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The Managers Funds
INCOME EQUITY FUND
CAPITAL APPRECIATION FUND
SPECIAL EQUITY FUND
INTERNATIONAL EQUITY FUND
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ANNUAL REPORT
DECEMBER 31, 1997
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Where Leading Money Managers Converge
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MANAGERS INCOME EQUITY FUND
MANAGERS CAPITAL APPRECIATION FUND
MANAGERS SPECIAL EQUITY FUND
MANAGERS INTERNATIONAL EQUITY FUND
ANNUAL REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
BEGINS
ON PAGE
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<S> <C>
President's Message............................................ 1
The Managers Funds Performance................................. 5
Complete performance table for all of The Managers Funds
as of December 31, 1997
Investment Manager's Comments.................................. 6
Discussion of Funds' investment results during the year
and cumulative total return graphs versus relevant index
Summary of Major Sectors and Country Allocations............... 25
Side by side comparison of the Funds' industry breakdown
Schedules of Portfolio Investments............................. 26
Detailed portfolio listings by security type and industry
sector, as valued at December 31, 1997
Statements of Assets and Liabilities........................... 44
Fund balance sheets, Net Asset Value (NAV) per share
computation and cumulative undistributed amounts
Statements of Operations....................................... 45
Detail of sources of income, fund expenses, and realized
and unrealized gains (losses) during the year
Statements of Changes in Net Assets............................ 46
Detail of changes in fund assets and distributions to
shareholders for the past two years
Financial Highlights........................................... 48
Historical net asset values, distributions, total returns,
expense ratios, turnover ratios and net assets
Notes to Financial Statements.................................. 52
Accounting and distribution policies, details of
agreements and transactions with fund management and
description of certain investment risks
Report of Independent Accountants.............................. 59
</TABLE>
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
insured by the Federal Deposit Insurance Corp., the Federal Reserve Board, or
any governmental agency.
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PRESIDENT'S MESSAGE
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[Photo of President]
DEAR FELLOW SHAREHOLDER:
The past year was again a prosperous one for most financial assets. Despite
economic and financial upheaval in the Far East, the U.S. economy continued to
grow at a moderate pace throughout 1997. Corporate profits and personal income
rose while unemployment and the rate of inflation reached historic lows.
Early in the year, both long and short-term interest rates rose as the economy
picked up speed and investors expressed concern about rising inflation. In late
March, the Federal Reserve Board raised the Fed Funds rate by 0.25%. Stocks of
large companies began the quarter reasonably well with strong earnings reports
buoying prices. As the surging economic statistics would suggest, corporate
fundamentals remained strong. However, just as low interest rates were an
important factor in the rising valuation of the market over the previous two
years, rising rates put a damper on stock prices in the first quarter. Not
surprisingly, the stocks with the highest valuations (i.e., P/E) were hit the
hardest. With the rosy economic environment coming into question, the market
moved toward more predictable holdings, and earnings disappointments were
punished severely. While large capitalization indices such as the S&P 500 and
the Dow Jones Industrial Average (DJIA) rose 10% into mid-February, small
capitalization stocks, as measured by the Russell 2000, were languishing with
very large performance differences between "growth" stocks, which moved lower,
and "value" stocks. As the quarter progressed and economic indicators
strengthened, investors began anticipating one or more Federal Reserve rate
increases, and all broad stock indices moved lower.
Inflation, however, remained subdued. In fact, the producer price index, which
tracks wholesale price levels, fell for seven consecutive months
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(ending July) for the first time ever. The consumer price index, which tracks
retail prices, continued to rise, although at an extremely low rate. Thus,
interest rates moved lower again and by early summer were nearing the levels at
which they started the year. Domestic stocks moved sharply higher, and although
stocks of large capitalization companies again outpaced those of smaller firms,
the strength was broad across all capitalization ranges. As the market rose, it
became more volatile because investors were becoming increasingly concerned with
valuations. Continued strong cash flows into mutual funds, and increasing merger
activity also boosted stock prices. In addition to the "index effect," large
capitalization stocks also benefited from investors' pursuit of liquidity in
their climb up the "wall of worry."
In late July, the government released more statistics confirming the lack of
inflation, which, combined with healthy corporate profit growth of 5% during the
second quarter, set the stage for a strong August. However, warnings from blue
chip companies such as Coca-Cola, and Eastman Kodak, that their earnings growth
might slow due to the strength of the U.S. Dollar and competition from foreign
sources, put a scare into the market. Because the warnings came from the large
capitalization companies, and since their relative valuations were worrisome
from the start, it was the blue chips that took most of the beating. The Dow
Jones Industrial Average dropped 7.1% during the month of August, and the S&P
500 fell 5.6%. At the same time, small and medium sized companies' stocks held
up well. The S&P Mid-Cap Index returned -0.1% while the Russell 2000 index of
small capitalization stocks returned +2.3% for the month of August. The overall
concern was short-lived as all the broad indices moved higher in September.
Meanwhile, news of the precarious economic situation in Southeast Asia began
to emanate, further diminishing inflationary fears and sending interest rates
lower. In short, the rapid growth of economies such as Thailand, Malaysia and
Indonesia had been financed to a significant extent from foreign lenders.
Because they were artificially pegged to the U.S. Dollar, the currencies of
these countries became overvalued, particularly in relation to the currency of
their chief trading partner, Japan. As the debt burden increased, demand for the
currencies dried up and the countries were forced to break the pegs, sending the
currencies spiraling down with their balance sheets and stock markets in tow.
Throughout the fourth quarter the economic crisis intensified and spread to
other Far Eastern countries. The International Monetary Fund (IMF) arranged
restructuring packages accompanied by tough economic constraints with each of
these countries including Korea. Due to fiscal restraints, these Asian countries
cancelled infrastructure projects thus removing some of the demand for
industrial commodities. In addi-
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tion, Asian commodities producers increased exportation in order to raise cash
while their own currencies fell. As a result, commodities prices traded sharply
lower, with metals prices reaching four year lows.
Domestic investors dismissed their fixation on the actions of the Federal
Reserve Board and turned their attention to corporate earnings and the
ramifications of recession in the Far East. Stocks traded down sharply in
mid-October as a result of earnings disappointments. Technology stocks were
particularly hard hit as lower than expected earnings announcements from Intel,
Seagate Technology and Sun Microsystems spread concern across the entire sector.
Although corporate earnings in general were, in fact, strong, with 55% of the
companies in the S&P 500 reporting better than expected earnings, prospects for
the future came into doubt as many companies issued sobering warnings along with
their earnings reports. In late October, while the economic problems in
Southeast Asia intensified, U.S. stocks followed Far Eastern and European
markets sharply lower as investors expressed concern that slow economic growth
abroad would reduce demand for U.S. goods. In a reversal of the third quarter
trend, large capitalization stocks far outperformed small and medium sized
issues where liquidity in the uneasy markets became a valuable commodity.
The S&P 500 rose 23 points during the fourth quarter marking the 14(th)
consecutive quarter in which it has risen. For the full year, the S&P 500
provided a total return of 33.4%. For the past three years, the S&P 500 has
returned an average of 31.2% per year, meaning that investments in the index
have more than doubled in the past three years. These returns are obviously far
in excess of historical averages, and although they are ultimately the result of
the very real and fundamental success of American business, they should not be
extrapolated into the future. Smaller capitalization indices also turned in
impressive results but again lagged the S&P 500. The Russell 2000 Index, which
tracks the performance of small capitalization stocks, returned 22.2% for the
year. Although European stocks performed well for the year, the weakness of
their currencies along with the severe declines of both stocks and currencies in
the Far East left the MSCI - Europe Australia Far East Index with a total return
of just 1.8% for the year, in U.S. Dollar terms.
We at The Managers Funds were very busy during the year. We changed one of the
two sub-advisors in both the MANAGERS CAPITAL APPRECIATION FUND and the MANAGERS
INCOME EQUITY FUND. In our small capitalization offering, MANAGERS SPECIAL
EQUITY FUND, we added a fourth sub-advisor specializing in micro-capitalization
stocks. More specific discussions of these new managers is provided on the
following pages. In addition, we structured a new emerging markets equity fund
just launched in 1998: The MANAGERS EMERGING MARKETS EQUITY
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FUND. We have selected two experienced independent sub-advisors to each manage a
global emerging markets equity portfolio, and we are waiving all investment
management fees through May 9, 1998.
The following report contains discussions of each of the Equity Fund's 1997
performance along with a listing of the investment portfolio, financial
statements, and the report of independent accountants. On the following page
you'll find a performance summary for all of The Managers Funds as of December
31, 1997. Please contact us at 1-800-835-3879, or your investment advisor, if
you'd like to receive a prospectus and additional information, including fees
and expenses, on any of the other funds in our family including the new emerging
markets equity fund, or an information kit on our new no fee IRA and Roth IRA
accounts. Please read the prospectus carefully before you invest or send money.
As always, should you have any questions regarding this report or any of our
funds, please feel free to contact us. We thank you for your continued
investment in The Management Funds.
Sincerely,
/s/ Robert P. Watson
Robert P. Watson
President
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4
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THE MANAGERS FUNDS
THE MANAGERS FUNDS PERFORMANCE (unaudited)
All periods ending December 31, 1997
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<TABLE>
<CAPTION>
Average Annualized Total Returns+
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Since Inception Morningstar
1 Year 3 Years 5 Years 10 Years Inception Date Rating++
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<S> <C> <C> <C> <C> <C> <C> <C>
Equity Funds:
Income Equity Fund 27.19% 26.01% 17.83% 15.82% 15.49% Oct. '84 ****
Capital Appreciation Fund 12.74% 19.58% 14.46% 15.13% 15.27% Jun. '84 ***
Special Equity Fund 24.45% 27.64% 19.05% 19.27% 17.04% Jun. '84 ****
International Equity Fund 10.83% 13.26% 15.42% 11.05% 14.00% Dec. '85 ****
Income Funds:
Short Government Fund 5.55% 6.35% 3.23% 5.22% 5.24% Oct. '87 **
Short & Intermediate
Bond Fund 5.87% 8.43% 4.84% 7.18% 8.36% Jun. '84 ***
Intermediate Mortgage Fund 8.23% 9.46% 1.85% 6.86% 7.22% May '86 **
Bond Fund 10.42% 14.91% 9.44% 10.24% 11.30% Jun. '84 ****
Global Bond Fund 0.16% 7.58% -- -- 5.48% Mar. '94 *
Money Market Fund 5.36% 5.29% 4.38% 5.39% 5.87% Jun. '84 NA
</TABLE>
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Past performance is no guarantee of future 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 Equity Funds, or for a prospectus for the Income Funds or the
Money Market Fund, please call The Managers Funds at (800) 835-3879, or your
investment adviser. Read the prospectus carefully before you invest.
+ Total return equals income yield plus share price change and assumes
reinvestment of all dividends and capital gain distributions. Returns are net
of fees and may reflect fee waivers or the reimbursement of fund expenses as
described in the prospectus. 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
12/31/97 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 1,834, 1,076 and
585 equity funds, the International Equity Fund was rated against 566, 240
and 72 international equity funds, and each of the Income Funds was rated
against 2,581, 1,435 and 651 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.
5
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MANAGERS INCOME EQUITY FUND
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MANAGERS INCOME EQUITY FUND is an income oriented stock fund managed by The
Managers Funds, L.P. since its inception in 1984. The Managers Funds currently
utilizes two independent sub-advisors who each manage approximately half of the
total portfolio: Harold Ofstie, of Chartwell Investment Partners, hired in
September 1997, and Robert Hoffman, of Scudder Kemper Investments, Inc.
(formerly Scudder, Stevens & Clark, Inc.), hired in August 1991.
THE PORTFOLIO MANAGERS
In September, after a thorough manager search, the Fund's Board of Trustees
approved the replacement of Spare, Kaplan Bischel & Associates, who had managed
a portion of the Fund since August 1990, with Chartwell Investment Advisors led
by Harold Ofstie. Harold Ofstie and the investment management team at Chartwell
are value oriented investors who use relative dividend yields, price/earnings
ratios and price/cash flow ratios of stocks to help identify issues which are
undervalued by the market. They seek to obtain excess returns from the dividend
income stream of the portfolio, the appreciation of stocks from depressed levels
and appreciation of stocks due to growth in earnings. Because the income stream
provides a positive return, and the level of the dividend provides somewhat of a
floor for the price of each stock, the returns from this type of strategy are
intended to be less volatile than the market in general.
Harold's process is such that he only considers stocks which are yielding more
than the average dividend yield of the S&P 500. He and a team of analysts and
portfolio managers at Chartwell then pare the list of potential holdings in
search of strong balance sheets, ample cash flows and valuation characteristics
which are customized for each industry group, in order to find the most
statistically attractive securities. Fundamental investigation of the candidates
seeks to confirm the statistical findings and uncover catalysts within each
company or the environment which could potentially improve the earnings and/or
stock valuation in the near future. Catalysts can be in the form of a new
product or technology, an acquisition, divestiture or restructuring, significant
management changes, or outside forces such as industry events, regulatory
revisions or changes in demand.
Harold is not a pure contrarian manager likely to initiate a position purely
because it is cheap. Instead he will utilize relative strength and earnings
revision models to confirm the efficacy of the catalysts and help optimize the
timing of purchases. Because of this, Chartwell's portfolios typically hold
positions with less of a yield advantage than the Spare, Kaplan Bischel &
Associates (SKB&A) portfolios, which were contrarian in nature and often carried
yield advantages of 40% to 50% over the S&P 500 yield. Thus, since the
replacement of SKB&A with Chartwell, the Fund's dividend yield has dropped
somewhat, but remains slightly higher than that of the S&P 500, even after
expenses.
Harold's portfolios consist of 40 to 50 of Chartwell's best ideas with the
restriction that no sector will have a weighting of more than two and a half
times the weighting of the S&P 500. Each position has a pre-determined
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12-month price target. Stocks are sold when the price targets are met, if
fundamentals deteriorate, or if the prices rise to a level in which the dividend
yield is below that of the S&P 500. Additionally, stocks may be sold simply to
make room for new purchases with better potential.
Robert Hoffman's philosophy is similar in the belief that stocks with high
relative dividend yields provide above average returns with below average
volatility in the long run. Hoffman, however, is more of a growth investor who
uses relative dividend yields to identify stocks which are well valued and to
avoid those which are overvalued. He seeks to obtain excess returns from the
dividend income stream of the portfolio, appreciation of stocks from depressed
levels, and appreciation of stocks as a result of earnings and dividend growth.
Similar to Chartwell, he invests only in stocks with a yield higher than that
of the S&P 500 (in this case at least a 20% premium is required), and prefers
stocks which have yields which are high relative to their own historical levels.
After screening for yield, Robert and the team of analysts at Scudder analyze
potential holdings in search of strong or improving fundamentals, earnings and
dividend growth and strong management. Stocks are sold when the price rises to a
point where the yield is more than 25% below that of the S&P 500. In addition,
positions are sold if the fundamentals deteriorate, or merely to provide
liquidity for other purchases.
As a rule, Robert generally stays fully invested with a majority of the
portfolio in domestic common stocks, however, he will often purchase American
Depositary Receipts (ADRs) of foreign companies' stocks, as well as Real Estate
Investment Trusts (REITS). Occasionally, he will invest in preferred stock or
convertible bonds. At year end, Scudder's portfolio had an average dividend
yield of 2.70%.
THE YEAR IN REVIEW
During the final six months of 1997, MANAGERS INCOME EQUITY FUND provided a
total return of 10.6% which brought the return for the full year to 27.2%. For
the same periods, the Standard & Poor's 500 Stock Index (S&P 500) returned 10.6%
and 33.4%, respectively.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
as of December 31, 1997
% FUND
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<S> <C>
Xerox Corp. 3.6%
Bristol-Myers Squibb Co.* 2.6%
Pitney Bowes Inc. 2.4%
SmithKline Beecham PLC-ADR 2.4%
Imperial Chemical Industries
PLC-ADR 2.3%
Baxter International Inc. 2.3%
American Home Products Corp. 2.1%
USX-Marathon Group 2.1%
Ford Motor Co. 2.1%
Chase Manhattan Corp. 2.0%
*A top ten holding December 1996
</TABLE>
Since the yield oriented style of the Fund is partly intended to reduce
volatility, it is typical for the Fund to lag the market in strong upturns, and
it is expected to outperform the market during moderate, flat and down markets.
Thus, the Fund did not keep up with the strong upswing in 1997, particularly
during the second quarter when the S&P 500 rose 17.5% while the Fund returned
13.3%. The Fund did, however, perform relatively well during the third quarter
downturn, 'and again in the fourth quarter during the fallout from the events in
the Far East.
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Financial companies, which at 22% of net assets makes up the largest sector
allocation in the Fund, were the best performing group. Financial companies
continued to benefit from consolidation within the industry, as well as lower
interest rates and healthy financial markets. Mellon Bank, Lincoln National,
Corestates Financial and PNC Bank each returned well in excess of 50% for the
year. Heath Care companies, which make up the third largest sector weighting in
the Fund, also performed well, and showed particular resiliency during the
fourth quarter. Bristol-Myers Squibb returned 77% for the year, Schering-Plough
was liquidated in the fourth quarter after a rise of nearly 90%, and Warner
Lambert was liquidated in the third quarter because it had appreciated past its
price and yield targets.
Energy stocks were also a solid contributor to performance during the year.
Foreign holdings such as Elf Aquitane, YPF and Total rose 32%, 39% and 41%,
respectively. Electric utilities were a significant drag to the portfolio during
the first half of the year, but they performed very well during the second half.
With falling interest rates, and the companies' lack of exposure to the Far
East, utilities comprised the strongest performing sector during the fourth
quarter. Although Chartwell reduced the extreme overweight position which the
Spare Kaplan portfolio had in utilities, the Fund remained significantly
overweight relative to the S&P 500 which was a benefit late in the year.
Finally, from both a performance and a volatility standpoint, the Fund's
relatively low exposure to technology stocks was a significant benefit during
1997. Because of the high dividend yield levels which both portfolios managers
require, the technology stocks that the Fund owns are mostly aerospace/defense
companies as opposed to the computer-related industries, such as semiconductors,
computers, and software, which were among the most volatile industries for the
year. The few technology names that the Fund does own performed reasonably well.
Xerox, despite falling 12% in the fourth quarter, returned 43% for the year.
Phillips Electronics also dropped sharply in the fourth quarter, despite which
it returned 54% for the year.
LOOKING FORWARD
As previously mentioned, the portfolio managers, who both select stocks on an
individual basis as opposed to rotating sectors or following themes, currently
find themselves trimming in the areas of pharmaceuticals, financials, and
consumer basics due to high valuations. With the proceeds, they are adding in
the areas of electric utilities, telephones and real estate investment trusts
(REITs).
Although nominal valuations look expensive from an historical viewpoint the
relative valuation of the stocks in the portfolio remain attractive. At
year-end, the weighted average price to earnings ratio for the total portfolio
was 20.0, and the weighted average dividend yield was 2.5%. The 30-day
annualized SEC yield for the Fund on December 31, 1996, was 1.77%.
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MANAGERS INCOME EQUITY FUND
Cumulative Total Return Performance
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The Managers Income Equity Fund's cumulative total return is based on the
monthly change in net asset value (NAV), and assumes that all distributions were
reinvested.
The S&P 500 Index is an unmanaged capitalization weighted index of 500
commonly traded stocks designed to measure performance of the broad domestic
economy through changes in the aggregate market value of those stocks. The index
assumes reinvestment of dividends. This chart compares a hypothetical $10,000
investment made in Managers Income Equity Fund on December 31, 1987, to a
$10,000 investment made in the S&P 500 for the same time period. Past
performance is not indicative of future results.
<TABLE>
<CAPTION>
Measurement Period Managers Income
(Fiscal Year Covered) Equity Fund S&P 500
<S> <C> <C>
1987 10000 10000
1988 12610 11681
1989 15415 15359
1990 13410 14872
1991 17390 19415
1992 19127 20905
1993 21507 22993
1994 21712 23286
1995 29172 32036
1996 34153 39393
1997 43439 52537
</TABLE>
This table shows the average annual total returns for Managers Income Equity
Fund for the one-year, five-year and ten-year periods through December 31, 1997,
and comparable returns for the S&P 500 Index.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ANNUALIZED
-------------------------
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
Managers Income Equity Fund 27.2% 17.8% 15.8%
S&P 500 Index 33.4 20.2 18.0
</TABLE>
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MANAGERS CAPITAL APPRECIATION FUND
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MANAGERS CAPITAL APPRECIATION FUND is a growth oriented stock fund managed by
The Managers Funds, L.P. since its inception in 1984. The Managers Funds
currently utilizes two independent sub-advisors who each manage approximately
half of the total portfolio: Frank Husic at Husic Capital Management, hired in
September, 1996, and Joseph McNay at Essex Investment Management, hired in March
1997.
THE PORTFOLIO MANAGERS
Frank Husic's investment philosophy depends upon early recognition of change
that leads to higher expected earnings growth and altered investor perceptions.
Further, he believes in concentrating his portfolio in the greatest expected
beneficiaries of those changes. Concentration comes in the form of investing
within a limited number of investment themes, and then limiting the number of
holdings to approximately 35 positions.
Frank begins by developing investment themes and then identifying a universe
of candidates which will potentially benefit from the effects of the themes.
Themes are typically long lived, two or more years, and are developed through
the course of business; discussions with company managements or other investors,
fundamental analysis, and the tracking of economic, financial and demographic
trends.
Portfolio concentration enables Frank and his investment team to focus on the
details of each company in which he invests, speaking with management as well as
the managements of competitors, clients and suppliers. If there is any drawback
to concentration it is that it tends to be volatile, since each holding has a
more meaningful effect on the portfolio.
To limit negative effects, Frank has developed a strict discipline which
involves setting short-term fundamental hurdles for each holding in the
portfolio. Hurdles can be earnings targets, sales goals, margin improvements,
store openings, acquisitions, divestitures, or any significant event relating to
the operations of the company. If the hurdle is achieved, the position is held
or increased and a new hurdle is set. If the hurdle is not achieved, the
position is reduced and a new hurdle is set. If a hurdle is missed twice, the
position is eliminated.
This discipline has three purposes. First, it serves as a strict and
unemotional sell signal. Second, it naturally concentrates the portfolio into
those companies which are achieving fundamental success, while de-emphasizing
those that are not. Third, it serves to confirm or disprove the efficacy of each
investment theme.
On March 10, 1997, the Fund's board of Trustees approved the replacement of
one of the Fund's sub-advisors, Dietche & Field Advisers, with Essex Investment
Management, headed by Joseph McNay. Joe McNay's investment philosophy focuses on
the principle that a company's earnings growth and profitability will drive its
future price performance. He is thus determined to identify companies which have
accelerating, sustainable earnings
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growth and the potential for superior revenue growth and margin expansion.
Ideally, Joe searches for companies which have a dominant product or service and
a strong management team. Although he is not a "value" manager, Joe is value
conscious, and seeks investments that he considers to be under-owned or
attractively priced relative to his growth projections. Companies that meet all
these criteria are defined as "franchise opportunities."
The research team and the portfolio management team at Essex generate ideas by
visiting companies, attending conferences and trade shows, as well as database
screening. Then they develop earnings models and projections, evaluate balance
sheet strengths and weaknesses, and visit company managements.
Upon initiating a position, Essex applies risk controls to limit negative
effects. These consist of price targets, individual position limits of 5% of the
portfolio, and a maximum industry exposure limit of 20% of the portfolio.
Companies are sold when there is a perceived loss of proprietary or dominant
position, earnings disappointments, excess value versus forecasted growth, or if
there is a better opportunity elsewhere.
The result is a portfolio comprised of a blend of large multinationals with
dynamic medium to large industry leaders. The portfolio's market cap ranges from
$1 billion to $100 billion with 50 to 60 companies that display sustainable,
high quality earnings growth at reasonable valuations.
THE YEAR IN REVIEW
During the final six months of 1997, MANAGERS CAPITAL APPRECIATION FUND
provided a total return of 7.3% which brought the return for the full year to
12.7%. For the same periods, the Standard & Poor's 500 Stock Index (S&P 500)
returned 10.6% and 33.4%, respectively.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
as of December 31, 1997
% FUND
------
<S> <C>
America Online Inc. 4.9%
PeopleSoft Inc.* 3.6%
HBO & Company 2.8%
Excite Inc. 2.7%
Amazon.com Inc. 2.7%
TMP Worldwide Inc. 2.5%
Nextel Communications Inc. 2.2%
Tele-Communications Inc. 2.1%
US Airways Group Inc. 2.0%
CIENA Corp. 2.0%
*A top ten holding December 1996
</TABLE>
Although a one year return of 12.7% is respectable from an absolute
perspective, the return is disappointing when compared to that of the S&P 500
and other equity indices. As a result of poor relative investment performance,
the Fund began a restructuring process in March 1997, when Essex Investment
Management was hired to replace Dietche & Field Advisers. The timing of this
re-structuring to a more aggressive, growth oriented portfolio coincided with
the March/April market decline which punished the technology and health care
companies which both managers held.
The correction, however, did give Essex an opportunity to establish new
positions at more favorable prices. Husic also repositioned its portfolio and
the results of both managers' efforts are reflected in the top ten holdings,
where only one stock
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(PeopleSoft) from the top ten list of December 1996 remained in that list at
year end.
The Fund continued to underperform in the second quarter as very large
capitalization companies performed best, and the portfolio was invested in
smaller aggressively growing companies with lower valuations. This was
particularly true in the technology sector which performed well in the second
quarter, but not as well as in the benchmark.
In the third quarter this pattern reversed and the Fund moved aggressively
forward in July. In August, as a few of the U.S. blue chips issued warnings that
earnings growth from foreign sources was under pressure, stocks traded down, but
mid-caps and the Fund continued to outperform. As it appeared that the
super-caps were finally losing their dominance, the managers continued to move
the portfolio into swiftly growing companies with dominant products and healthy
fundamentals. The Fund again outperformed in September, led by America Online,
Compaq Computer and Federal Express, which appreciated 35%, 51%, and 38%,
respectively, during the third quarter. Also performing well during the third
quarter was an increasing position in energy and energy service companies which
after a decade of sluggish capital investment, appeared to be in the early
stages of an extended period of expansion.
In late October the market traded down sharply as the financial crisis in the
Far East caused investors to sharply lower their expectations of growth derived
from foreign sources. While the long-term effects on U.S. corporate earnings
remains uncertain, the immediate effect on the market was swift profit taking.
Typical of a market overcome by uncertainty, the higher priced growth sectors
traded down sharply. Large capitalization stocks rebounded in November, but mid-
and small-capitalization companies foundered on thin trading volume.
Among the worst performing stocks for the period were those that had risen the
most in the third quarter such as Compaq, Dell and CNET which dropped 24%, 13%
and 25%, respectively. Energy related stocks such as Cooper Cameron and Global
Industries also traded lower as the prospect of deflation in the Far East sent
commodities prices lower and caused investors to lower their energy demand
expectations. In December, the market bounced back, particularly in the last
week of trading, and the Fund, having remained invested in companies with solid
fundamental results, outperformed in December and the start of 1998.
LOOKING FORWARD
Throughout the fourth quarter Joe McNay has opportunistically focused his
portion of the portfolio toward stocks with low exposure to Southeast Asia. He
remains very encouraged about the domestic economy and the prospect for strong
corporate profits. Particular areas where Essex is investing are in software
companies, fiber optics and digital communication technology companies. In
aggregate, Essex's investment thesis going forward "is centered on companies
generating highly consistent revenue and earnings growth predominantly from the
U.S., Europe and the U.K."
12
<PAGE>
Frank Husic expects continued strong liquidity into mutual funds from both
domestic and foreign investors, continued positive earnings surprises and
continued consolidation in a number of industries. Currently Frank is investing
based on four major themes.
Corporate Renaissance is a theme focusing on companies which are
restructuring. This theme has gained in importance, and with a possible
deflationary scenario, companies who are able to substantially reduce costs will
have a much better chance to dominate.
The Power of Growth theme is premised on Husic's expectation of steady growth
in the U.S. economy, and is buoyed by his enthusiasm for rapid growth in
California and the West Coast economies which, in his view, should benefit from
the troika of trade, technology and tourism over the next two to five years.
Riding the Information Superhighway is a theme based on Frank's belief that
corporations will continue to upgrade their computer systems, which should drive
demand growth for add-on goods and services such as software, networks and
memory. Frank believes that the building of the internet is still in its early
stages.
Finally, Frank has a focus on Super Secular Growers, which are companies that
are able to maintain high growth rates, and will thus be rewarded with increased
valuations by investors.
13
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
Cumulative Total Return Performance
- --------------------------------------------------------------------------------
The Managers Capital Appreciation Fund's cumulative total return is based on
the monthly change in net asset value (NAV), and assumes that all distributions
were reinvested.
The S&P 500 Index is an unmanaged capitalization weighted index of 500
commonly traded stocks designed to measure performance of the broad domestic
economy through changes in the aggregate market value of those stocks. The index
assumes reinvestment of dividends.
The S&P Midcap 400 Index is a capitalization-weighted index that mea-
sures the performance of the mid-range sector or the U.S. stock market where the
median market capitalization is approximately $1.8 billion. The S&P 400 was
developed on December 31, 1990. S&P 400 returns previous to 1991 are based on a
pro forma index of stocks similar to the S&P 400.
This chart compares a hypothetical $10,000 investment made in Managers Capital
Appreciation Fund on December 31, 1987, to a $10,000 investment made in the S&P
500 and the S&P 400 for the same time period. Past performance is not indicative
of future results.
<TABLE>
<CAPTION>
Managers
Capital
Measurement Period Appreciation
(Fiscal Year Covered) Fund S&P 500 S&P 400
<S> <C> <C> <C>
1987 10000 10000 10000
1988 11923 11681 12087
1989 14433 15359 16383
1990 14155 14872 15544
1991 18818 19415 23026
1992 20822 20905 25219
1993 24294 22993 28175
1994 23924 23286 27164
1995 31912 32036 35575
1996 36281 39393 42416
1997 40902 52537 56088
</TABLE>
This table shows the average annual total returns for Managers Appreciation Fund
for the one-year, five-year and ten-year periods through December 31, 1997, and
comparable returns for the S&P 500 Index and the S&P 400 Index.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ANNUALIZED
-------------------------
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
Managers Capital Appreciation Fund 12.7% 14.5% 15.1%
S&P 500 Index 33.4 20.2 18.0
S&P 400 Index 32.2 17.3 18.8
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
- --------------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND, managed by The Managers Funds, L.P. since its
inception in 1984, is a growth oriented equity fund which primarily invests in
the stocks of small capitalization companies. The Managers Funds currently
utilizes four independent sub-advisors who each manage separate portions of the
portfolio: Andrew Knuth of Westport Asset Management, who has been managing a
portion of the Fund since December, 1985 manages approximately one third of the
total portfolio. Gary Pilgrim of Pilgrim Baxter & Associates, who has been
managing a portion of the fund since October, 1994, manages approximately one
third of the portfolio. Timothy Ebright of Liberty Investment Management, a
division of Goldman Sachs Asset Management, who has been managing a portion of
the fund since December, 1985, manages approximately one quarter of the
portfolio. Bob Kern, of Kern Capital Management manages the remainder of the
Fund since being added as a sub-advisor in September 1997.
THE PORTFOLIO MANAGERS
Andy Knuth's investment philosophy entails investing in small capitalization
companies which he perceives as having significant upside potential in earnings
and return on equity over the next twelve to eighteen months. Although he is
investing for growth, Andy will purchase stocks only if they are selling at or
below the market's price/earnings multiple, or below valuations of other
companies in the same industry. Thus, he must discover and invest in companies
very early in their growth cycle.
Implicit in the strategy, is that Andy and his partner focus on a small number
of issues, and tend to hold them for a long time. The concentration and low
turnover enable Andy to heavily research and monitor each position. He is
focused on future profits only, and, in fact, prefers to find businesses which
are inherently good but which have gone through a troubling period. Factors
which may improve earnings and investor perceptions include acquisitions or
divestitures, management shake-ups, changes in the business cycle, or the
development of a proprietary product in a strong industry. He searches in
particular for companies with good managers who are finding ways to
substantially improve the company.
The result is that Andy will typically have a concentrated portfolio, and any
significant industry concentrations are merely an outcome of bottom up
selection. Because some of the companies in which he invests may not yet have
earnings, the price to trailing earnings ratio may be high, although the price
to forward earnings will be well below average. Andy is a patient investor,
usually turning over less than 20% of his portfolio per year.
Gary Pilgrim, of Pilgrim Baxter & Associates focuses only on companies with
high and accelerating earnings growth. First, he screens for stocks which are
exhibiting at least 20% or greater earnings growth. He then ranks these stocks
using a proprietary quantitative ranking system (QRS) which focuses on recent
earnings growth, earnings acceleration, prospective earnings growth and
potential for earn-
15
<PAGE>
ings surprise. A team of analysts at Pilgrim Baxter speak with managements and
analyze the businesses to confirm and refine earnings expectations, and stocks
are purchased and sold based on their relative rankings.
Typically the portfolio will have an average historical and expected earnings
growth rate of near 50%. Because such a high priority is placed on high growth,
the companies in the portfolio tend to be very visible, and possess very high
price to earnings multiples. While successful growers move up in price quickly,
companies posting disappointing earnings move down dramatically as well. High
multiples also make the prices very sensitive to industry and economic news and
events. The result is a portfolio which exhibits a high level of price
volatility.
In addition, the QRS's focus on short term periods results in a high amount of
portfolio turnover. This is a necessary circumstance since companies with high
price multiples whose growth is slowing need to be identified and replaced
immediately. Gary typically holds around 80 positions and has an annual turnover
ratio in excess of 200%. His portfolios are also typically heavily weighted in a
few business sectors.
While similar in some respects to Andy Knuth, Tim Ebright of Liberty
Investment Management searches for a different kind of value and growth. Tim
searches for companies which have very predictable earnings, positive
operational cash flow and a defensible market position, which are selling for
less than the intrinsic value of the business. In addition, Tim prefers
companies in which the managers own a substantial portion of the stock.
Typically, this combination can only be found in companies that have not been
"discovered" by institutional investors, or have been "orphaned" since their
initial public offerings. Companies such as this tend to be very small, hence,
Tim is what many consider a micro-cap manager. That is, he typically invests
only in companies with market capitalizations under $300 million, sometimes far
smaller. If his analysis is correct, the portfolio makes money in one of three
ways: First, the company may continue to churn out steady earnings growth for an
indefinite period. Second, the stock may be discovered by institutional
investors and enjoy an expansion of its valuation. Third, the company may be
acquired at or above its intrinsic value.
Because of the size of the companies, Tim must build a portfolio of close to
100 positions. These stocks tend to be less susceptible to market swings, and
exhibit less price volatility merely because they trade much less than larger
companies. Their added risk is in their lower liquidity.
Bob Kern is one of the pioneers of micro-cap investing, and while similar to
Tim Ebright in his focus on very small companies, Bob directs his efforts toward
finding companies which are succeeding through innovation of new products or
services. Thus, Bob's portfolio tends to be concentrated in technology,
healthcare, consumer goods and service sectors. Bob seeks to earn returns from
the appreciation of stocks as the companies' products develop and penetrate new
markets.
In most cases the analysis of the product and judgements as to its potential
is the most important aspect of Bob's decision to own a stock. In all
16
<PAGE>
cases, however, the operational and financial health of the company must be
verified. Bob likes to find companies in which margins will increase with
revenue growth, and which can finance much of their growth from operating cash
flow.
Although valuation is clearly important, Bob is often willing to pay
relatively high multiples where he sees enough growth potential. Bob will
typically hold a portfolio of 60 to 70 stocks with a median market
capitalization of under $200 million.
Risk is a necessary part of investing, and is particularly inherent in
investing in small capitalization companies. In this Fund we have combined four
managers, who specialize in a different types of risk. Andy Knuth takes on extra
specific (or company) risk by concentrating his portfolio in a small number of
stocks. Meanwhile he is trying to decrease price risk by purchasing undervalued
companies. Tim Ebright is taking on added liquidity risk while decreasing
specific and price risks. Gary Pilgrim is taking on added price risk while
lowering specific risk. Bob Kern diversifies specific risk while taking on price
risk and liquidity risk.
THE YEAR IN REVIEW
During the final six months of 1997, MANAGERS SPECIAL EQUITY FUND provided a
total return of 13.2% which brought the return for the full year to 24.4%. For
the same periods, the Russell 2000, a broad index of small capitalization
stocks, returned 11.0% and 22.2%, respectively.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
as of December 31, 1997
% FUND
------
<S> <C>
XTRA Corp. 2.1%
Airborne Freight Corp.* 1.8%
American Radio Systems Corp. 1.8%
Emmis Broadcasting Corp. 1.4%
Allied Capital Corp. 1.3%
Pittston Brink's Group 1.2%
Downey Financial Corp. 1.0%
MacFrugal's Bargains
Close-Outs, Inc.* 1.0%
Policy Management Systems Corp. 1.0%
C&D Technologies 0.9%
*A top ten holding December 1996.
</TABLE>
The Fund's diversity was an asset in 1997, as strong performance came from a
variety of areas, and enabled the Fund to hold up well during the sharp first
quarter downturn in small cap growth stocks, and again in the fourth quarter
when liquidity across the small capitalization universe came under pressure.
The first quarter of 1997 was difficult for small capitalization stocks in
general, particularly for the growth segments of both the index and the Fund.
Despite a positive earnings environment, the valuations of aggressively growing
companies retracted substantially, continuing a trend begun in June 1996. For
example, the price earnings ratio for the Russell 2000 growth index dropped from
43.8 in June 1996 to 37.4 on December 31, 1996 to 29.8 on March 31, 1997, a drop
of 32% in total, and 20% for the first quarter. Conversely, for the same
periods, the price earnings ratio for the Russell 2000 Value Index went from
18.1 to 18.7 to 17.4. Thus, the Pilgrim Baxter portion of the portfolio suffered
more than the other two managers' portions of the
17
<PAGE>
Fund, specifically in the technology and software sectors.
The second quarter saw the end of the ten-month bear market for small cap
stocks, and the Fund more than made up its relative underperformance of the
first quarter. The rally was broad, as all sectors represented in the portfolio
appreciated by double digit percentages. National Education, long one of the
Fund's largest holdings, was acquired in June by Harcourt General at a price 38%
higher than its December 1996 valuation, and 190% above the Fund's cost.
For the year, transportation holdings were the most significant contributors
to performance, appreciating 51% on average. Airborne Freight, one of the Fund's
top ten holdings throughout the year, appreciated 166%. Air Express
International, Xtra Corp., Sea Containers and CNF Transportation each
appreciated significantly due to increasing volumes, rising margins and market
recognition.
The Fund's largest sector position throughout the year was in financial
companies which appreciated 42% on average. Falling interest rates, and
continued consolidation in the industry helped drive prices higher. Energy
stocks performed very well during the first three quarters but faltered in the
fourth quarter as a result of falling expected demand for oil.
Technology positions were by far the weakest and most volatile performers
throughout the year. The Fund's technology holdings dropped 19% during the first
quarter, then rebounded sharply during the second and third quarters only to
trade lower again in the fourth quarter as demand from the Far East came into
doubt. For the year, the Fund's technology and software holdings rose only 8% on
average.
LOOKING FORWARD
Tim Ebright continues to find fresh material among companies which recently
went public and have since dropped in price as the institutions which originally
supported them focus their energies elsewhere. He will be focusing on both old
and new investment themes which include companies benefiting from relaxation of
government regulation, continued polarization of economic demographics, changes
in money flows, expansion of international trade, business consolidation, and
the aging of the population. Andy Knuth remains heavily invested in the
financial and transportation sectors while adding marginally to the
entertainment and leisure group.
Both Gary Pilgrim and Bob Kern will be focussing on the fastest growing
segments of the market and thus remain heavily invested in technology and health
care companies. While these have recently been extremely volatile, reacting to
news and speculation about demand from abroad, the earnings growth of the
holdings have, on average, been healthy. Thus, the volatility has provided
opportunities to adjust positions.
18
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
Cumulative Total Return Performance
- --------------------------------------------------------------------------------
The Managers Special Equity Fund's cumulative total return is based on the
monthly change in net asset value (NAV), and assumes that all distributions were
reinvested.
The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index, representing approximately 11% of the Russell 3000 total
market capitalization.
The Russell 3000 Index is composed of 3000 large U.S. companies, as determined
by market capitalization. This portfolio of securities represents approximately
98% of the investable U.S. equity market.
This chart compares a hypothetical $10,000 investment made in Managers Special
Equity Fund on December 31, 1987, to a $10,000 investment made in the Russell
2000 for the same time period. Past performance is not indicative of future
results.
<TABLE>
<CAPTION>
Measurement Period Managers Special
(Fiscal Year Covered) Equity Fund Russell 2000
<S> <C> <C>
1987 10000 10000
1988 12526 12489
1989 16630 14518
1990 13999 11686
1991 20970 17067
1992 24353 20210
1993 28580 24030
1994 28010 23593
1995 37516 30302
1996 46802 35315
1997 58245 43169
</TABLE>
This table shows the average annual total returns for Managers Special Equity
Fund for the one-year, five-year and ten-year periods through December 31, 1997,
and comparable returns for the Russell 2000 Index.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ANNUALIZED
-------------------------
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
Managers Special Equity Fund 24.5% 19.1% 19.3%
Russell 2000 Index 22.2 16.4 15.8
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND, managed by The Managers Funds, L.P. since
its inception in 1985, seeks long-term capital appreciation through investment
in non-U.S. equity securities. The Managers Funds currently utilizes two
independent sub-advisors who each manage approximately half of the total
portfolio: William Holzer of Scudder Kemper Investments Inc., (formerly Scudder,
Stevens & Clark, Inc.), hired in December 1989, and John Reinsberg, of Lazard
Asset Management, who was hired in January 1995.
THE PORTFOLIO MANAGERS
William (Willie) Holzer can be described as a "top down" thematic investor. He
views the world as a single global economy as opposed to a collection of
separate country economies. Willie focuses his efforts by first developing
global investment themes which target the fastest growing or most profitable
segments of the global economy. Themes are typically long lived, three or more
years, and are developed through the course of business; discussions with
company managements or government officials, fundamental and economic analysis,
and the tracking of economic, financial and demographic trends. Willie then
works with the large group of global securities analysts at Scudder to identify
the companies which will potentially benefit from the effects of the themes.
These companies will necessarily have attractive fundamentals and reasonable
valuations, along with strong company management.
Willie also believes that it is important to distinguish between three types
of companies: Domestic companies are those which produce, sell and raise capital
all in their home country; International companies are those which produce at
home, but sell their products and raise capital anywhere in the world; Global
companies are those which produce, sell and raise capital anywhere. Willie will
invest in any of these types in order to capitalize on a theme, however, he
prefers global companies which generally have the flexibility and resources to
exploit global trends. Thus, his portfolio tends to be heavily weighted in large
capitalization, multi-national companies. In addition, his portfolio will tend
to be concentrated in the developed markets, with only a small portion invested
in companies domiciled in less developed or "emerging" markets. However,
companies in the portfolio, while domiciled in developed markets, may have
operations or distribution in the emerging markets. Given the long-term nature
of the themes, his rate of turnover is relatively low and typically in the 40%
to 50% annual range.
John Reinsberg, of Lazard Asset Management, pursues what is referred to as a
"bottom up" value approach. The portfolio managers and analysts at Lazard focus
on individual stocks that they believe are financially productive and
inexpensively priced. In order to correctly determine what is inexpensive, they
analyze the financial statements in the local language, and refigure the
accounting in order to make comparisons across countries
20
<PAGE>
and industries. This rigorous accounting validation, performed by a large staff
of multi-lingual analysts is one of the keys to Lazard's approach.
John and his team visit and analyze the management and operations of the
worthwhile candidates. In purchasing undervalued securities its important to
distinguish companies which will improve their valuation from those which are
likely to stay at low valuations. John's goal is to find and invest in companies
which are creating value. Value creation can come from improving operations or
distribution channels, restructuring management, acquisitions, divestitures, or
exploiting new markets.
Country and industry allocation are the result of stock selection, although
John manages the structure in order to maintain a reasonable diversification.
Given his preference for full and accurate financial disclosure, John tends to
have only minimal investments in emerging markets. Although it is improving,
financial recording and accounting practices in less developed countries are
erratic. As is typical of a value oriented investor, John's portfolio turnover
rate is also relatively low and tends to be in a range of 20% to 30% annually.
SOME THOUGHTS ABOUT CURRENCIES.
One of the additional risks of investing in foreign companies is the risk that
foreign currency devaluations will decrease the value of your investment when
translated back to U.S. Dollars. This risk can also work in reverse and increase
the value of your investment. Currency movements are no less difficult to
predict than the direction of interest rates; in fact they are related. One of
the benefits of international investing is the diversification benefit gained
from the difference in return patterns (lower correlation of returns) that
foreign stock markets have with U.S. stocks. Much of this differentiation comes
from currency movements. This is a long way of saying that much of the
diversification benefit of international investing is a result of currency
fluctuations.
For this reason, the portfolio managers of the Fund do not, as a policy, hedge
all foreign currency exposure in the portfolio back to U.S. Dollars. In fact,
both managers use currency hedges sparingly. Here's why: First, as previously
mentioned, it is difficult to predict currency movements, and neither manager
believes he can consistently add value by timing currencies. Secondly, the
currency exposure of the portfolio is not necessarily reflected in the country
allocation. Most of the companies in the portfolio are global companies that may
have assets in, and certainly derive revenues from a variety of countries in a
variety of currencies. Hence, determining the appropriate hedge ratio would be
extremely difficult. We and the managers together believe that the portfolio is
well diversified in currencies, and would not benefit from a policy of active
hedging or currency management. That said, there are periods when, if the
managers believe there is particular risk of volatility in a certain currency,
they will use forward foreign exchange contracts to hedge all or a portion of
the currency exposure.
21
<PAGE>
THE YEAR IN REVIEW
During the final six months of 1997, Managers International Equity Fund
provided a total return of -1.7%, which brought the return for the full year to
10.8%. For the same periods, the Morgan Stanley Capital International -- Europe
Australia Far East Index (EAFE) returned -8.5% and 1.8%, respectively.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
as of December 31, 1997
% FUND
------
<S> <C>
Novartis AG* 2.0%
Viag AG 1.8%
CS Holding AG 1.8%
Unilever PLC 1.7%
Sony Corp.* 1.6%
Axa-UAP 1.5%
British Aerospace PLC 1.5%
Ricoh Company Ltd. 1.5%
Nestle SA Registered 1.5%
Hocchst AG* 1.4%
*A top ten holding December 1996
</TABLE>
Because there was such a vast difference in returns between European stocks
and Far Eastern stocks, the primary determinant of the Fund's performance
relative to the EAFE was the regional allocation of the Fund's assets. As
described above, neither manager uses a technique whereby he is deciding on
country allocations. Rather, the country allocation of each portfolio is simply
a result of the manager's stock selection. Prior to and throughout 1997, both
managers found the majority of their investments in Europe. While the investment
allocation in Japan rose from 15% at the beginning of the year to 18% in
September, it remained well below that of the index, which began the year at
32%, and dropped to 25% by year-end. Similarly, the portfolio was underweight in
the remainder of the Far East where the managers were finding what they
considered to be excessive valuations, undisciplined capital spending, imprudent
lending and inappropriate policy responses. Thus, only 5% of the Fund was
invested in the developed pacific region other than Japan, and only trace
amounts were invested in Pacific Region emerging markets. The portfolio was
completely void of investments in Indonesia, Thailand and Singapore at mid-year,
and the allocation in Malaysia and Korea combined was less than 1%. While these
allocations were a modest hindrance to performance relative to the index and
peers during the first half of the year, justification of the managers' analysis
was evident in the latter half of 1997.
Stock selection within the Pacific and European regions was also additive
during the year. While the Nikkei average fell more than 30% in U.S. Dollar
terms, the Japanese holdings in the portfolio returned -1.8% on average for the
year. Global brand name companies such as Ricoh, Sony, Honda and Nintendo among
others performed relatively well not only because they are more competitively
operated, but also because their businesses are diversified across the globe.
Continued underweighting of the Japanese financial sector, particularly the
major banks, was beneficial, as these traded down as the quality of their loan
portfolios continued to deteriorate. One notable exception is Orix, a Japanese
leasing company, which restructured its debt provisions, acquired a bankrupt
competitor, entered a joint venture with Banc One, announced a share buyback
program
22
<PAGE>
and improved its employee incentive program with the use of stock options. Orix
appreciated 67% in U.S. Dollar terms for the year.
European stocks, which made up approximately 65% of the portfolio throughout
the year, performed extremely well in local currency terms. German stocks, which
began the year as the heaviest portion of the portfolio, performed well, rising
15% on average As in 1996, restructuring of businesses continued to liberate
shareholder value in 1997. Daimler Benz, RWE and VIAG were significant
contributors during the year, but SAP was again the portfolio's best performing
asset, rising 134% for the year. Swiss shares had the most significant impact,
rising 34% on average, led by Clarient and Swiss Reinsurance.
From a sector perspective, financial holdings, which made up 20% of the
portfolio throughout the year, were the dominant contributors, rising 21% on
average. Previously mentioned Orix and Swiss Reinsurance, along with Zurich
Insurance, EXEL, Skandia Foersaekrings, Assurances Generales de France, and
Bayerische Vereinsbank each rose more than 59% for the year. Healthcare and
utilities holdings, although smaller portions of the portfolio, also contributed
significantly, rising 23% and 15%, respectively.
LOOKING FORWARD
While global companies have dominated the portfolio in the past few years,
both managers are beginning to find interesting investments among domestic
companies (as defined above). These companies have less flexibility to allocate
resources across boarders and they have significantly underperformed global
companies which have benefited from operational restructuring. The valuations of
domestic companies, however, are cheaper, and there are some which are beginning
to follow in the footsteps of the global companies by rationalizing their
operations and focusing on shareholder value. Further, as global economies
continue to ride the fence between disinflation and deflation, it will be
important to focus on those companies (global, international or domestic) which
will have the ability to continue to reduce costs.
Scudder developed a new theme in the fourth quarter which focuses on "secure
streams of income." As baby boomers age and their need for secure retirement
income increases, so does their need for yield. Meanwhile the supply of bonds
and regulated utilities is falling due to shrinking deficits, and deregulation.
Thus, the valuation of these instruments is likely to rise. Scudder will be
seeking to increase the utility holdings in the portfolio by purchasing those
utilities which are best positioned to prosper in a deregulated environment.
John Reinsberg will continue to concentrate on finding value within individual
stocks, but with a particular focus on a few important developments during 1998.
The development of the common European Currency has been progressing slowly, but
will be a large benefit when complete. As in 1997, Lazard will continue to
closely analyze the Japanese banks to determine an appropriate entry point.
23
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
Cumulative Total Return Performance
- --------------------------------------------------------------------------------
The Managers International Equity Fund's cumulative total return is based on
the monthly change in net asset value (NAV), and assumes that all distributions
were reinvested.
The MSCI EAFE Index (EAFE) is compiled by Morgan Stanley Capital
International. It consists of over 1000 large, publicly traded stocks from 20
countries of Europe, Australia and
the Far East. The index assumes reinvestment of dividends.
This chart compares a hypothetical $10,000 investment made in Managers
International Equity Fund on December 31, 1987, to a $10,000 investment made in
the EAFE for the same time period. Past performance is not indicative of future
results.
<TABLE>
<CAPTION>
Managers
Measurement Period International
(Fiscal Year Covered) Equity Fund MSCI EAFE
<S> <C> <C>
1987 10000 10000
1988 10889 12859
1989 12533 14247
1990 11307 10943
1991 13360 12310
1992 13928 10851
1993 19253 14426
1994 19638 15547
1995 22827 17290
1996 25743 18336
1997 28530 18662
</TABLE>
This table shows the average annual total returns for Managers International
Equity Fund for the one-year, five-year and ten-year periods through December
31, 1997, and comparable returns for the EAFE Index.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ANNUALIZED
-------------------------
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
Managers Income Equity Fund 10.8% 15.4% 11.1%
EAFE Index 1.8 11.5 6.4
</TABLE>
24
<PAGE>
- --------------------------------------------------------------------------------
THE MANAGERS FUNDS
SUMMARY OF INDUSTRY WEIGHTINGS AND MANAGERS INTERNATIONAL EQUITY FUND
COUNTRY ALLOCATIONS RELATIVE TO MSCI EAFE INDEX (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS MANAGERS MANAGERS
INCOME CAPITAL SPECIAL INTERNATIONAL
MAJOR SECTORS EQUITY FUND APPRECIATION FUND EQUITY FUND EQUITY FUND
--------------------------------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Basic Industries 12.9% -% 1.3% 11.0%
Capital Goods 3.1 0.7 7.6 5.5
Communication Services 4.5 18.1 4.4 3.6
Computer Software - 19.2 6.2 -
Conglomerates - - - 1.6
Consumer Basics 5.4 0.8 1.1 7.9
Consumer Durable Goods 5.3 2.0 0.8 8.1
Consumer Non-Durable 4.9 9.2 4.5 1.6
Consumer Services - - 3.1 -
Energy 8.5 4.3 3.6 5.9
Entertainment & Leisure - 8.7 6.6 2.9
Environmental Controls 1.4 - 3.1 -
Finance and Insurance 21.8 10.8 10.8 22.6
General Business 1.7 8.6 8.6 2.8
Health Care 11.6 4.3 8.9 4.1
Real Estate 2.2 - 3.2 0.9
Technology 7.6 6.2 8.3 3.1
Transportation 0.6 3.2 8.5 1.7
Utilities 5.1 1.6 0.8 6.1
Other 3.4 2.3 8.6 10.6
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS
INTERNATIONAL MSCI INTERNATIONAL MSCI
COUNTRY ALLOCATION EQUITY FUND EAFE INDEX COUNTRY ALLOCATION EQUITY FUND EAFE INDEX
------------------ ------------- ---------- ------------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
United Kingdom 17.6% 21.6% Denmark 0.5% 1.1%
Germany 16.1 9.8 Argentina 0.5 0.0
Japan 15.7 25.2 Finland 0.5 0.7
Switzerland 10.2 7.8 China 0.3 0.0
France 9.0 8.0 Austria 0.3 0.4
Sweden 4.2 2.6 South Africa 0.3 0.0
Netherlands 3.6 5.7 Ghana 0.2 0.0
Italy 2.8 4.0 Malaysia 0.2 0.8
Hong Kong 2.5 2.8 Korea 0.1 0.0
Australia 1.9 2.8 Belgium 0.0 1.3
Canada 1.8 0.0 Singapore 0.0 0.9
Brazil 1.2 0.0 Norway 0.0 0.5
Spain 0.9 2.7 Ireland 0.0 0.4
United States 0.8 0.0 New Zealand 0.0 0.3
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 96.2%
BASIC INDUSTRIES -- 12.9%
Allegheny Teledyne,
Inc. 40,617 $ 1,050,965
Betzdearborn, Inc. 19,340 1,180,949
Dow Chemical Co. 4,400 446,600
Eastman Chemical Co. 6,800 405,025
E.I. duPont de Nemours
& Co., Inc. 19,500 1,171,219
Georgia Pacific Corp. 5,600 340,200
Georgia Pacific Corp. -
Timber Group 5,600 127,050
Imperial Chemical
Industries PLC -
Sponsored ADR 22,960 1,490,965
International Paper Co. 6,945 299,503
Olin Corp. 8,700 407,813
Oregon Steel Mills,
Inc. 13,300 283,456
Westvaco Corp. 8,800 276,650
Weyerhaeuser Co. 10,400 510,250
Witco Corp. 9,800 399,962
-----------
TOTAL BASIC INDUSTRIES 8,390,607
-----------
CAPITAL GOODS -- 3.1%
Minnesota Mining &
Manufacturing Co. 8,200 672,912
PACCAR, Inc. 6,000 315,000
Philips Electronics
NV - ADR 10,200 617,100
Rockwell International
Corp. 7,400 386,650
-----------
TOTAL CAPITAL GOODS 1,991,662
-----------
COMMUNICATION SERVICES -- 4.5%
ALLTEL Corp. 8,600 353,137
Bell Atlantic Corp. 9,392 854,672
BellSouth Corp. 9,000 506,813
GTE Corp. 13,800 721,050
Sprint Corp. 8,500 498,313
-----------
TOTAL COMMUNICATION SERVICES 2,933,985
-----------
CONSUMER BASICS -- 5.4%
General Mills, Inc. 10,800 773,550
Heinz (H.J.) Co. 16,900 858,731
Philip Morris Cos.,
Inc. 25,700 1,164,531
Unilever NV -
New York
registered shares 11,800 736,763
-----------
TOTAL CONSUMER BASICS 3,533,575
-----------
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
CONSUMER DURABLE GOODS -- 5.3%
Dana Corp. 12,100 $ 574,750
Echlin Inc. 8,000 289,500
Ford Motor Co. 27,500 1,338,906
Meritor Automotive,
Inc. 11,566 243,609
TRW, Inc. 11,900 635,163
Whirlpool Corp. 6,400 352,000
-----------
TOTAL CONSUMER DURABLE GOODS 3,433,928
-----------
CONSUMER NON-DURABLE -- 4.9%
Avon Products, Inc. 3,100 190,263
J.C. Penney Co., Inc. 8,700 524,719
Kimberly-Clark Corp. 20,500 1,010,906
Limited Inc., The 18,900 481,950
Mercantile Stores Co.,
Inc. 5,400 328,725
Rite Aid Corp. 4,700 275,831
Sears, Roebuck & Co. 7,700 348,425
-----------
TOTAL CONSUMER NON-DURABLE 3,160,819
-----------
ENERGY -- 8.5%
Compagnie Francaise de
Petroleum Total,
Sponsored ADR 7,100 394,050
Dresser Industries,
Inc. 9,000 377,438
Elf Aquitaine,
Sponsored ADR* 8,541 500,716
Enron Corp. 17,700 735,656
Lyondell Petrochemical
Co. 10,400 275,600
MCN Energy Corp. 9,200 371,450
Royal Dutch Petroleum
Co. -- New York
registered shares 6,100 330,544
Texaco, Inc. 13,600 739,500
USX-Marathon Group 40,400 1,363,500
YPF Sociedad Anonima,
Class D, Sponsored ADR 12,800 437,600
-----------
TOTAL ENERGY 5,526,054
-----------
ENVIRONMENTAL CONTROLS -- 1.4%
Browning-Ferris
Industries, Inc. 24,100 891,700
-----------
FINANCE AND INSURANCE -- 21.8%
American General Corp. 9,500 513,594
Aon Corp. 7,600 445,550
Banc One Corp. 17,750 964,047
BankBoston Corp. 4,550 427,416
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
FINANCE AND INSURANCE (CONTINUED)
Bankers Trust New York
Corp. 4,000 $ 449,750
Chase Manhattan Corp. 11,800 1,292,100
Compass Bancshares Inc. 9,000 393,750
CoreStates Financial
Corp. 1,100 88,069
Crestar Financial Corp. 5,600 319,200
EXEL Ltd. 7,200 456,300
Federal National
Mortgage Association 22,600 1,289,612
First Commerce Corp. 3,700 248,825
First Security Corp. 12,700 531,812
First Union Corp. 7,500 384,375
Firstar Corp. 11,400 483,787
Hartford Financial
Services Group Inc. 6,700 626,869
J.P. Morgan & Co., Inc. 2,700 304,762
KeyCorp 7,000 495,687
Lincoln National Corp. 8,200 640,625
Mellon Bank Corp. 8,800 533,500
PNC Bank Corp. 7,800 445,088
Safeco Corp. 10,700 520,288
Summit Bancorp 16,200 862,650
Union Planters Corp. 5,100 346,481
U.S. Bancorp 10,100 1,130,569
-----------
TOTAL FINANCE AND INSURANCE 14,194,706
-----------
GENERAL BUSINESS -- 1.7%
McGraw-Hill Companies 6,200 458,800
True North
Communications, Inc. 25,300 626,175
-----------
TOTAL GENERAL BUSINESS 1,084,975
-----------
HEALTH CARE -- 11.2%
American Home Products
Corp. 17,900 1,369,350
Baxter International,
Inc. 29,100 1,467,731
Bristol-Myers Squibb
Co. 18,180 1,720,282
Glaxo Wellcome PLC --
Sponsored ADR 11,700 560,138
SmithKline Beecham Unit
PLC,
Sponsored ADR 29,760 1,530,780
Zeneca Group PLC,
Sponsored ADR 5,600 604,800
-----------
TOTAL HEALTH CARE 7,253,081
-----------
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
REAL ESTATE -- 2.2%
Health Care Property
Investors, Inc. 6,800 $ 257,125
Meditrust 8,411 308,053
Security Capital Group
Inc. -- Warrants*** 449 2,357
Security Capital
Industrial Trust 14,458 359,643
Starwood Hotels &
Resorts Trust 8,700 503,512
-----------
TOTAL REAL ESTATE 1,430,690
-----------
TECHNOLOGY -- 7.6%
AMP, Inc. 18,000 756,000
Gencorp, Inc. 12,500 312,500
Pitney Bowes, Inc. 17,110 1,538,830
Xerox Corp. 31,500 2,325,094
-----------
TOTAL TECHNOLOGY 4,932,424
-----------
TRANSPORTATION -- 0.6%
CSX Corp. 7,000 378,000
-----------
UTILITIES -- 5.1%
Cinergy Corp. 11,500 440,594
Duke Power Co. 11,190 619,646
Pacificorp 10,700 292,244
PG&E Corp. 11,900 362,206
Sonat, Inc. 10,100 462,075
Southern Co. 2,800 72,450
Williams Companies,
Inc., The 22,600 641,275
Wisconsin Energy Corp. 15,500 445,625
-----------
TOTAL UTILITIES 3,336,115
-----------
TOTAL COMMON STOCKS (cost
$51,486,107) 62,472,321
-----------
<CAPTION>
-------------------------------------------
PRINCIPAL
AMOUNT VALUE
-------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND -- 0.4%
HEALTH CARE -- 0.4%
American Retirement
Corp.,
(cost $260,000) $260,000 260,650
-----------
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 4.8%
JPM Prime Money Market
Fund, 5.58%** 1,071,229 $ 1,071,229
Landmark Institutional
Liquid Reserves,
5.60%** 2,019,226 2,019,226
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $3,090,455) 3,090,455
-----------
TOTAL INVESTMENTS -- 101.4%
(cost $54,836,562) 65,823,426
OTHER ASSETS, LESS LIABILITIES --
(1.4)% (877,141)
-----------
NET ASSETS -- 100.0% $64,946,285
===========
- -------------------------------------------
Note: Based on the cost of investments of
$54,896,736 for federal income tax
purposes at December 31, 1997, the
aggregate gross unrealized
appreciation and depreciation was
$11,720,225 and $793,535, re-
spectively, resulting in net
unrealized appreciation of investments
of $10,926,690.
* Some or all of these shares, amounting
to $498,313, or 0.8% of net assets,
were out on loan to various brokers as
of December 31, 1997.
** Yield shown for each investment com-
pany represents the December 31, 1997
seven-day average yield, which refers
to the sum of the previous seven days'
dividends paid, expressed as an annual
percentage.
*** Non-income producing security.
INVESTMENT ABBREVIATIONS:
ADR: Securities whose value is determined
or significantly influenced by trading
on exchanges not located in the United
States or Canada. ADR after the name
of a holding stands for American
Depositary Receipt, representing
ownership of foreign securities on
deposit with a domestic custodian
bank.
New York registered shares: Shares of foreign
companies registered on the New York Stock
Exchange.
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 97.7%
CAPITAL GOODS -- 0.7%
Thermo Electron Corp.* 12,000 $ 534,000
-----------
COMMUNICATION SERVICES -- 18.1%
Advanced Fibre
Communications* 33,400 972,775
AirTouch
Communications, Inc.* 26,700 1,109,719
AT&T Corp. 20,000 1,225,000
CIENA Corp.* 23,800 1,454,775
Comcast Corp., Class A 16,600 527,050
GTE Corp. 10,100 527,725
LCI International,
Inc.* 39,000 1,199,250
Lucent Technologies,
Inc. 6,900 551,137
Nextel Communications
Inc -- Class A* 62,600 1,611,950
Qwest Communications
International Inc.* 20,300 1,202,775
RSL Communications,
Ltd.* 53,300 1,179,263
Tel-Save Holdings,
Inc.* 46,400** 916,400
WorldCom, Inc.* 29,900 904,475
-----------
TOTAL COMMUNICATION SERVICES 13,382,294
-----------
COMPUTER SOFTWARE -- 19.2%
Citrix Systems, Inc.* 11,800 896,800
CNET, Inc.* 47,500** 1,365,625
Compuware Corp.* 27,900 892,800
Excite, Inc.* 65,900 1,977,000
HBO & Company 43,100 2,066,106
J.D. Edwards & Co.* 24,900 731,437
PeopleSoft, Inc.* 69,400 2,689,250
Platinum Technology,
Inc.* 26,500 748,625
Policy Management
Systems Corp.* 17,100 1,189,519
Siebel Systems Inc.* 69 2,885
Sterling Commerce,
Inc.* 18,500 711,094
VERITAS Software Corp.* 17,800 901,125
-----------
TOTAL COMPUTER SOFTWARE 14,172,266
-----------
CONSUMER BASICS -- 0.8%
Warner Lambert Co. 4,700 582,800
-----------
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
CONSUMER DURABLE GOODS -- 2.0%
Sunbeam Corp., Inc. 34,500 $ 1,453,313
-----------
CONSUMER NON-DURABLE -- 9.2%
Amazon.com, Inc,* 32,700** 1,970,175
Costco Cos. Inc* 19,800 882,337
CVS Corp. 11,400 730,313
General Nutrition Cos.
Inc.* 28,500 965,437
Home Depot, Inc. 21,600 1,271,700
Rite Aid Corp. 16,100 944,869
-----------
TOTAL CONSUMER NON-DURABLE 6,764,831
-----------
ENERGY -- 4.3%
Cooper Cameron Corp.* 17,100 1,043,100
Friede Goldman
International Inc.* 20,600** 607,700
Global Industries Ltd.* 64,000 1,088,000
Schlumberger, Ltd. 5,900 474,950
-----------
TOTAL ENERGY 3,213,750
-----------
ENTERTAINMENT AND LEISURE -- 8.7%
America Online, Inc.* 40,800 3,638,850
HSN, Inc.* 24,000 1,236,000
Tele-Communications,
Inc. TCI, Class A* 56,039 1,562,087
-----------
TOTAL ENTERTAINMENT AND LEISURE 6,436,937
-----------
FINANCE AND INSURANCE -- 10.8%
American Express Co. 15,000 1,338,750
BankAmerica Corp. 12,000 876,000
Household
International, Inc. 8,000 1,020,500
H.F. Ahmanson & Co. 20,400 1,365,525
Imperial Bancorp* 23,500 1,158,844
Lehman Brothers
Holdings, Inc. 23,000 1,173,000
Travelers Group, Inc. 20,000 1,077,500
-----------
TOTAL FINANCE AND INSURANCE 8,010,119
-----------
GENERAL BUSINESS -- 8.6%
Apollo Group, Inc. --
Class A* 25,400 1,200,150
Cendant Corp,* 35,600 1,223,750
Dow Jones & Co., Inc. 20,400 1,095,225
McGraw-Hill Companies 13,000 962,000
TMP Worldwide Inc.* 81,000 1,842,750
-----------
TOTAL GENERAL BUSINESS 6,323,875
-----------
</TABLE>
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
HEALTH CARE -- 4.3%
Arterial Vascular
Engineer, Inc.* 19,000 $ 1,235,000
Bristol-Myers Squibb
Co. 6,300 596,138
Eli Lilly & Co. 9,400 654,475
Rexall Sundown, Inc.* 23,500** 709,406
-----------
TOTAL HEALTH CARE 3,195,019
-----------
TECHNOLOGY -- 6.2%
Compaq Computer Corp. 16,800 948,150
Dell Computer Corp.* 17,000 1,428,000
Incyte Pharmacuticals,
Inc.* 19,500 853,125
Saville Systems Ireland
PLC -- Sponsored ADR* 22,200 919,912
Security Dynamics
Technologies, Inc.* 12,300 439,725
-----------
TOTAL TECHNOLOGY 4,588,912
-----------
TRANSPORTATION -- 3.2%
C.H. Robinson
Worldwide, Inc. 39,400 881,575
US Airways Group Inc.* 24,000 1,500,000
-----------
TOTAL TRANSPORTATION 2,381,575
-----------
UTILITIES -- 1.6%
Williams Companies,
Inc., The 40,401 1,146,380
-----------
TOTAL INVESTMENTS
(cost $62,469,339) 72,186,071
OTHER ASSETS, LESS
LIABILITIES -- 2.3% 1,673,621
-----------
NET ASSETS -- 100.0% $73,859,692
===========
- -------------------------------------------
Note: Based on the cost of investments of
$62,528,769 for federal income tax
purposes at December 31, 1997, the
aggregate gross unrealized
appreciation and depreciation was
$11,394,231 and $1,736,929,
respectively, resulting in net
unrealized appreciation of investments
of $9,657,302.
* Non-income-producing security.
** Some or all of these shares, amounting
to $5,488,787, or 7.4% of net assets,
were out on loan to various brokers as
of December 31, 1997.
INVESTMENT ABBREVIATIONS:
ADR: Securities whose value is determined
or significantly influenced by trading
on exchanges not located in the United
States or Canada. ADR after the name
of a holding stands for American
Depositary Receipt, representing
ownership of foreign securities on
deposit with a domestic custodian
bank.
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 91.4%
BASIC INDUSTRIES -- 1.3%
Chase Industries,
Inc.* 75,800 $ 1,932,900
Lydall, Inc.* 100,000 1,950,000
Maverick Tube Corp.* 89,600 2,228,800
Metals USA, Inc.* 33,500 510,875
NuCo2, Inc.* 43,300 465,475
Oregon Metallurgical
Corp.* 55,200 1,842,300
-----------
TOTAL BASIC INDUSTRIES 8,930,350
-----------
CAPITAL GOODS -- 7.6%
AAR Corp. 172,800 6,696,000
ADE Corp.* 44,600 774,925
Cable Design
Technologies Corp.* 117,650 4,573,644
Comdial Corp.* 100,100 925,925
DT Industries, Inc. 86,700 2,947,800
Flow International
Corp.* 72,200 676,875
Furon Co. 105,000 2,191,875
Halter Marine Group,
Inc.* 93,550 2,701,256
Hughes Supply, Inc. 65,150 2,276,178
Integrated Process
Equipment Corp.* 54,500** 854,969
JLG Industries, Inc. 388,600 5,488,975
K-Tron International,
Inc.* 80,700 1,381,987
Micrel, Inc.* 32,200 897,575
Rental Service Corp.* 80,100 1,967,456
Rogers Corp.* 68,700 2,808,113
Sanmina Corp.* 51,100** 3,468,413
Sawtek, Inc.* 78,000 2,047,500
Scotsman Industries,
Inc. 67,500 1,649,531
Semiconductor Packing
Materials Co., Inc.* 34,500 250,125
Sequa Corp, Class A* 99,600 6,480,225
Watsco, Inc. 80,700 1,992,281
Wireless Telecom
Group, Inc. 67,300 416,419
Wolverine Tube, Inc.* 48,100 1,491,100
-----------
TOTAL CAPITAL GOODS 54,959,147
-----------
COMMUNICATION SERVICES -- 4.4%
AmeriLink Corp.* 24,000 618,000
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
COMMUNICATION SERVICES (CONTINUED)
Arch Communications
Group, Inc.* 265,200 $ 1,359,150
Associated Group,
Inc., Class B* 7,650 221,850
Centennial Cellular
Corp., Class A* 170,250 3,426,281
CFW
Communications Co. 61,000 1,342,000
Comcast UK Cable
Partners Ltd., Class
A* 72,500 661,563
Communications
Central, Inc.* 243,100 2,431,000
Davel Communications
Group, Inc.* 94,000 2,350,000
LCI International,
Inc.* 78,200 2,404,650
MDSI Mobile
Solutions, Inc.* 38,000 703,000
Metrocall, Inc.* 153,180 756,326
Nice Systems Ltd. --
Sponsored ADR* 26,900 1,119,713
Orckit
Communications Ltd.* 30,000 551,250
P-COM, Inc.* 199,100 3,434,475
Peoples Telephone
Company, Inc.* 330,400 1,218,350
Powerwave
Technologies, Inc.* 54,800 904,200
Rural Cellular
Corp. -- Class A* 43,300 562,900
Specialty
Teleconstructors,
Inc.* 70,000 892,500
Tekelec* 101,400 3,092,700
Vanguard Cellular
Systems, Inc. --
Class A* 128,300 1,635,825
World Access, Inc.* 90,600 2,163,075
-----------
TOTAL COMMUNICATION SERVICES 31,848,808
-----------
COMPUTER SOFTWARE -- 6.2%
Adept Technology,
Inc.* 11,000 115,500
Ciber, Inc.* 72,600 4,210,800
Credit Management
Solutions, Inc.* 45,400 573,175
</TABLE>
- --------------------------------------------------------------------------------
31
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
DAOU Systems, Inc.* 61,400** $ 1,911,075
Documentum, Inc.* 76,900 3,210,575
Geoworks* 79,100 741,562
HNC Software, Inc.* 30,300 1,299,113
Information
Management
Resources, Inc.* 87,700 3,288,750
ISG International
Software Group Ltd.* 61,800 872,925
JDA Software
Group, Inc.* 49,700 1,714,650
Medirisk, Inc.* 62,700 689,700
National Data Corp. 141,200 5,100,850
OrCAD, Inc.* 44,000 368,500
Peerless Systems
Corp.* 108,000 1,390,500
Policy Management
Systems Corp.* 102,300 7,116,244
Technology
Solutions Co.* 38,150 994,284
Template Software,
Inc.* 20,000 290,000
VERITAS Software
Corp.* 87,175 4,413,234
Viasoft, Inc.* 61,300 2,589,925
V-One Corp.* 88,400 309,400
Wind River Systems* 86,700 3,402,975
-----------
TOTAL COMPUTER SOFTWARE 44,603,737
-----------
CONSUMER BASICS -- 1.1%
Glacier Water
Services, Inc.* 39,100 1,212,100
Suiza Foods Corp.* 46,920 2,794,672
Sylvan, Inc.* 110,400 1,531,800
Whole Foods
Market, Inc.* 46,500 2,377,313
-----------
TOTAL CONSUMER BASICS 7,915,885
-----------
CONSUMER DURABLE GOODS -- 0.8%
Aaron Rents, Inc.,
Class B 110,000 2,090,000
Alrenco, Inc.* 94,100 1,517,362
Cross-Continent
Auto Retailers,
Inc.* 30,800 257,950
IMPCO Technologies,
Inc.* 46,200 499,538
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
CONSUMER DURABLE GOODS (CONTINUED)
Motorcar Parts &
Accesories, Inc.* 82,300 $ 1,357,950
-----------
TOTAL CONSUMER DURABLE GOODS 5,722,800
-----------
CONSUMER NON-DURABLE -- 4.5%
American Safety Razor
Co.* 57,800 1,141,550
Blyth Industries,
Inc.* 139,750** 4,183,766
Cash America
International, Inc. 155,100 2,006,606
Claire's Stores, Inc. 28,400 552,025
Cone Mills Corp.* 52,900 409,975
Dollar Tree Stores,
Inc.* 53,000 2,192,875
Fingerhut Cos., Inc. 125,000 2,671,875
Freds, Inc., Class A 74,750 1,466,969
Gadzooks, Inc.* 31,000 651,000
Genesco Inc.* 33,000 420,750
Gymboree Corp. (The)* 35,000 958,125
Helen of Troy Ltd.* 149,200 2,387,200
Henry Schein, Inc.* 32,000 1,120,000
MacFrugals Bargains
Close-Outs, Inc.* 175,800 7,229,775
Michael Anthony
Jewelers, Inc.* 177,100 431,681
Showbiz Pizza Time,
Inc.* 50,000 1,150,000
Successories, Inc.* 3,800 28,975
Tefron Ltd.* 21,000 483,000
TJX Companies, Inc. 40,000 1,375,000
Uni-Marts, Inc. 103,000 360,500
United Rentals, Inc.* 13,000 251,063
World of Science,
Inc.* 211,300 924,437
-----------
TOTAL CONSUMER NON-DURABLE 32,397,147
-----------
CONSUMER SERVICES -- 3.1%
Benihana, Inc. --
Class A* 109,700 1,357,537
Carriage Services,
Inc., Class A* 103,800 1,933,275
Landry's Seafood
Restaurants, Inc.* 148,000 3,552,000
Pittston Brink's
Group 219,100 8,818,775
Protection One, Inc. 216,100** 2,404,113
</TABLE>
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32
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SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
CONSUMER SERVICES (CONTINUED)
Rock of Ages Corp.* 93,200 $ 1,421,300
Ruby Tuesday, Inc.* 111,000 2,858,250
-----------
TOTAL CONSUMER SERVICES 22,345,250
-----------
ENERGY -- 3.6%
Berry Petroleum Co.,
Class A 107,600 1,876,275
Gulf Island
Fabrication, Inc.* 40,500 804,937
Hanover Compressor
Co.* 121,300 2,479,069
Key Energy Group,
Inc.* 36,400 789,425
Newpark Resources,
Inc.* 268,800 4,704,000
Offshore Logistics,
Inc.* 10,000 213,750
Patterson Energy,
Inc.* 57,300 2,216,794
Pool Energy Services
Co.* 127,100 2,827,975
Pride International,
Inc.* 58,700 1,482,175
Tosco Corp. 75,000 2,835,937
Tuboscope, Inc.* 102,600 2,468,813
Varco International,
Inc.* 150,900 3,234,919
-----------
TOTAL ENERGY 25,934,069
-----------
ENTERTAINMENT AND LEISURE -- 6.6%
American Radio
Systems Corp.* 237,500 12,661,719
Cinar Films Inc. --
Class B* 27,400 1,051,475
Cox Radio, Inc.* 106,200 4,274,550
Emmis Broadcasting
Corp., Class A* 227,400 10,346,700
Gaylord Entertainment
Co., Class A 131,400 4,196,588
Granite Broadcasting
Corp.* 169,000** 1,499,875
Gray Communications
System, Inc. 45,000 1,181,250
Harveys Casino
Resorts 99,000 2,054,250
Houghton Mifflin Co. 86,400 3,315,600
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
ENTERTAINMENT AND LEISURE (CONTINUED)
Jones Intercable,
Inc., Class A* 210,500 $ 3,696,906
Saga Communications,
Inc., Class A* 139,600 2,966,500
Toymax International,
Inc.* 31,000 263,500
-----------
TOTAL ENTERTAINMENT AND LEISURE 47,508,913
-----------
ENVIRONMENTAL CONTROLS -- 3.1%
Allied Waste
Industries, Inc.* 161,000 3,753,312
American Disposal
Services, Inc.* 163,200 5,936,400
BHA Group, Inc. 7,500 140,625
GNI Group, Inc.* 129,100 605,156
KTI, Inc.* 26,900** 440,488
Met-Pro Corp. 59,500 981,750
Superior Services,
Inc.* 144,300 4,166,662
Tetra Tech, Inc.* 152,147 3,042,940
URS Corp.* 115,800 1,802,138
Waste Industries,
Inc.* 91,900 1,654,200
-----------
TOTAL ENVIRONMENTAL CONTROLS 22,523,671
-----------
FINANCE AND INSURANCE -- 10.8%
Alabama National
Bancorporation 64,400 1,698,550
Allied Capital Corp.* 425,265** 9,408,995
AMRESCO, Inc.* 70,500 2,088,562
Andover Bancorp, Inc. 28,800 1,152,000
CENFED Financial
Corp. 22,000 990,000
Charter One
Financial, Inc. 89,302 5,603,701
ContiFinancial Corp.* 132,900** 3,347,419
Downey Financial
Corp. 265,315 7,544,895
Executive Risk, Inc. 13,000 907,562
First Republic Bank* 29,956 956,720
First Savings Bank of
Washington Bancorp,
Inc. 127,000 3,429,000
FirstBank Corp. 73,200 1,354,200
HCC Insurance
Holdings, Inc. 52,650 1,118,812
</TABLE>
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33
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MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
FINANCE AND INSURANCE (CONTINUED)
Hilb, Rogal &
Hamilton Co. 128,000 $ 2,472,000
HUBCO, Inc. 66,412 2,598,370
Mercantile
Bancorporation, Inc. 62,037 3,815,275
Money Store, Inc.
(The) 190,350** 3,997,350
National Western Life
Insurance Co., Class
A* 12,000 1,206,000
NSS Bancorp, Inc. 104,500 3,944,875
Penn Treaty American
Corp.* 41,300 1,311,275
Penn-America Group,
Inc. 75,050 1,529,144
Riverview Bancorp,
Inc. 50,000** 875,000
Sterling Financial
Corp.* 141,600 3,044,400
Vermont Financial
Services Corp. 200,000 5,525,000
Washington Mutual,
Inc. 22,500 1,434,375
Webster Financial
Corp. 89,900 5,967,113
-----------
TOTAL FINANCE AND INSURANCE 77,320,593
-----------
GENERAL BUSINESS -- 8.6%
ABM Industries, Inc. 105,900 3,236,569
Advanced Health
Corp.* 52,200** 822,150
Affiliated Computer
Services, Inc. ,
Class A* 95,000 2,499,687
Alternative Resources
Corp.* 75,300 1,736,606
American Business
Information* 46,900 469,000
American Business
Information, Inc.,
Class A* 79,800 778,050
Amplicon, Inc. 68,600 1,131,900
Baker, Michael Corp.* 223,000 2,174,250
CACI International,
Inc., Class A* 99,600 1,960,875
Caribiner
International, Inc.* 34,300 1,526,350
Concord EFS, Inc.* 121,875 3,031,641
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
GENERAL BUSINESS (CONTINUED)
Consolidated
Graphics, Inc.* 69,000 $ 3,217,125
Data Transmission
Network Corp.* 37,300 1,030,412
Electro Rent Corp.* 70,350 2,515,013
F.Y.I. Inc.* 93,000 2,139,000
Hospitality Worldwide
Services* 69,500 912,187
ImageMAX, Inc.* 15,000** 151,875
Iron Mountain, Inc.* 60,500 2,178,000
ITT Educational
Services, Inc.* 200,000 4,462,500
LSI Industries, Inc. 64,000 1,120,000
Mail-Well, Inc.* 153,050 6,198,525
Manpower, Inc. 46,500 1,639,125
M/A/R/C, Inc. 53,000 954,000
National Computer
Systems, Inc. 31,500 1,110,375
PMT Sevices, Inc.* 134,300 1,863,413
Registry, Inc.* 80,600** 3,697,525
Steck Vaughn
Publishing Corp.* 187,500 2,718,750
UOL Publishing, Inc.* 27,500 448,594
Volt Information
Sciences, Inc.* 61,350 3,305,231
Warrantech Corp.* 106,000 1,033,500
Whittman-Hart, Inc.* 18,300 626,775
World Fuel Services
Corp. 68,150 1,431,150
-----------
TOTAL GENERAL BUSINESS 62,120,153
-----------
HEALTH CARE -- 8.9%
Advance Paradiam,
Inc.* 35,000 1,111,250
Advocat, Inc.* 208,500 1,772,250
Applied Analytical
Industries, Inc.* 62,300 1,027,950
Chemed Corp. 62,400 2,585,700
Cytyc Corp.* 20,300** 504,962
Dura
Pharmaceuticals,
Inc.* 90,500 4,151,688
ESC Medical Systems
Ltd.* 28,600 1,104,675
Genelabs
Technologies, Inc.* 50,000 137,500
Gulf South Medical
Supply, Inc.* 98,100 3,654,225
</TABLE>
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34
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MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
HEALTH CARE (CONTINUED)
Horizon Health Corp.* 68,100 $ 1,549,275
Jones Medical
Industries, Inc. 37,000** 1,415,250
Lifeline Systems,
Inc.* 78,500 1,942,875
Lunar Corp.* 52,600** 1,065,150
Mariner Health Group,
Inc.* 113,000 1,836,250
Monarch Dental Corp.* 13,000 172,250
Morrison Health Care,
Inc. 98,852 1,977,040
National Dentex
Corp.* 54,300 1,167,450
NBTY, Inc.* 17,200 574,050
NCS HealthCare, Inc.,
Class A* 115,300** 3,026,625
Orthodontic Centers
of America, Inc.* 121,700** 2,023,262
Owens & Minor, Inc.
Holding Co. 213,300 3,092,850
Parexel International
Corp.* 128,300 4,747,100
Perclose, Inc.* 18,500 353,813
PMR Corp.* 17,000 337,875
Prime Medical
Services, Inc.* 134,600 1,850,750
Protocol Systems,
Inc.* 155,400 1,563,712
Quorum Health Group,
Inc.* 105,750 2,762,719
Renal Treatment
Centers, Inc.* 126,600 4,573,425
Res-Care, Inc.* 72,800** 2,074,800
Retirement Care
Associates, Inc.* 87,418 743,053
Summit Care Corp.* 19,200 312,000
Sunrise Assisted
Living, Inc.* 29,600 1,261,700
Universal Health
Services, Inc.,
Class B* 102,000 5,138,250
Vitalink Pharmacy
Services, Inc.* 90,400 2,180,900
ZymeTx, Inc.* 38,000** 380,000
-----------
TOTAL HEALTH CARE 64,172,624
-----------
-------------------------------------------
SHARES VALUE
-------------------------------------------
REAL ESTATE -- 3.2%
CapStar Hotel Co.* 85,000 $ 2,916,562
Chateau Communities,
Inc. 59,229 1,865,714
CKE Restaurants, Inc. 107,900 4,545,287
Equity Inns, Inc. 143,100 2,110,725
Health Care Property
Investors, Inc. 50,000 1,890,625
National Health
Investors, Inc. 44,400 1,859,250
Presidential Realty
Corp., Class B 64,458 443,149
RFS Hotel Investors,
Inc. 98,900 1,971,819
Servico, Inc.* 52,200 880,875
Signature Resorts,
Inc.* 112,250** 2,455,469
Sovran Self Storage,
Inc. 61,900 2,007,881
-----------
TOTAL REAL ESTATE 22,947,356
-----------
TECHNOLOGY -- 8.3%
Alpha Industries,
Inc.* 210,700 3,397,537
Apex PC Solutions,
Inc.* 62,900 1,344,488
Armor Holdings, Inc.* 42,500 472,812
AVTEAM, Inc.* 63,500 539,750
Box Hill Systems
Corp.* 111,500 1,163,781
Cambridge Technology
Partners* 118,500 4,932,563
Channell Commercial
Corp.* 120,000 1,440,000
Checkpoint Systems,
Inc. 309,900 5,423,250
Complete Business
Solutions, Inc.* 28,300 1,213,362
Computer Horizons
Corp.* 72,800 3,312,400
Comverse Technology,
Inc.* 38,200 1,480,250
C&D Technologies,
Inc. 139,800 6,745,350
Davox Corp.* 60,600** 1,954,350
IDX Systems Corp.* 70,400 2,604,800
ILC Technology, Inc.* 75,600 1,096,200
Integrated Circuit
Systems, Inc.* 64,000 1,768,000
</TABLE>
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35
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MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Interlink
Electronics, Inc.* 75,000 $ 337,500
International Total
Services, Inc.* 60,300 927,113
Jaco Electronics,
Inc.* 90,600 566,250
Kulicke & Soffa
Industries, Inc.* 32,900 612,762
NeoMagic Corp.* 100,100 1,276,275
Network Appliance,
Inc.* 132,700 4,627,913
PMC-Sierra, Inc.* 45,000 1,395,000
REMEC, Inc.* 102,050 2,296,125
Richardson
Electronics, Ltd. 43,100 463,325
Richey Electronics,
Inc.* 34,800 348,000
Sensormatic
Electronics Corp. 222,300 3,654,056
Sipex Corp.* 54,200 1,639,550
Vitesse Semiconductor
Corp.* 78,650 2,969,038
-----------
TOTAL TECHNOLOGY 60,001,800
-----------
TRANSPORTATION -- 8.5%
Air Express
International Corp. 214,150 6,451,269
Airborne Freight
Corp. 209,100 12,990,337
Circle International
Group, Inc. 227,300 5,213,694
CNF Transportation
Inc. 68,100 2,613,338
Fritz Companies,
Inc.* 293,600 4,092,050
Gulfmark Offshore
Inc.* 36,400 1,164,800
MotivePower
Industries, Inc.* 112,900 2,624,925
Pittston Burlington
Corp. 241,400 6,336,750
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
TRANSPORTATION (CONTINUED)
Sea Containers, Ltd.,
Class A 107,000 $ 3,424,000
Sea Containers, Ltd.,
Class B 13,890 440,139
Xtra Corp. 263,000 15,418,375
-----------
TOTAL TRANSPORTATION 60,769,677
-----------
UTILITIES -- 0.8%
El Paso Electric Co.* 808,900 5,915,081
-----------
TOTAL COMMON STOCKS (cost
$513,683,974) 657,937,061
-----------
SHORT-TERM INVESTMENTS -- 8.2%
OTHER INVESTMENT COMPANIES -- 8.2%
AIM Short-Term
Investments Co.
Liquid Assets
Portfolio, 5.75%*** 26,560,814 26,560,814
Calvert Cash Reserves
Institutional Prime
Fund, 5.90%*** 13,248,080 13,248,080
JPM Prime Money
Market Fund,
5.58%*** 271,966 271,966
Landmark
Institutional Liquid
Reserves, 5.60%*** 18,713,987 18,713,987
-----------
TOTAL OTHER INVESTMENT COMPANIES
(cost $58,794,847) 58,794,847
-----------
TOTAL INVESTMENTS -- 99.6% (cost
$572,478,821) 716,731,908
OTHER ASSETS, LESS
LIABILITIES --
0.4% 2,975,469
-----------
NET ASSETS -- 100.0% $719,707,377
===========
</TABLE>
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36
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MANAGERS SPECIAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<S> <C>
- -------------------------------------------
Note: Based on the cost of investments of
$574,370,529 for federal income tax
purposes at December 31, 1997, the
aggregate gross unrealized
appreciation and depreciation was
$161,428,122 and $19,066,743,
respectively, resulting in net unreal-
ized appreciation of investments of
$142,361,379.
* Non-income-producing security.
** Some or all of these shares, amounting
to $28,937,176, or 4.0% of net assets,
were out on loan to various brokers as
of December 31, 1997.
*** Yield shown for each investment com-
pany represents the December 31, 1997
seven-day average yield, which refers
to the sum of the previous seven days'
dividends paid, expressed as an annual
percentage.
INVESTMENT ABBREVIATIONS:
ADR: Securities whose value is determined
or significantly influenced by trading
on exchanges not located in the United
States or Canada. ADR after the name
of a holding stands for American
Depositary Receipt, representing
ownership of foreign securities on
deposit with a domestic custodian
bank.
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 89.4%
BASIC INDUSTRIES -- 11.0%
AGA AB, Series B,
Switzerland
Certificate
(Sweden) 142,800 $ 1,888,437
Alcan Aluminium Ltd.
(Canada) 63 1,724
Anglo American
Platinum Corp.
Ltd -- ADR (USA) 55,676 743,664
Aracruz Celulose SA,
Sponsored ADR
(Brazil) 83,400 1,198,875
Ashanti Goldfields
Co. Ltd. Sponsored
GDR (Ghana) 110,013 825,098
BASF AG (Germany) 92,509 3,278,273
Bayer AG (Germany)* 66,036 2,466,783
BOC Group PLC (U.K.) 168,234 2,766,007
Ciba Specialty
Chemicals AG --
registered shares
(a)(Switzerland)* 15,781 1,879,205
Clariant AG --
registered shares
(Switzerland) 2,721 2,271,845
Compagnie De
Saint-Gobain
(France) 13,610 1,933,463
Companhia Vale do
Rio Doce, Sponsored
ADR (Brazil)* 80,900 1,627,392
Hoechst AG (Germany) 159,767 5,595,109
Holderbank
Financiere Glaris
AG -- Bearer Shares
(Switzerland) 4,394 3,584,484
Impala Platinum
Holdings, ADR
(South Africa) 27,200 259,907
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES (CONTINUED)
Kymmene OY (Finland) 37,140 $ 742,671
Rhone Poulenc SA,
Class A (France)* 98,782 4,424,961
RTZ Corp. PLC (U.K.) 70,890 873,858
Sasol Ltd.,
Sponsored ADR
(South Africa) 88,834 938,309
Sekisui Chemical Co.
(Japan) 302,000 1,533,476
Stillwater Mining
Co. (USA)* 42,200 706,850
Sumitomo Metal
Mining Co. (Japan) 212,000 698,170
Thyssen AG (Germany) 8,400 1,797,715
Usinas Siderurgicas
de Minas Gerais,
Sponsored ADR
(Brazil) 64,500 381,440
-----------
TOTAL BASIC INDUSTRIES 42,417,716
-----------
CAPITAL GOODS -- 5.5%
Alcatel Alsthom
(France)* 25,300 3,215,835
General Electric Co.
PLC (U.K.) 708,900 4,593,433
Heidelberger
Druckmaschinen AG
(Germany)* 7,527 414,227
Mannesmann AG
(Germany)* 6,800 3,436,004
Matsushita Electric
Works, Ltd. (Japan) 166,000 1,436,624
Minebea Co., Ltd.
(Japan) 186,000 1,994,332
Mitsubishi Heavy
Industries Ltd.
(Japan) 486,000 2,024,845
Omron Corp. (Japan) 90,000 1,406,142
Schindler Holding AG
PC (Switzerland) 686 714,544
Schneider SA
(France) 29,151 1,582,877
</TABLE>
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SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES (CONTINUED)
SKF AB, Series B
(Sweden) 19,000 $ 404,413
-----------
TOTAL CAPITAL GOODS 21,223,276
-----------
COMMUNICATION SERVICES -- 3.6%
BCE, Inc. (Canada) 28,100 949,743
Deutsche Telekom AG
(Germany) 38,622 726,732
Deutsche Telekom AG,
Sponsored ADR
(Germany) 34,573 643,922
Nippon Telegraph &
Telephone Corp.
(Japan) 597 5,120,931
Telecom Italia SpA
(Italy)* 761,000 3,355,455
Telefonica De Espana
(Spain) 114,900 3,280,702
-----------
TOTAL COMMUNICATION SERVICES 14,077,485
-----------
CONGLOMERATES -- 1.6%
BTR PLC (U.K.) 557,900 1,686,085
Citic Pacific Ltd.
(Hong Kong) 114,000 453,116
Hutchison Whampoa
Ltd. (Hong Kong) 230,000 1,442,509
Metallgesellschaft
AG (Germany)* 82,000 1,499,653
Sumitomo Corp.
(Japan) 37,000 206,862
Swire Pacific Ltd.
(Hong Kong) 183,800 1,008,066
-----------
TOTAL CONGLOMERATES 6,296,291
-----------
CONSUMER BASICS -- 7.9%
B.A.T. Industries
PLC, Sponsored ADR
(U.K.) 328,400 2,994,732
Cadbury Schweppes
PLC (U.K.) 296,693 2,994,473
Coca Cola Amatil
Ltd. (Australia) 58,178 434,762
Companhia Cervejaria
Brahma (Brazil)* 97,000 1,376,188
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
CONSUMER BASICS (CONTINUED)
Diageo PLC (U.K.) 358,936 $ 3,283,807
Fosters Brewing
Group Ltd.
(Australia) 787,460 1,498,623
Heineken NV
(Netherlands) 10,060 1,751,377
Japan Tobacco, Inc.
(Japan) 357 2,531,837
Molson Cos. Ltd.
(Canada) 64,600 1,154,984
Nestle SA --
registered shares
(Switerzland) 3,786 5,671,745
Unilever PLC (U.K.) 774,000 6,657,772
-----------
TOTAL CONSUMER BASICS 30,350,300
-----------
CONSUMER DURABLE GOODS -- 8.1%
Autoliv, Inc. (USA) 51,700 1,693,175
Daimler-Benz AG
(Germany) 43,500 3,051,613
Electrolux AB,
Series B (Sweden) 31,500 2,185,985
Fiat SpA (Italy) 356,950 1,038,162
Honda Motor Co.
(Japan) 94,000 3,448,418
LucasVarity PLC
(U.K.) 959,200 3,387,295
Matsushita Electric
Industries (Japan) 339,000 4,958,949
Michelin, Class B --
registered shares
(France) 32,268 1,624,525
Philips Electronics
N.V. (Netherlands) 65,900 3,952,082
Sony Corp. (Japan) 68,200 6,058,972
-----------
TOTAL CONSUMER DURABLE GOODS 31,399,176
-----------
CONSUMER NON-DURABLE -- 1.6%
Canon Inc. (Japan) 70,000 1,629,777
Ito-Yokado Co., Ltd.
(Japan) 40,000 2,037,221
Metro AG (Germany) 49,520 1,775,503
</TABLE>
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SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
CONSUMER NON-DURABLE (CONTINUED)
Neuenburger,
Schweizerische
Allgemeine
Versicherungs --
Gesellschaft
(Switzerland) 1,570 $ 866,014
-----------
TOTAL CONSUMER NON-DURABLE 6,308,515
-----------
ENERGY -- 5.9%
British Petroleum
Company PLC (U.K.) 159,100 2,104,659
Broken Hill
Proprietary Co.
Ltd. (Australia) 99,000 919,456
Elf Aquitaine SA
(France) 37,800 4,396,444
Ente Nazionale
Idrocarburi SpA
(Italy) 509,400 2,888,232
Royal Dutch
Petroleum Co. --
New York registered
shares (Netherlands) 31,100 1,685,231
RWE AG (Germany) 87,500 3,696,601
Shell Transport &
Trading Co. --
registered shares
(U.K.) 363,600 2,550,100
Woodside Petroleum
Ltd. (Australia) 349,250 2,462,888
YPF Sociedad
Anonima, Class D,
Sponsored ADR
(Argentina) 59,600 2,037,575
-----------
TOTAL ENERGY 22,741,186
-----------
ENTERTAINMENT AND LEISURE -- 2.9%
Carlton
Communications PLC
(U.K.) 321,200 2,479,584
EMI Group PLC (U.K.) 170,100 1,419,297
Genting Berhad
(Malaysia) 276,000 691,863
Nintendo Corp. Ltd.
(Japan) 30,800 3,019,376
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
ENTERTAINMENT AND LEISURE (CONTINUED)
Rank Group PLC
(U.K.) 328,000 $ 1,826,329
Reuters Holdings PLC
(U.K.) 166,680 1,820,583
-----------
TOTAL ENTERTAINMENT AND LEISURE 11,257,032
-----------
FINANCE AND INSURANCE -- 22.3%
Aegon NV
(Netherlands) 28,332 2,522,095
Allianz AG (Germany) 13,274 3,438,497
Assurances Generales
de France (France) 60,709 3,216,765
AXA-UAP (France) 76,325 5,905,882
Banque Nationale de
Paris (France) 48,300 2,567,279
Bayerische
Vereinsbank AG
(Germany) 50,979 3,335,406
Commerzbank AG
(Germany) 55,376 2,179,394
Credito Italiano
(Italy)* 532,100 1,640,817
CS Holding AG
(Switerland) 44,033 6,810,470
Deutsche Bank AG
(Germany) 33,800 2,386,170
Dresdner Bank AG
(Germany) 50,100 2,311,515
EXEL Ltd. (USA) 25,600 1,622,400
HSBC Holding PLC,
registered shares
(Hong Kong) 115,461 2,845,922
International
Nederlanden Groep
NV (Netherlands) 50,260 2,116,837
Istituto Nazionale
delle Assicurazioni
(Italy) 774,600 1,569,780
Long-Term Credit
Bank of Japan,
(The) (Japan) 363,000 581,045
</TABLE>
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40
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MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
FINANCE AND INSURANCE (CONTINUED)
Merita Ltd. -- Class
A (Finland) 185,900 $ 1,016,304
Mitsui Marine & Fire
Insurance Co.
(Japan) 136,000 693,697
Munchener
Rueckvericherungs-
Gesellschaft --
registered shares
(Germany)* 10,065 3,793,363
National Westminster
Bank PLC (U.K.) 220,100 3,658,524
Nichido Fire &
Marine (Japan) 135,000 703,071
Nichiei Co. (Japan) 11,200 1,192,311
Nomura Securities
Co. Ltd. (Japan) 158,000 2,105,537
Nordbanken Holding
AB (Sweden)* 179,900 1,017,331
Norwich Union PLC
(U.K.)* 51,700 309,948
Orix Corp. Ltd.
(Japan) 44,200 3,080,493
Promise Co. (Japan) 29,480 1,634,642
Prudential Corp. PLC
(U.K.) 157,500 1,917,929
Schweizerische
Rueckversicherungs --
registered shares
(Switzerland) 1,419 2,653,099
Shohkoh Fund (Japan) 4,000 1,219,269
Skandia
Foersaekrings AB
(Sweden) 58,770 2,771,995
Sumitomo Trust and
Banking Co. (Japan) 627,000 3,255,771
Svenska
Handelsbanken,
Class A (Sweden) 70,300 2,430,427
Unidanmark A/S,
Class A (Denmark) 28,200 2,070,170
-------------------------------------------
SHARES VALUE
-------------------------------------------
FINANCE AND INSURANCE (CONTINUED)
Westpac Banking
Corporation Ltd.
(Australia) 290,200 $ 1,856,577
Zurich
Versicherun --
registered shares
(Switerland) 8,220 3,915,357
-----------
TOTAL FINANCE AND INSURANCE 86,346,089
-----------
GENERAL BUSINESS -- 2.8%
Flughafen Wien AG
(Austria) 33,055 1,313,669
Granada Group PLC
(U.K.) 137,400 2,098,819
Havas SA (France) 14,300 1,028,811
Mirror Group PLC
(U.K.) 268,700 860,613
SAP AG (Germany) 9,898 3,237,985
Societe Generale de
Surveillance
Holding SA
(Switzerland) 1,221 2,339,721
-----------
TOTAL GENERAL BUSINESS 10,879,618
-----------
HEALTH CARE -- 4.1%
Astra AB, Series A
(Sweden) 125,346 2,170,692
Astra AB, Series B
(Sweden) 83,200 1,398,909
Novartis AG --
bearer shares
(Switzerland) 1,342 2,181,255
Novartis AG --
registered shares
(Switzerland) 3,467 5,623,317
Schering AG
(Germany) 15,993 1,542,447
SmithKline Beecham
Unit PLC (U.K.) 263,064 2,711,318
-----------
TOTAL HEALTH CARE 15,627,938
-----------
REAL ESTATE -- 0.9%
Cheung Kong
(Holdings) Ltd.
(Hong Kong) 85,000 556,685
Kerry Properties
Ltd. (Hong Kong) 734,479 1,213,231
New World
Development Co.,
Ltd. (Hong Kong) 159,000 549,903
</TABLE>
- --------------------------------------------------------------------------------
41
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
REAL ESTATE (CONTINUED)
Wharf (Holdings)
Ltd. (Hong Kong) 577,000 $ 1,265,841
-----------
TOTAL REAL ESTATE 3,585,660
-----------
TECHNOLOGY -- 3.1%
British Aerospace
PLC (U.K.) 202,351 5,766,472
Ricoh Company Ltd.
(Japan) 462,000 5,732,098
Samsung Display
Devices Co.
(South Korea)* 10,230 193,133
Samsung Electronics
Ltd., GDR
representing 1/2
non-voting Shares
(South Africa)* 29,181 164,143
Samsung Electronics
Ltd., GDR
representing 1/2
non-voting
Shares,(a)
(South Africa)* 1,422 19,901
-----------
TOTAL TECHNOLOGY 11,875,747
-----------
TRANSPORTATION -- 1.7%
Canadian National
Railway Co.
(Canada) 58,400 2,759,400
Canadian Pacific,
Ltd. (Canada) 71,100 1,915,503
Konink Nedlloyd
Groep NV
(Netherlands) 76,100 1,726,432
-----------
TOTAL TRANSPORTATION 6,401,335
-----------
UTILITIES -- 6.1%
CIE Generale Des
Eaux (France) 30,300 4,228,961
Huaneng Power
International,
Inc., ADR (China)* 47,100 1,092,131
National Grid Group
PLC (UK) 459,400 2,180,691
National Power PLC
(U.K.) 432,300 4,260,317
Powergen PLC (U.K.) 107,783 1,402,106
<CAPTION>
-------------------------------------------
SHARES VALUE
-------------------------------------------
<S> <C> <C>
UTILITIES (CONTINUED)
Veba AG (Germany) 53,296 $ 3,629,206
Viag AG (Germany) 12,844 6,918,389
-----------
TOTAL UTILITIES 23,711,801
-----------
OTHER INVESTMENT COMPANIES -- 0.3%
Daiwa Securities
Co., Ltd. 361,000 1,244,160
-----------
TOTAL COMMON STOCKS
(cost $300,333,298) 345,743,325
-----------
SHORT-TERM INVESTMENTS -- 7.7%
OTHER INVESTMENT COMPANIES -- 0.4%
JPM Prime Money
Market Fund, 5.58%** 1,739,085 1,739,085
-----------
-------------------------------------------
PRINCIPAL
AMOUNT
-------------------------------------------
DISCOUNT NOTE -- 3.9%
Federal National
Mortgage
Association,
4.75%, 01/02/98 $15,000,000 14,998,021
-----------
REPURCHASE AGREEMENT -- 3.4%
Donaldson, Lufkin,
Jenrette, dated
12/31/97, due
01/02/98, 6.500%,
total to be
received
$13,089,725
(secured by
$13,126,000 U.S.
Treasury Notes,
5.500%, due
04/15/00, market
value $13,217,173),
at cost 13,085,000 13,085,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $29,822,106) 29,822,106
-----------
TOTAL INVESTMENTS -- 97.1%
(cost $330,155,404) 375,565,431
OTHER ASSETS,
LESS LIABILITIES --
2.9% 11,058,727
-----------
NET ASSETS -- 100.0% $386,624,158
===========
</TABLE>
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<S> <C>
------------------------------------------
Note: Based on the cost of investments of
$332,817,091 for federal income tax
purposes at December 31, 1997, the
aggregate gross unrealized
appreciation and depreciation was
$64,922,081 and $22,173,741, re-
spectively, resulting in net
unrealized appreciation of investments
of $42,748,340.
* Non-income-producing security.
** Yield shown for this investment
company represents the December 31,
1997 seven-day yield, which refers to
the sum of the previous seven days'
dividends paid, expressed as an annual
percentage.
(a) Security exempt from registration
under Rule 144A of the Securities Act
of 1933. These securities may be
resold in transactions exempt from
registration, normally to qualified
buyers. At December 31, 1997, the
value of these securities amounted to
$1,899,106, or 0.5% of net assets.
INVESTMENT ABBREVIATIONS:
ADR/GDR: Securities whose value is
determined or significantly influenced by
trading on exchanges not located in the
United States or Canada. ADR after the name
of a holding stands for American Depositary
Receipt, representing ownership of foreign
securities on deposit with a domestic
custodian bank; a GDR (Global Depositary
Receipt) is comparable, but foreign
securities are held on deposit in a non-U.S.
Bank.
New York registered shares: Shares of
foreign companies registered on the New York
Stock Exchange.
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS MANAGERS MANAGERS
INCOME CAPITAL SPECIAL INTERNATIONAL
EQUITY APPRECIATION EQUITY EQUITY
FUND FUND FUND FUND
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at value* $65,823,426 $72,186,071 $716,731,908 $375,565,431
Cash 2,264 -- -- 2,219
Foreign currency (cost $19,865) -- -- -- 19,863
Collateral from brokers on
securities loaned 510,000 5,701,528 30,231,228 --
Receivable for investments sold 1,068,025 3,806,901 3,473,329 3,913,246
Receivable for Fund shares sold 615,853 1,481,441 6,080,561 8,634,069
Receivable for open forward
foreign currency contracts -- -- -- 19,428,771
Dividends, interest and other
receivables 132,281 31,775 188,682 369,817
Foreign withholding tax
receivable -- -- -- 347,632
Prepaid expenses 21,804 31,911 113,514 81,520
----------- ----------- ------------ ------------
Total assets 68,173,653 83,239,627 756,819,222 408,362,568
----------- ----------- ------------ ------------
LIABILITIES:
Payable to custodian -- 978,438 -- --
Payable for Fund shares
repurchased 100,355 82,686 3,319,335 338,899
Payable upon return of
securities loaned 510,000 5,701,528 30,231,228 --
Payable for investments
purchased 2,511,968 2,487,223 2,662,525 1,263,278
Payable for open forward
foreign currency contracts -- -- -- 19,569,052
Accrued expenses:
Investment advisory and
management fees 41,455 59,061 524,637 289,537
Administrative fees 13,819 18,457 145,733 80,427
Other 49,771 52,542 228,387 197,217
----------- ----------- ------------ ------------
Total liabilities 3,227,368 9,379,935 37,111,845 21,738,410
----------- ----------- ------------ ------------
NET ASSETS $64,946,285 $73,859,692 $719,707,377 $386,624,158
=========== =========== ============ ============
Shares outstanding 2,090,675 3,046,643 11,763,523 8,482,170
=========== =========== ============ ============
Net asset value, offering and
redemption price per share $31.06 $24.24 $61.18 $45.58
===== ====== ===== ======
NET ASSETS REPRESENT:
Paid-in capital $51,815,380 $63,141,989 $576,392,612 $339,314,576
Undistributed net investment
income (loss) 24,259 -- 75,296 (2,074,297)
Accumulated net realized gain
(loss) from investments 2,119,782 1,000,971 (1,013,618) 4,136,020
Net unrealized appreciation of
investments and foreign
currency contracts and
translations 10,986,864 9,716,732 144,253,087 45,247,859
----------- ----------- ------------ ------------
NET ASSETS $64,946,285 $73,859,692 $719,707,377 $386,624,158
=========== =========== ============ ============
* Investments at cost $54,836,562 $62,469,339 $572,478,821 $330,155,404
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
- --------------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS MANAGERS MANAGERS
INCOME CAPITAL SPECIAL INTERNATIONAL
EQUITY APPRECIATION EQUITY EQUITY
FUND FUND FUND FUND
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income $ 1,864,179 $ 599,953 $ 4,306,696 $ 6,570,134
Interest income 187,596 137,527 3,146,130 1,563,446
Foreign withholding tax (15,182) (2,028) -- (765,883)
Stock loan fees 2,803 66,404 121,998 --
----------- ----------- ------------ -----------
Total investment income 2,039,396 801,856 7,574,824 7,367,697
----------- ----------- ------------ -----------
EXPENSES:
Investment advisory and
management fees 465,345 797,930 4,477,844 3,010,430
Administrative fees 155,115 249,353 1,243,846 836,230
Custodian fees 79,471 82,040 319,098 532,904
Transfer agent fees 52,191 71,531 368,237 224,168
Audit fees 29,892 34,067 52,291 56,505
Registration fees 24,868 28,219 79,723 62,847
Insurance 10,253 19,861 49,177 49,603
Trustee fees 2,633 4,081 21,863 14,413
Legal fees 4,419 8,572 39,479 24,755
Miscellaneous expenses 14,189 21,551 114,229 54,933
----------- ----------- ------------ -----------
Total expenses before
reduction 838,376 1,317,205 6,765,787 4,866,788
Expense reductions (22,032) (64,415) (24,285) (4,011)
----------- ----------- ------------ -----------
Net Expenses 816,344 1,252,790 6,741,502 4,862,777
----------- ----------- ------------ -----------
Net investment income
(loss) 1,223,052 (450,934) 833,322 2,504,920
----------- ----------- ------------ -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized gain on investment
transactions 13,070,991 13,435,680 17,630,807 21,426,626
Net realized gain on foreign
currency contracts and
translations -- -- -- 447,171
Net unrealized appreciation
(depreciation) of investments 595,116 (1,801,245) 98,018,318 7,822,878
Net unrealized depreciation
from foreign currency
translations -- -- -- (162,533)
----------- ----------- ------------ -----------
Net realized and unrealized
gain 13,666,107 11,634,435 115,649,125 29,534,142
----------- ----------- ------------ -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $14,889,159 $11,183,501 $116,482,447 $32,039,062
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
- --------------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS INCOME EQUITY FUND MANAGERS CAPITAL APPRECIATION FUND
------------------------------------ ------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) $ 1,223,052 $ 1,228,144 $ (450,934) $ 324,010
Net realized gain on
investments and foreign
currency transactions 13,070,991 3,059,690 13,435,680 12,474,078
Net unrealized appreciation
(depreciation) of
investments and foreign
currency translations 595,116 3,401,883 (1,801,245) (239,860)
----------- ----------- ------------ ------------
Net increase in net assets
resulting from
operations 14,889,159 7,689,717 11,183,501 12,558,228
----------- ----------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,253,740) (1,207,927) -- (330,477)
From net realized gain on
investments (11,843,315) (3,147,241) (12,541,907) (14,706,217)
----------- ----------- ------------ ------------
Total distributions to
shareholders (13,097,055) (4,355,168) (12,541,907) (15,036,694)
----------- ----------- ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 35,568,276 34,882,439 81,018,263 47,104,779
Net asset value of shares
issued in connection with
reinvestment of dividends
and distributions 11,483,738 3,705,668 11,559,522 13,914,902
Cost of shares repurchased (36,960,862) (26,667,124) (118,641,988) (40,611,675)
----------- ----------- ------------ ------------
Net increase (decrease)
from capital share
transactions 10,091,152 11,920,983 (26,064,203) 20,408,006
----------- ----------- ------------ ------------
Total increase (decrease) in
net assets 11,883,256 15,255,532 (27,422,609) 17,929,540
NET ASSETS:
Beginning of year 53,063,029 37,807,497 101,282,301 83,352,761
----------- ----------- ------------ ------------
End of year $ 64,946,285 $ 53,063,029 $ 73,859,692 $ 101,282,301
=========== =========== ============ ============
End of year undistributed
(overdistributed) net
investment income $ 24,259 $ 61,866 $ -- --
=========== =========== ============ ============
- ------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Sale of shares 1,061,260 1,177,997 2,797,323 1,667,966
Shares issued in connection
with reinvestment of
dividends and
distributions 374,916 123,222 506,041 525,476
Shares repurchased (1,085,631) (890,919) (4,101,797) (1,419,363)
----------- ----------- ------------ ------------
Net increase (decrease) in
shares 350,545 410,300 (798,433) 774,079
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
- --------------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS SPECIAL EQUITY FUND MANAGERS INTERNATIONAL EQUITY FUND
------------------------------------ ------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) $ 833,322 $ (172,893) $ 2,504,920 $ 1,992,050
Net realized gain on
investments and foreign
currency transactions 17,630,807 16,533,528 21,873,797 5,649,063
Net unrealized appreciation
(depreciation) of
investments and foreign
currency translations 98,018,318 21,777,123 7,660,345 18,280,159
------------ ------------ ------------ ------------
Net increase in net assets
resulting from
operations 116,482,447 38,137,758 32,039,062 25,921,272
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (788,086) -- (5,097,844) (1,972,418)
From net realized gain on
investments (23,238,043) (15,417,452) (16,879,378) (6,154,840)
------------ ------------ ------------ ------------
Total distributions to
shareholders (24,026,129) (15,417,452) (21,977,222) (8,127,258)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 594,941,899 200,247,845 306,117,193 162,992,914
Net asset value of shares
issued in connection with
reinvestment of dividends
and distributions 20,172,338 12,045,589 17,953,124 6,457,243
Cost of shares repurchased (259,296,392) (81,942,114) (217,076,415) (58,163,660)
------------ ------------ ------------ ------------
Net increase (decrease)
from capital share
transactions 355,817,845 130,351,320 106,993,902 111,286,497
------------ ------------ ------------ ------------
Total increase (decrease) in
net assets 448,274,163 153,071,626 117,055,742 129,080,511
NET ASSETS:
Beginning of year 271,433,214 118,361,588 269,568,416 140,487,905
------------ ------------ ------------ ------------
End of year $ 719,707,377 $ 271,433,214 $ 386,624,158 $ 269,568,416
============ ============ ============ ============
End of year undistributed
(overdistributed) net
investment income $ 75,296 -- $ (2,074,297) $ (99,109)
============ ============ ============ ============
- ------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Sale of shares 10,692,536 3,994,546 6,507,742 3,879,381
Shares issued in connection
with reinvestment of
dividends and
distributions 344,679 240,100 399,903 150,567
Shares repurchased (4,601,047) (1,638,391) (4,595,434) (1,374,547)
------------ ------------ ------------ ------------
Net increase (decrease) in
shares 6,436,168 2,596,255 2,312,211 2,655,401
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INCOME EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $30.49 $28.43 $24.90 $27.89 $27.38
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.67 0.76 0.87 0.80 0.81
Net realized and unrealized gain
(loss) on investments 7.27 3.97 7.47 (0.50) 2.54
------ ------ ------ ------ ------
Total from investment operations 7.94 4.73 8.34 0.30 3.35
------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.69) (0.76) (0.86) (0.83) (0.76)
Net realized gain on investments (6.68) (1.91) (3.95) (2.46) (2.08)
------ ------ ------ ------ ------
Total distributions to
shareholders (7.37) (2.67) (4.81) (3.29) (2.84)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $31.06 $30.49 $28.43 $24.90 $27.89
====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------
Total Return 27.19% 17.08% 34.36% 0.99% 12.40%
==========================================================================================
Ratio of net expenses to average net
assets 1.32%(a) 1.44%(a) 1.45% 1.33% 1.32%
Ratio of net investment income to
average net assets 1.97% 2.63% 2.85% 3.06% 2.75%
Portfolio turnover 96% 33% 36% 46% 41%
Average commission rate(b) $0.06 $0.06 -- -- --
Net assets at end of year (000's
omitted) $64,946 $53,063 $37,807 $48,875 $40,965
==========================================================================================
</TABLE>
(a) The Fund has entered into an arrangement with one or more third-party
broker-dealers who have paid a portion of the Fund's expenses. Absent this
expense reduction, the ratio of expenses to average net assets for the years
ended December 31, 1997 and December 31, 1996 would have been 1.35% and
1.44%, respectively. (See Note 1c of Notes to Financial Statements).
(b) All funds are now required to disclose their average commission rate per
share for security trades on which commissions are charged. The amount may
vary from period to period and from fund to fund depending on the mix of
trades executed in various markets where trading practices and commissions
rate structures may differ.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997(a) 1996 1995 1994 1993
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $26.34 $27.14 $23.25 $25.17 $24.67
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.13) 0.09 0.09 0.12 0.19
Net realized and unrealized gain
(loss) on investments 3.15 3.66 7.62 (0.49) 3.80
------ ------ ------ ------ ------
Total from investment operations 3.02 3.75 7.71 (0.37) 3.99
------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (0.10) (0.08) (0.12) (0.19)
From net realized gain on
investments (5.12) (4.45) (3.74) (1.39) (3.30)
In excess of net realized gain on
investments -- -- -- (0.04) --
------ ------ ------ ------ ------
Total distributions to
shareholders (5.12) (4.55) (3.82) (1.55) (3.49)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $24.24 $26.34 $27.14 $23.25 $25.17
====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------
Total Return 12.74% 13.73% 33.39% (1.50)% 16.38%
==========================================================================================
Ratio of net expenses to average net
assets 1.26%(b) 1.33%(b) 1.36% 1.29% 1.18%
Ratio of net investment income (loss)
to average net assets (0.45)% 0.34% 0.31% 0.53% 0.74%
Portfolio turnover 235% 172% 134% 122% 131%
Average commission rate(c) $0.06 $0.06 -- -- --
Net assets at end of year (000's
omitted) $73,860 $101,282 $83,353 $86,042 $69,358
==========================================================================================
</TABLE>
(a) Calculated using the average shares outstanding during the year.
(b) The Fund has entered into an arrangement with one or more third-party
broker-dealers who have paid a portion of the Fund's expenses. Absent this
expense reduction, the ratio of expenses to average net assets for the years
ended December 31, 1997 and and December 31, 1996 would have been 1.32% and
1.38%, respectively. (See Note 1c of Notes to Financial Statements).
(c) All funds are now required to disclose their average commission rate per
share for security trades on which commissions are charged. The amount may
vary from period to period and from fund to fund depending on the mix of
trades executed in various markets where trading practices and commissions
rate structures may differ.
- --------------------------------------------------------------------------------
49
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS SPECIAL EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995(a) 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $50.95 $43.34 $36.79 $38.90 $36.14
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.08 (0.00) (0.07) (0.01) 0.02
Net realized and unrealized gain
(loss) on investments 12.29 10.68 12.28 (0.76) 6.12
------ ------ ------ ------ ------
Total from investment
operations 12.37 10.68 12.21 (0.77) 6.14
------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.07) -- -- -- (0.01)
Net realized gain on investments (2.07) (3.07) (5.66) (1.34) (3.37)
------ ------ ------ ------ ------
Total distributions to
shareholders (2.14) (3.07) (5.66) (1.34) (3.38)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $61.18 $50.95 $43.34 $36.79 $38.90
====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------
Total Return 24.45% 24.75% 33.94% (1.99)% 17.05%
==========================================================================================
Ratio of net expenses to average
net assets 1.35%(b) 1.43% 1.44% 1.37% 1.26%
Ratio of net investment income
(loss) to average net assets 0.17% (0.10)% (0.16)% (0.06)% 0.07%
Portfolio turnover 49% 56% 65% 66% 45%
Average commission rate(c) $0.05 $0.05 -- -- --
Net assets at end of year (000's
omitted) $719,707 $271,433 $118,362 $111,584 $99,032
==========================================================================================
</TABLE>
(a) Calculated using the average shares outstanding during the year.
(b) The Fund has entered into an arrangement with one or more third-party
broker-dealers who have paid a portion of the Fund's expenses. Absent this
expense reduction, the ratio of expenses to average net assets for the year
ended December 31, 1997 would have been 1.36%. (See Note 1c of Notes to
Financial Statements).
(c) All funds are now required to disclose their average commission rate per
share for security trades on which commissions are charged. The amount may
vary from period to period and from fund to fund depending on the mix of
trades executed in various markets where trading practices and commissions
rate structures may differ.
- --------------------------------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995(a) 1994 1993
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $43.69 $39.97 $36.35 $35.92 $26.52
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.42 0.32 0.31 0.16 0.22
Net realized and unrealized gain
on investments 4.27 4.76 5.59 0.56 9.88
------ ------ ------ ------ ------
Total from investment
operations 4.69 5.08 5.90 0.72 10.10
------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.65) (0.33) (0.13) (0.08) (0.29)
In excess of net investment
income -- -- -- -- (0.11)
From net realized gain on
investments (2.15) (1.03) (2.15) -- (0.30)
In excess of net realized gain on
investments -- -- -- (0.21) --
------ ------ ------ ------ ------
Total distributions to
shareholders (2.80) (1.36) (2.28) (0.29) (0.70)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $45.58 $43.69 $39.97 $36.35 $35.92
====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------
Total Return 10.83% 12.77% 16.24% 2.00% 38.20%
==========================================================================================
Ratio of net expenses to average
net assets 1.45%(b) 1.53% 1.58% 1.49% 1.47%
Ratio of net investment income to
average net assets 0.75% 0.97% 0.80% 0.60% 0.78%
Portfolio turnover 37% 30% 73% 22% 46%
Average commission rate(c) $0.03 $0.03 -- -- --
Net assets at end of year (000's
omitted) $386,624 $269,568 $140,488 $86,924 $62,273
==========================================================================================
</TABLE>
(a) Calculated using the average shares outstanding during the year.
(b) The Fund has entered into an arrangement with one or more third-party
broker-dealers who have paid a portion of the Fund's expenses. Absent this
expense reduction, the ratio of expenses to average net assets for the year
ended December 31, 1997 would have been 1.45%. (See Note 1c of Notes to
Financial Statements).
(c) All funds are now required to disclose their average commission rate per
share for security trades on which commissions are charged. The amount may
vary from period to period and from fund to fund depending on the mix of
trades executed in various markets where trading practices and commissions
rate structures may differ.
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
THE MANAGERS FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
(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, and registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). Currently the Trust
is comprised of 11 investment series. Included in this report are Managers
Income Equity Fund ("Income Equity"), Managers Capital Appreciation Fund
("Capital Appreciation"), Managers Special Equity Fund ("Special Equity") and
Managers International Equity Fund ("International Equity"), collectively the
"Funds."
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
periods. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Funds in the
preparation of their financial statements:
(a) VALUATION OF INVESTMENTS
Equity securities traded on a domestic or international securities exchange are
valued at the last quoted sales price, or, lacking 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. Fixed
income securities are valued based on 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. 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 adopted by
the Board of Trustees.
(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.
52
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(c) INVESTMENT INCOME AND
EXPENSES
Dividend income is recorded on the ex-dividend date, except certain dividends
from foreign securities where the ex-dividend date may have passed are recorded
as soon as the Trust is informed of the ex-dividend date. Dividend income on
foreign securities is recorded net of withholding tax. Interest income is
recorded on the accrual basis and includes amortization of discounts and
premiums when required for federal income tax purposes. Non-cash dividends
included in dividend income, if any, are reported at the fair market value of
the securities received. 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.
Income Equity, Capital Appreciation, Special Equity, and International Equity
Funds each had certain portfolio trades directed to various brokers who paid a
portion of such Fund's expenses. For the fiscal year ended December 31, 1997,
the Income Equity, Capital Appreciation, Special Equity, and International
Equity Funds' custody expenses were reduced by $22,032, $64,415, $24,285 and
$4,011, respectively, under these arrangements.
(d) DIVIDENDS AND DISTRIBUTIONS
Dividends resulting from net investment income, if any, normally will be
declared and paid monthly for Income Equity and annually for Capital
Appreciation, Special Equity and International Equity. Distributions of capital
gains, if any, will be made on an annual basis and when required for federal
excise tax purposes. Income and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to differing
treatments for foreign currency related transactions, losses deferred due to
wash sales and equalization accounting for tax purposes. 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
53
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
respect to the seller of the security, realization of the collateral by the 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 STOCK
The Trust's Declaration of Trust authorizes for each series 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.
At December 31, 1997, certain unaffiliated shareholders, including omnibus
accounts, individually held greater than 10% of the outstanding shares of the
following Funds: Income Equity- two collectively own 34%; Special Equity- one
owns 38%; and International Equity- one owns 29%.
(h) 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 operation
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 over-
54
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
sees 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), allocates assets among portfolio
managers and monitors the portfolio managers' investment programs and results.
Each Fund's investment portfolio is managed by portfolio managers who serve
pursuant to Portfolio Management Agreements 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 average daily net assets. The annual investment
advisory and management fee rates, as a percentage of average daily net assets
for the fiscal year ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY
FUND AND MANAGEMENT FEE
- -------------------- ------------------
<S> <C>
Income Equity....... 0.75%
Capital
Appreciation...... 0.80%
Special Equity...... 0.90%
International
Equity............ 0.90%
</TABLE>
The Trust has adopted an Administration 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, broker-dealers and
registered investment advisers, that advise or act as an intermediary with the
Funds' shareholders. During the fiscal year ended December 31, 1997, each of the
Funds paid a fee to the Administrator at the rate of 0.25% per annum of the
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 in-person 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
Purchases and sales of securities, excluding short-term securities, for the
fiscal year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ---------------- ------------ ------------
<S> <C> <C>
Income Equity... $ 55,860,618 $ 56,762,208
Capital
Appreciation... 224,086,232 261,935,940
Special
Equity........ 514,944,210 217,074,507
International
Equity........ 176,922,058 113,246,135
</TABLE>
There were no purchases or sales of U.S. Government securities.
55
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(4) PORTFOLIO SECURITIES LOANED
Certain of the Funds may participate in a securities lending program providing
for the lending of corporate bonds, equity and government securities to
qualified brokers. Collateral on all securities loaned except for government
securities loaned is accepted only in cash. Collateral on government securities
loaned is in the form of other similar securities. Collateral is maintained at a
minimum level of 100% of the market value, plus interest, if applicable, of
investments on loan. Collateral received in the form of cash is invested
temporarily in money market funds by the custodian. Earnings of such temporary
cash investments are divided between the custodian, as a fee for its services
under the program, and the Fund, according to agreed-upon rates.
(5) FORWARD FOREIGN CURRENCY CONTRACTS (INTERNATIONAL EQUITY ONLY)
During the fiscal year ended December 31, 1997, International Equity 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 the 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-to-market 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 Fund 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 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.
56
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Open forward foreign currency exchange contracts for International Equity at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CURRENT UNREALIZED
SETTLEMENT VALUE (IN GAIN/LOSS (IN
FOREIGN CURRENCY DATE U.S. DOLLARS) U.S. DOLLARS)
- -------------------------------------- ---------- ----------- -------------
<S> <C> <C> <C>
BUY CONTRACTS
British Pound......................... 01/02/98 $ 241,677 $ (4,194)
Italian Lira.......................... 01/02/98 164,024 (2,198)
Italian Lira.......................... 01/05/98 232,648 (3,094)
Japanese Yen.......................... 01/05/98 268,417 (2,636)
Italian Lira.......................... 01/07/98 73,510 (470)
Italian Lira.......................... 01/08/98 283,002 (1,589)
---------- --------
TOTAL BUY CONTRACTS
(Payable Amount $1,277,459)........... $ 1,263,278 $ (14,181)
========== ========
SELL CONTRACTS
British Pound......................... 01/02/98 $ 80,035 $ 1,133
British Pound......................... 01/05/98 5,950 94
British Pound......................... 01/06/98 55,863 930
British Pound......................... 01/07/98 21,930 188
British Pound......................... 01/08/98 45,245 (44)
Deutsche Mark......................... 01/30/98 6,107,816 (68,393)
Deutsche Mark......................... 02/17/98 2,581,159 (66,413)
Japanese Yen.......................... 03/26/98 9,393,595 6,405
---------- --------
TOTAL SELL CONTRACTS
(Receivable Amount $18,165,493)....... $18,291,593 $(126,100)
========== ========
</TABLE>
(6) CONTINGENCY
A lawsuit seeking class action status has been filed against Managers
Intermediate Mortgage Fund, the Manager and the Trust, among other defendants in
the United States District Court of the District of Connecticut in September,
1994. The plaintiffs seek unspecified damages based upon losses alleged in the
fund named above. The parties have now entered into an agreement to settle all
claims by the purported class. However, the settlement is subject to court
approval and certain other conditions, such as the minimum percentage of class
members agreeing to participate in the settlement. 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 lawsuit, as
well as Managers Short Government Fund and Managers Short and Intermediate
57
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Bond Fund. The parties have now entered into an agreement to settle all claims
by this customer and the settlement is conditional on, among other things, the
settlement of the class action lawsuit. Certain other customers, who are
potentially members of the plaintiff class in the class action law-suit referred
to above, have asserted that they may file similar lawsuits based on similar
claims, but have not yet done so. Management continues to believe that it has
meritorious defenses and, if the cases are not settled, Management intends to
defend vigorously against these actions.
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
(unaudited)
Each of the Funds below hereby designates, for the year ended December 31, 1997,
the amounts below as being distributed from long-term capital gains:
<TABLE>
<CAPTION>
TOTAL LONG-TERM
FUND 28% RATE GAIN 20% RATE GAIN CAPITAL GAIN
- ---------------------------- ------------- ------------- -------------------
<S> <C> <C> <C>
Income Equity............... $ 3,096,423 $ 6,826,717 $ 9,923,140
Capital Appreciation........ 5,634,060 2,915,013 8,549,073
Special Equity.............. 9,317,684 10,664,783 19,982,467
International Equity........ 5,103,068 7,379,821 12,482,889
</TABLE>
IMPORTANT STATE TAX INFORMATION
(unaudited)
For shareholders of Massachusetts and South Carolina, state tax regulations
allow favorable tax treatment for capital gains on assets held for greater than
two years. A summary of the percentages of such long-term capital gains which
qualify as being held for greater than two years follows:
<TABLE>
<S> <C>
Managers Income Equity Fund..................................... 20.47%
Managers Capital Appreciation Fund.............................. 59.07%
Managers Special Equity Fund.................................... 13.15%
Managers International Equity Fund.............................. 46.02%
</TABLE>
By applying the percentage above to the dollar amount of long-term capital gain
reported to you in Box 1(c) of Form 1099-DIV, you can calculate the appropriate
dollar amount of your long-term capital gain distribution which qualifies as
being held for greater than two years.
FOR MASSACHUSETTS SHAREHOLDERS ONLY--To determine the amount of capital gain
greater than one year but less than two years, subtract the dollar amount
calculated above as being greater than two years from the total long-term
capital gain reported to you in Box 1(c) of Form 1099-DIV.
58
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of The Managers Funds and the Shareholders of Managers Income
Equity Fund, Managers Capital Appreciation Fund, Managers Special Equity Fund
and Managers International Equity Fund:
We have audited the accompanying statements of assets and liabilities of
Managers Income Equity Fund, Managers Capital Appreciation Fund, Managers
Special Equity Fund and Managers International Equity Fund, including the
schedules of portfolio investments, as of December 31, 1997 and the related
statements of operations for the year then ended, 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 five 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.
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, 1997, 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 Income Equity Fund, Managers Capital Appreciation Fund, Managers
Special Equity Fund and Managers International Equity Fund as of December 31,
1997, the results of their operations for the year then ended, 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 five years in the period then ended, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 20, 1998
59
<PAGE>
[THE MANAGERS FUNDS LOGO]
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
Shcreff, Friedman, Hoffman &
Goodman, LLP
919 Third Avenue
New York, New York 10022
TRANSFER AGENT
Boston Financial Data Services, Inc.
attn: The Managers Funds
P.O. Box 8517
Boston, Massachusetts 02266-8517
(800)252-0682
This report is prepared for the infor-
mation of shareholders. It is authorized
for distribution to prospective investors
only when preceded by an effective pro-
spectus.
THE MANAGERS FUNDS
EQUITY FUNDS:
INCOME EQUITY FUND
Scudder Kemper Investments, Inc.
Chartwell Investment Partners, L.P.
CAPITAL APPRECIATION FUND
Essex Investment Management
Company, Inc.
Husic Capital Management
SPECIAL EQUITY FUND
Liberty Investment Management
Pilgrim Baxter & Associates
Westport Asset Management, Inc.
Kern Capital Management, LLC
INTERNATIONAL EQUITY FUND
Scudder Kemper Investments, Inc.
Lazard Asset Management Co.
EMERGING MARKETS
EQUITY FUND
Montgomery Asset Management, LLC
State Street Global Advisors,
United Kingdom, Limited
INCOME FUNDS:
MONEY MARKET FUND
J.P. Morgan
SHORT GOVERNMENT FUND
Jennison Associates Capital Corp.
SHORT AND INTERMEDIATE
BOND FUND
Standish, Ayer & Wood, Inc.
INTERMEDIATE MORTGAGE FUND
Jennison Associates Capital Corp.
BOND FUND
Loomis, Sayles & Company, Inc.
GLOBAL BOND FUND
Rogge Global Partners
