal
Amount Value
Federal National Mortgage
Association (FNMA) - 59.4%
8.00%, 06/01/26$1,959,043 $1,995,775
7.50%, 02/01/263,544,092+ 3,545,758
7.00%, TBA* 5,000,000 4,890,625
6.50%, 09/01/104,405,087+ 4,338,306
Total FNMAs
(cost $14,773,287) 14,770,464
Government National Mortgage
Association (GNMA) - 32.3%
10.50%, 12/15/20 763,531 854,193
10.00%, 02/15/20
through 02/15/252,054,558+2,261,461
7.00%, TBA * 4,000,000 3,913,750
6.00%, 07/20/26 991,947 998,147
Total GNMAs
(cost $7,989,016) 8,027,551
Collateralized Mortgage Obligations
(CMOs) - 3.0%
FNMA,
Series 89-29, Class Z,
10.00%, 06/25/19 538,160 578,576
Series 93-45, Class PC
PAC, 5.00%, 05/25/11160,663 159,938
Total CMOs
(cost $740,210) 738,514
U.S. Treasury Notes - 6.1%
8.50%, 05/15/97
(cost $1,520,156)1,500,000+1,516,875
Asset-Backed Securities - 2.2%
Green Tree Home
improvement Loan
Trust, Series 96-F
Class HIA1, 6.10%,
11/15/27 (cost $539,916)540,000538,477
Repurchase Agreement - 33.6%
State Street Bank & Trust
Co., dated 12/31/96,
due 01/02/97, 6.00%,
total to be received
$8,352,783 (secured by
$8,695,000 FHLMC
5.00%, due 04/15/11,
market value
$8,646,091), at cost8,350,0008,350,000
Value
Total Investments - 136.6%
(cost $33,912,585) $33,941,881
Other Assets, less
Liabilities - (36.6%) (9,096,115)
Net Assets - 100.0% $24,845,766
Note: Based on the cost of investments of $33,930,163 for
federal income tax purpose, at December 31, 1996, the aggregate
gross unrealized appreciation and depreciation was $157,755 and
$146,037, respectively, resulting in net unrealized appreciation
of investments of $11,718.
TBA securities are purchased on a forward commitment basis with
an approximate principal amount, interest rate, and no definite
maturity date. The actual principal amount, interest rate, and
maturity will be determined upon settlement. Such securities are
subject to market fluctuations during the period from transaction
date to settlement date. At December 31, 1996, such securities
amounted to $8,804,375, or 35.4%, of net assets.
+ Certain principal amounts held are segregated as collateral for
TBA securities or futures contracts.
Abbreviations:
PAC: Planned Amortization Class (PAC) tranches provide investors
with scheduled payments (PAC Schedule) over a range of prepayment
speeds (PAC band or range). PAC tranches typically are combined
with companion tranches that reduce the risk of prepayments
varying from a constant speed or range.
Futures Contracts Outstanding at December 31, 1996:
Ten 10-Year U.S. Treasury Bond contracts, expiring, 3/97, face
amount $1,000,000, with unrealized depreciation of $14,375.
The accompanying notes are an integral part of these financial
statements.
The Managers Funds
Statements of Assets and Liabilities
December 31, 1996
ManagersManagers Managers
ShortShort andIntermediate
GovernmentIntermediateMortgage
FundBond Fund Fund
Assets:
Investments at value*$5,959,714$ 22,052,734$ 25,591,881
Repurchase agreements at cost and value - 120,000
8,350,000
Cash 57,837 413,386 4,647
Foreign currency (cost $382) - 413 -
Receivable for delayed delivery investments
sold - -1,479,818
Receivable for Fund shares sold 21,550 39,700 41,250
Dividends and interest receivable91,903 220,932 139,494
Prepaid expenses 8,885 13,497 14,654
Total assets 6,139,88922,860,66235,621,744
Liabilities:
Payable for Fund shares repurchased 180 1,980 335,744
Dividends payable to shareholders 5,238 - -
Payable for investments purchased - 401,380 -
Payable for delayed delivery investments
purchased -10,373,637
Other payables - 11,715 -
Variation margin payable 1,031 - 7,813
Accrued expenses:
Investment advisory and management fees 1,020 9,624 9,851
Administrative fees - 4,812 5,473
Other 19,697 51,548 43,460
Total liabilities 27,166 481,05910,775,978
Net Assets $ 6,112,723$ 22,379,603$ 24,845,766
Shares outstanding 351,2611,150,4351,638,354
Net asset value, offering and redemption price
per share $17.40 $19.45 $15.17
Net Assets Represent:
Paid-in capital $ 19,537,928$ 36,705,247$105,108,860
Undistributed net investment income2,447 -
Distributions in excess of net investment
income -(12,041) (3,239)
Accumulated net realized loss from
investments, futures, and foreign currency
translations (13,392,117)(14,216,078)(80,274,775)
Net unrealized appreciation (depreciations of
investments, futures and foreign currency
translations (35,535)(97,525) 14,920
Net Assets $ 6,112,723$ 22,379,603$ 24,845,766
Investments at cost$ 5,993,460$ 22,150,290$ 25,562,585
The accompanying notes are an integral part of these financial
statements.
The Managers Funds
Statements of Operations
For the year ended December 31, 1996
ManagersManagers Managers
ShortShort andIntermediate
GovernmentIntermediateMortgage
FundBond Fund Fund
Investment Income:
Interest income $ 400,874$1,574,320$ 2,227,564
Dividend income - 22,629 -
Other income - 261 -
Total investment income400,8741,597,2102,227,564
Expenses:
Investment advisory and management fees 25,703 116,037
143,803
Administrative fees 11,423 58,019 79,891
Custodian fees 11,319 60,090 41,398
Transfer agent fees 11,359 33,052 41,980
Audit fees 15,783 34,671 29,723
Registration fees 10,803 14,381 16,640
Insurance 1,514 5,902 9,849
Legal fees 621 1,920 2,717
Trustee fees 542 2,231 3,370
Miscellaneous expenses 3,653 10,606 11,388
Total expenses 92,720 336,909 380,759
Less: fee waivers (25,703) - -
Net expenses 67,017336,90-9 380,759
Net investment income 333,8571,260,3011,846,805
Net Realized and Unrealized Gain (Loss):
Net realized loss on investment transactions
and futures contracts (34,469)(122,043)(210,231)
Net unrealized depreciation of investments,
futures and and foreign currency translations(80,145)
(185,227) (884,250)
Net realized and unrealized loss(114,614)(307,270)
(1,094,481)
Net Increase in Net Assets Resulting from
Operations $ 219,243$ 953,031$ 752,32,4
The accompanying notes are an integral part of these financial
statements.
The Managers Funds
Statements of Changes in Net Assets
Managers Short
Government Fund
For the year ended
December 31,
1996 1995
Increase (Decrease) in Net Assets From Operations:
Net investment income $ 333,857$445,348
Net realized gain (loss) on investments, futures and foreign
currency
transactions (34,469)193,188
Net unrealized appreciation (depreciation) of investments,
futures
and foreign currency translations(80,145)111,540
Net increase in net assets resulting from operations 219,243
750,076
Distributions to Shareholders:
From net investment income (334,814)(227,852)
In excess of net investment income -(142,157)
Total distributions to shareholders(334,814)(370,009)
From Capital Share Transactions:
Proceeds from sale of shares 4,423,1843,537,951
Net asset value of shares issued in connection with reinvestment
of
dividends 270,219202,898
Cost of shares repurchased (4,301,319)(8,548,048)
Net increase (decrease) from capital share transactions
392,084 (4,807,199)
Total increase (decrease) in net assets276,513(4,427,132)
Net Assets:
Beginning of year 5,836,21010,263,342
End of year $6,112,723$5,836,210
End of year undistributed (overdistributed) net investment income
$2,447 -
Share Transactions:
Sale of shares 252,519202,248
Shares issued in connection with reinvestment of dividends
15,437 11,629
Shares repurchased (2,45,221)(490,616)
Net increase (decrease) in shares 22,735(276,739)
The accompanying notes are an integral part of these financial
statements.
The Managers Fund
Statements of Changes in Net Assets (continued)
Managers Short and Managers
Intermediate
Intermediate Bond Fund Mortgage Fund
For the year ended For the year ended
December 31, December 31,
1996 1995 1996 1995
Increase (Decrease) in Net Assets From
Operations:
Net investment income$ 1,260,301$ 1,671,414$ 1,846,805 $
3,013,284
Net realized gain (loss) on investments,
futures and foreign currency
transactions (122,043)(777,285)(210,231)2,258,983
Net unrealized appreciation
(depreciation) of investments, futures
and foreign currency translations(185,227)2,833,306 (884,250)
2,502,951
Net increase in net assets resulting
from operations 953,0313,727,435752,3247,775,218
Distributions to Shareholders-
From net investment income(1,196,229)(1,480,432) (1,797,552)
(3,252,564)
In excess of net investment income (36,365) (19,329)
Total distributions to shareholders(1,196,229)(1,516,797)
(1,797,552) (3,271,893)
From Capital Share Transactions:
Proceeds from sale of shares8,757,1239,664,8575,181,660
3,468,386
Net asset value of shares issued in
connection with reinvestment of
dividends 872,417851,7101,102,1901,522,227
Cost of shares repurchased(12,247,849)(18,441,928)
(20,414,820) (25,457,501)
Net increase (decrease) from capital
share transactions(2,618,309)(7,925,361)(14,130,970)
(20,466,888)
Total increase (decrease) in net assets(2,861,507)
(5,714,723) (15,176,198)(15,963,563)
Net Assets:
Beginning of year25,241,11030,955,83340,021,96455,985,527
End of year $22,379,603$25,241,110$ 24,845,766 $
40,021,964
End of year undistributed (overdistributed)
net investment income$(12,041)$ (42,324) $(3,239) $(19,329)
Share Transactions:
Sale of shares 449,976509,053342,073230,089
Shares issued in connection with
reinvestment of dividends44,94645,21673,023101,672
Shares repurchased(627,949)(985,098)(1,352,144)(1,699,063)
Net increase (decrease) in shares(133,027)(430,829) (937,048)
(1,367,302)
The accompanying notes are an integral part of these financial
statements.
Managers Short Government Fund
Financial Highlights
For a share of capital stock outstanding throughout each year
Year ended December 31,
1996 1995(b)199419931992*
Net Asset Value, Beginning of Year$17.76$16.96$19.35 $19.86
$20.35
Income from Investment Operations:
Net investment income 1.020.98 0.86 1.28 1.26
Net realized and unrealized gain (loss) on
investments (0.37)0.63(2.01)(0.53)(0.49)
Total from investment operations0.65 1.61(1.15) 0.75 0.77
Less Distributions to Shareholders:
From net investment income(1.01)(0.50)(1.17)(1.26) (1.26)
In excess of net investment income -(0.31)(0.07)
Total distributions to shareholders(1.01)(0.81) (1.24)
(1.26) (1.26)
Net Asset Value, End of Year$17.40$17.76$16.96$19.35 $19.86
Total Return+ 3.89%9.71%(6.18)%3.81%3.90%
Ratio of net expenses to average net assets 1.17% 1.25% 0.97%
0.87% 0.76%
Ratio of net investment income to average net
assets 5.85%5.62%7.06%8.71% 6.24%
Ilortfolio turnover 169%238% 140% 189% 168%
Net assets at end of year (000's omitted)$6,113$5,836 $10,263
$87,874 $142,874
Expense Waiver(a)
Ratio of total expenses to average net assets1.62% 1.65%
1.03% 0.96%0.83%
Ratio of net' investment income to average net
assets 5.40%5.22%7.00%8.62% 6.17%
(a) Ratio information assuming no waiver of investment advisory
and management fees and/or administrative fees in effect for the
period presented, if applicable. (See Note 2).
(b) Calculated using the weighted average shares outstanding
during the year.
+ The total return would have been lower had certain expenses
not been reduced during the periods shown.
* Audited by prior auditors.
Managers Short and Intermediate Bond Fund
Financial Highlights
For a share of capital stock outstanding throughout each vear
Year ended December 31,
1996 1995 1994 1993 1992*
Net Asset Value, Beginning of Year$19.67$18.06$21.23 $20.89
$20.33
Income from Investment Operations:
Net investment income 1.03 1.28 1.45 1.38 1.69
Net realized and unrealized gain (loss) on
investments (0.24) 145(3.17) 0.34 0.57
Total from investment operations0.79 2.73(1.72) 1.72 2.26
Less Distributions to Shareholders:
From net investment income(1.01)(1.09)(1.37)(1.38) (1.70)
In excess of net investment income (0.03)(0.08)
Total distributions to shareholders(1.01)(1.12) (1.45)
(1.38) (1.70)
Net Asset Value, End of Year$19.45$19.67$18.06$21.23 $20.99
Total Return 4.15%15.57%(8.37)%8.49%11.55%
Ratio of expenses to average net assets1.45%1.50% 1.05% 0.94%
0.86%
Ratio of net investment income to average
net assets 5.43%6.52% 7.11%6.58% 8.33%
Portfolio turnover 96&1 31% 57% 126% 117%
Net assets at end of year (000's omitted)$22,380$25,241
$30,956 $112,228$72,031
* Audited by prior auditors.
Managers Intermediate Mortgage Fund
Financial Highlights
For a share of capital stock outstanding throughout each year
Year ended December 31,
1996 1995 1994 19931992*
Net Asset Value, Beginning of Year$15.54$14.20$20.65 $21.13
$21.77
Income from Investment Operations:
Net investment income0.87 0.93 1.52 1.94 2.58
Net realized and unrealized gain (loss) on
investments (0.38) 1.45(6.56) 0.44(0.40)
Total from investment operations0.49 2.38(5.04) 2.38 2.18
Less Distributions to Shareholders:
From net investment income(0.86)(1.03)(1.41)(2.28) (2.40)
In excess of net investment income -(0.01) -
From net realized gain on investments - - (0.51)
(0.42)
In excess of net realized gain on
investments - -(0.07)
Total distributions to shareholders(0.86)(1,04) (1.41)
(2.86) (2.82)
Net Asset Value, End of Year$15.17$15.54$14.20$20.65 $21.13
Total Return 3.33%17.27%(25. 00)%+11.45% + 10.50%+
Ratio of netexpenses to average net assets1.19%1.17%, 0.85%
0.75% 0.79%
Ratio of net investment income to average
net assets 5.78% 6.33% 8.37% 8.90%11.30%
Portfolio turnover 232% 506% 240% 253% 278%
Net assets at end of year (000's omitted)$24,846$40,022
$55,986 $271,861$115,885
Expense Waiver(a)
Ratio of total expenses to average net assets N/A N/A 0.92%
0.82% 0.84%
Ratio of net investment income to average
net assets N/A N/A 8.30% 8.83%11.25%
(a) Ratio information assuming no waiver of investment advisory
and management fees and/or administrative fees in effect for the
year presented, if applicable. (See Note 2).
+ The total return would have been lowerhad certain expenses not
been reduced during the year.
* Audited by prior auditors.
The Managers Funds
Notes to Financial Statements
December 31, 1996
(1,) Summary of Significant
. Accounting Policies
The Managers Funds (the Trust) is a no-load, open-end, management
investment company, organized as a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended.
Currently the Trust is comprised of 10 investment series.
Included in this report are Managers Short Government Fund,
Managers Short and Intermediate Bond Fund and Managers
Intermediate Mortgage Fund, collectively the "Funds."
The Funds' financial statements are prepared in accordance with
generally accepted accounting principles, which require the use
of management's estimates. The following is a summary of
significant accounting policies followed by the Funds:
(a) Valuation of Investments
Fixed income securities are valued based upon valuations
furnished by independent pricing services that utilize matrix
systems which reflect such factors as security prices, yields,
maturities, and ratings, and are supplemented by dealer and
exchange quotations. Exchangetraded equity securities are valued
at the last quoted sales price, or in the absence of any sales,
on the basis of the last quoted bid price. Over-the-counter
securities for which market quotations are readily available are
valued at the last quoted bid price. Short-term investments,
having a remaining maturity of 60 days or less, are valued . at
amortized cost which approximates market. Securities for which
market quotations are not readily available are valued at fair
value, as determined in good faith and pursuant to procedures
established by the Board of Trustees.
Investments in certain mortgagebacked, stripped mortgage-backed
and other debt securities, including derivative securities, not
traded on an organized market are valued on the basis of
valuations provided by dealers or by a pricing service which uses
information with respect to transactions in such securities,
various relationships between securities and yield to maturity in
determining value.
(b) Security Transactions
Security transactions are accounted for as of trade date. Gains
and losses on securities sold are determined on the basis of
identified cost.
(c) Investment Income and Expenses
Interest income is determined on the basis of interest accrued.
Discounts and premiums are amortized using the effective interest
method when required for Federal income tax purposes. Dividend
income is recorded on the ex-dividend date. Other income and
expenses are recorded on an accrual basis. Expenses which cannot
be directly attributed to a particular fund are apportioned among
the Funds in the Trust based upon their average net assets.
(d) Dividends and Distributions
Dividends resulting from net investment income normally will be
declared daily for Managers Short Government Fund and monthly for
Managers Short and Intermediate Bond Fund and Managers
Intermediate Mortgage Fund. These dividends normally will be
payable on the third to the last business day of the month.
Distributions of capital gains to shareholders will only be made
to the extent that net capital gains realized for tax purposes
exceed the Fund's capital loss carryovers.
Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are
primarily due to differing treatments for mortgage-backed
securities, option transactions, futures, market discount and
losses deferred due to wash sales. Permanent book and tax basis
differences, if any, relating to shareholder distributions will
result in reclassifications to paid-in capital.
(e) Repurchase Agreements
Each Fund may enter into repurchase agreements provided that the
value of the underlying collateral, including accrued interest,
will be equal to or exceed the value of the repurchase agreement
during the term of the agreement. The underlying collateral for
all repurchase agreements is held in safekeeping by the Fund's
custodian or at the Federal Reserve Bank.
If the seller defaults and the value of the collateral declines,
or if bankruptcy proceedings commence with respect to the seller
of the security, realization of the collateral by that Fund may
be delayed or limited.
(f) Federal Taxes
Each Fund intends to comply with the requirements under
Subchapter M of the Internal Revenue Code of 1986, as amended,
and to distribute substantially all of its taxable income and
gains to its shareholders and to meet certain diversification and
income requirements with respect to investment companies.
Therefore, no provision for federal income or excise tax is
included in the accompanying financial statements.
(g) Capital Loss Carryover
As of December 31, 1996, the Funds had accumulated net realized
capital loss carryovers from securities transactions for Federal
income tax purposes as shown in the following chart. These
amounts may be used to offset realized capital gains, if any,
through December 31, 2004.
Capital
Loss
Fund AmountExpires
Managers-
Short Government
Fund $ 1,580,146 2001
11,764,816 2002
Short and Intermediate 48,484 2004
Bond Fund1,241,4531997
2,885,440 1998
2,344,832 2002
7,662,253 2003
64,355 2004
Intermediate Mortgage
Fund 59,251,205 2002
20,796,333 2003
224,035 2004
(h) Capital Stock
'fhe Trust's Declaration of Trust authorizes for each series of
the Trust the issuance of an unlimited number of shares of
beneficial interest, without par value. Each Fund records sales
and repurchases of its capital stock on the trade date.
Dividends and distributions to shareholders are recorded on the
ex-dividend date.
(i) Delayed Delivery Transactions
The Funds may purchase or sell securities on a when-issued or
forward commitment basis. Payment and delivery may take place a
month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will
be delivered and paid for are fixed at the time the transaction
is negotiated.
The Funds may receive compensation for interest forgone on
entering into delayed delivery transactions. The Funds identify
cash or securities as segregated in its custodial records with a
value at least equal to the amount of the forward purchase
commitment.
Foreign Currency Translation
The books and records of the Funds are maintained in U.S.
dollars. The value of investments, assets and liabilities
denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon current foreign exchange rates.
Purchases and sales of foreign investments and income and
expenses are converted into U.S. dollars based on currency
exchange rates prevailing on the respective dates of such
transactions. Net realized and unrealized gain (loss) on foreign
currency transactions represent: (1) foreign exchange gains and
losses from the sale and holdings of foreign currencies; (2)
gains and losses between trade date and settlement date on
investment securities transactions and forward foreign currency
exchange contracts; and (3) gains and losses from the difference
between amounts of interest and dividends recorded and the
amounts actually received.
In addition, the Funds do not isolate that portion of the results
of operations resulting from changes in exchange rates from the
fluctuations resulting from changes in market prices of
securities held. Such fluctuations are included with the net
realized and unrealized gain or loss on investments.
(2) Agreements and Transactions with Affiliates
The Managers Funds, L.P (the "Investment Manager") provides or
oversees investment advisory and management services to the Funds
under Management Agreements with each Fund. The Investment
Manager selects portfolio managers for each Fund (subject to
Trustee approval), and monitors each portfolio manager's
investment programs and results. Each Fund's investment
portfolio is managed by a portfolio manager who serves pursuant
to a Portfolio Management Agreement with the Investment Manager
and the Fund. Certain trustees and officers of the Funds are
officers of the Investment Manager.
Investment advisory and management fees are paid directly by each
Fund to The Managers Funds, L.P based on each Fund's average
daily net assets. The annual investment advisory and management
fee rates and waivers as a percentage of average daily net assets
for the fiscal year ended December 31, 1996, were as follows:
Investment Advisory
and
Management Fees
Maximum Actual fee
fee before after
Fund waivers waivers(a)
Managers-
Short
Government
Fund 0.45% 0.20%
Short and
Intermediate
Bond Fund 0.50 N/A
Intermediate
Mortgage Fund 0.45 N/A
(a) Reflects a voluntary fee waiver by the Investment Manager
which may be modified or terminated at any time at the sole
discretion of the investment Manager.
The Trust has adopted an Administrative and Shareholder Servicing
Agreement. The Managers Funds, L.P serves as each Fund's
administrator (the 'Administrator") and is responsible for all
aspects of managing the Funds' operations, including
administration and shareholder services to each Fund, its
shareholders, and certain institutions, such as bank trust
departments, brokerdealers and registered investment advisers,
that advise or act as an intermediary with the Funds'
shareholders.
For the fiscal year ended December 31, 1996, Managers Short and
Intermediate Bond Fund and Managers Intermediate Mort age Fund
each paid a fee to the Administrator at the rate of 0.25% per
annum of each Fund's average daily net assets. For this period,
the Administrator was due a fee from Managers Short Government
Fund of 0.20% per annum of the Fund's average daily net assets,
all of which was waived. This waiver may be modified or
terminated at any time at the sole discretion of the
Administrator. The fees paid to the Administrator are
established by the Trustees and may not exceed the annual rate of
0.25% of each Fund's average daily net assets.
An aggregate annual fee of $10,000 is paid to each outside
Trustee for serving as a Trustee of the Trust. In addition,
these Trustees receive meeting fees of $750 for each inperson
meeting attended, and $200 for participation in any telephonic
meetings. The Trustee fee expense shown in the financial
statements represents each Fund's allocated portion of the total
fees.
(3) Purchases and Sales of Securities
Portfolio purchases, and sales or maturities, of long-term
securities, U.S. Government securities and futures contracts
during the fiscal year ended December 31, 1996 were as follows:
U.S. Government
Long-term Securities Securities
Only
Fund Purchases Sales PurchasesSales
Managers-
Short Government Fund$11,645,732$ 8,852,698$8,179,544 $
7,531,134
Short and Intermediate Bond Fund$21,516,817$21,997,276
$7,827,638 $14,531,275
Intermediate Mortgage Fund$83,928,740$94,071,611 $4,3%,406 $
2,875,438
Long Futures Contracts Short Futures
Contracts
Opened Closed Opened Closed
Short Goverrunent Fund $2,295,531 $3,762,587
Intermediate Mortgage Fund $1,084,844 $2,284,356 $1,662,188
$5",753
(4) Forward Commitments
Certain transactions, such as futures and forward transactions,
dollar roll agreements, or purchases of when-issued or delayed
delivery securities may have a similar effect on a Fund's net
asset value as if the had created a degree of leverage in its
portfolio. However, if a Fund enters into such a transaction,
the Fund will establish a segregated account with its Custodian
in which it will maintain cash, U.S. government securities or
other liquid securities equal in value to its obligations in
respect to such transaction. Securities and other assets held in
the segregated account may not be sold while the transaction is
outstanding, unless other suitable assets are substituted.
(a) Forward Foreign Currency Contracts
During the fiscal year ended December 31, 1996, Managers Short
and Intermediate Bond Fund invested in forward foreign currency
exchange contracts. These investments may involve greater market
risk than the amounts disclosed in the Fund's financial
statements.
A forward foreign currency exchange contract is an agreement
between a Fund and another party to buy or sell a currency at a
set price at a future date. The market value of the contract
will fluctuate with changes in currency exchange rates. The
contract is marked-tomarket daily, and the change in market value
is recorded as an unrealized gain or loss. Gain or loss on the
purchase or sale of contracts having the same settlement date,
amount and counterparty is realized on the date of offset,
otherwise gain or loss is realized on settlement date.
The Funds may invest in non-U.S. dollar denominated instruments
subject to limitations, and enter into forward foreign currency
exchange contracts to facilitate transactions in foreign
securities and to protect against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and
such foreign currency.
Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
There were no open forward foreign currency exchange contracts at
December 31, 1996.
(b) Futures Contracts
A futures contract is an agreement between two parties to buy and
sell a financial instrument at a set price on a future date.
Upon entering into such a contract the Fund is required to pledge
to the broker an amount of cash or securities equal to the
minimum "initial margin" requirements of the exchange on which
the contract is traded. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value of the contract at the time it
was closed.
There are several risks in using futures contracts. Futures
prices may not correlate perfectly with the behavior of cash
market prices of the instrument being hedged so that even a
correct forecast of general price trends may not result in a
successful transaction, or the Fund's portfolio manager may be
incorrect in its expectation of future prices. There is also a
risk that a secondary market in the instruments that the Fund
holds may not exist or may not be adequately liquid to permit the
Fund to close out positions when it desires to do so.
A Fund may use futures contracts as a hedge to protect the value
of its portfolio against changes in prices of the financial
instruments in which it may invest. During the fiscal year ended
December 31, 1996, Managers Intermediate . Mortgage Fund and
Managers Short Government Fund each entered into futures
contracts to manage the Fund's duration to that of its respective
benchmark index.
(c) Dollar Roll Agreements
Managers Short Government Fund and Managers Intermediate Mortgage
Fund may enter into dollar roll agreements whereby the Fund sells
securities and agrees to repurchase them or substantially similar
securities, at a mutually agreed upon date and price. Dollar
roll agreements involve the risk that the market value of the
securities retained in lieu of sale by the Fund may decline below
the price of the securities the Fund has sold but is obligated to
repurchase.
In the event the buyer of the securities under a dollar roll
agreement files for bankruptcy or becomes insolvent, such buyer
or its trustee or receiver may receive an extension of time to
determine whether to enforce the Fund's obligation to repurchase
the securities, and the Fund's use of the proceeds of the dollar
roll agreement may effectively be restricted pending such
decision.
(5) Risks Associated with Collateral Mortgage Obligations
("CMOs") and Indexed Securities
The net asset values of the Funds may be sensitive to interest
rate fluctuations because the Funds may hold several instruments,
including CMOs, inverse floaters, super floaters and other
derivatives, whose values can be significantly impacted by
interest rate movements. CMOs are obligations collateralized by
a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgage are passed
through to the holder of the CMOs on the same schedule as they
are received from mortgagees, although certain classes of CMOs
have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, the investment in CMOs
may be subject to a greater or lesser risk of prepayment than
other types of mortgage-related securities. In another version
of mortgage-related securities, all interest payments go to one
class of holders-"Interest Only" or "10"-and all of the principal
goes to a second class of holders-"Principal Only" or "PO." The
yield to maturity on an IO is extremely sensitive to the rate of
principal prepayments on the related underlying mortgage assets
and a rapid rate of principal prepayments may have an adverse
effect on yield to maturity. If greater than anticipated
prepayments of principal are experienced, the Fund may fail to
fully recoup its investment. Conversely, if less than
anticipated prepayments of principal occur, the yield on a PO
class could be materially affected.
CMOs may halve a fixed or variable rate of interest, including
inverse floating rate securities on which the interest rates
typically decline as market rates increase and increase as market
values decline. Accordingly, such instruments can be expected to
be more volatile than fixed rate or other variable rate
securities.
The Funds may also invest in indexed securities whose value is
linked either directly or indirectly to changes in foreign
currencies, interest rates, equities, indices, or other
reference. instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(6) Contingencies
Two purported class action lawsuits have been filed in the
federal district courts of Connecticut and Minnesota against
Managers Intermediate Mortgage Fund and Managers Short Government
Fund; the Investment Manager; the former portfolio manager; and
certain other affiliates and affiliated individuals. The
plaintiffs allege that, from May 1, 1992 to June 13, 1994 and
from May 10, 1993 to September 12, 1994, for the two Funds,
respectively, defendants violated the Securities Act of 1933, the
Securities Exchange Act of 1934, the Investment Company Act of
1940, and common law by, among other things, failing to disclose
adequately the Funds' investment strategies and risks associated
with an investment in the Funds. Plaintiffs allege that they
suffered unspecified damages based on losses incurred over the
course of the respective class periods.
The Managers Funds, its affiliates and affiliated individuals, as
well as certain of the other defendants, have filed motions to
dismiss these actions, on the basis that, among other grounds,
the relevant prospectus fully disclosed the Funds' respective
investment strategies and all material risks related to an
investment in these Funds, including, but not limited to, the
risk of loss of principal. There has been no decision yet from
the court relating to Managers
Intermediate Mortgage Fund motion. In the case involving
Managers Short Government Fund, the motion to dismiss was granted
in part, and defendants again moved for dismissal after plaintiff
amended the complaint. In that action, the parties have now
entered into a preliminary agreement to settle all claims by the
purported class. However, the parties have not finalized their
settlement nor have they obtained the required court approvals.
For these and other reasons, there can be no assurance that the
settlement will be consummated.
In addition, a non-class action lawsuit based on similar
allegations has been filed by a customer against certain of the
defendants named in the class action lawsuits, as well as
Managers Short and Intermediate Bond Fund. Certain other
customers, who are potentially members of the plaintiff class in
each of the two class action lawsuits referred to above, have
asserted that they may file similar lawsuits based on similar
claims, but have not done so. Despite management's efforts to
resolve all of the pending lawsuits, it believes that it has
meritorious defenses and, if the cases are not settled, it
intends to defend the actions vigorously.
Report of Independent Accountants
To the Trustees of The Managers Funds and the Shareholders of
Managers Short Government Fund, Managers Short and Intermediate
Bond Fund and Managers Intermediate Mortgage Fund:
We have audited the accompanying statements of assets and
liabilities of Managers Short Government Fund, Managers Short and
Intermediate Bond Fund and Managers Intermediate Mortgage Fund,
including the schedules of portfolio investments, as of December
31, 1996 and the related statements of operations for the year
then ended, and the statements of changes in net assets for each
of the two years in the period then ended and the financial
highlights for each of the four years in the period then ended.
These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits. The financial highlights for the
year ended December 31, 1992, presented herein, were audited by
other auditors whose report dated February 26, 1993, expressed an
unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Managers Short Government Fund, Managers
Short and Intermediate Bond Fund and Managers Intermediate
Mortgage Fund as of December 31, 1996, the results of their
operations for the year then ended, and the changes in their net
assets for each of the two years in the period then ended, and
the financial highlights for each of the four years in the period
then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 14, 1997
THE MANAGERS FUNDS
Where Leading Money Managers Converge
Fund Distributor
The Managers Funds, L.P.
40 Richards Avenue
Norwalk, Connecticut 06854-2325
(203) 857-5321 or (800) 835-3879
Custodian
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Transfer Agent
Boston Financial Data Services, Inc.
attn: The Managers Funds
PO. Box 8517
Boston, Massachusetts 02266-8517
(800) 252-0682
This report is prepared for the information of shareholders. It
is authorized for distribution to prospective investors only when
preceded by an effective prospectus.
The Managers Funds
Equity Funds:
INCOME EQUITY FUND
Scudder, Stevens & Clark, Inc.
Spare, Kaplan, Bischel & Associates
CAPITAL APPRECIATION FUND
Dietche & Field Advisers, Inc.
Husic Capital Management
SPECIAL EQUITY FUND
Liberty Investment Management
Pilgrim Baxter & Associates
Westport Asset Management, Inc.
INTERNATIONAL EQUITY FUND
Scudder, Stevens & Clark, Inc.
Lazard, Fr&res Asset Management Co.
Fixed Income Funds:
MONEY MARKET FUND
Morgan Guaranty Trust Company of New York
SHORT GOVERNMENT FUND
Jennison Associates Capital Corp.
SHORT AND INTERMEDIATE BONDFUND
Standish, Ayer & Wood, Inc.
INTERMEDIATE MORTGAGE FUND
Jennison Associates Capital Corp.
BOND FUND
Loomis, Sayles & Company, Inc.
GLOBAL BOND FUND
Rogge Global Partners
