<PAGE>
The Managers Funds
MANAGERS SHORT GOVERNMENT FUND
MANAGERS SHORT AND INTERMEDIATE BOND FUND
MANAGERS INTERMEDIATE MORTGAGE FUND
- -------------------------
ANNUAL REPORT
DECEMBER 31, 1997
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Where Leading Money Managers Converge
<PAGE>
MANAGERS SHORT GOVERNMENT FUND
MANAGERS SHORT AND INTERMEDIATE BOND FUND
MANAGERS INTERMEDIATE MORTGAGE 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 3
Complete performance table for all of The Managers
Funds as of December 31, 1997
Investment Manager's Comments 4
Discussion of the Funds' investment results during
the year and cumulative total return graphs versus
relevant index
Schedules of Portfolio Investments 10
Detailed portfolio listings by security type and
industry sector, as valued at December 31, 1997
Statements of Assets and Liabilities 17
Fund balance sheets, Net Asset Value (NAV) per
share computation and cumulative undistributed
amounts
Statements of Operations 18
Detail of sources of income, fund expenses, and
realized and unrealized gains (losses) during the
year
Statements of Changes in Net Assets 19
Detail of changes in fund assets and distributions
to shareholders for the past two years
Financial Highlights 21
Historical net asset values, distributions, total
returns, expense ratios, turnover ratios and net
assets
Notes to Financial Statements 24
Accounting and distribution policies, details of
agreements
and transactions with fund management and
description of
certain investment risks
Report of Independent Accountants 31
</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.
<PAGE>
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PRESIDENT'S MESSAGE
- ------------------------------------------------------------
[Photo of President]
DEAR FELLOW SHAREHOLDER:
The past year was again a prosperous one for most
financial assets, particularly when compared to the rate of
inflation. 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%.
Inflation, however remained subdued. In fact, the producer
price index, which tracks wholesale price levels, fell for
seven consecutive months (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.
In July, news of the precarious economic situation in
Southeast Asia began to emanate, further diminishing
inflationary fears and sending interest rates lower. While
the Malaysian, Indonesian and Thai governments devalued
their currencies in late August and early September,
investors fled to quality in the form of U.S. Treasury
bonds. Throughout the fourth quarter, the economic crisis
intensified and spread to other Far Eastern countries.
Throughout the fourth quarter 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 addition,
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.
Although the flight to U.S. Treasuries continued, the
prospect of deflation lured investors toward longer term
securities, where they could lock in current rates. Thus,
while long-term interest rates dropped sharply, short-term
yields rose, leaving the yield curve relatively flat. At
year end, 30-year Treasury bonds provided a yield of only
0.58% more than the yield on 3-month Treasury bills. At the
end of March 1997, when long-term rates peaked, the same
yield spread was 1.79%. Due to the flattening yield curve,
long-term bonds significantly
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1
<PAGE>
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outperformed shorter duration securities for the year. The
trade-off going forward is that long-term bonds offer little
yield premium to less volatile shorter duration securities,
but they do offer a chance to lock in a coupon in case
yields fall even lower. The current shape of the yield curve
implies that investors believe that price deflation and
falling interest rates are genuine possibilities.
The yield premium for corporate bonds above similar
duration Treasury yields began the year very slim and
continued to tighten throughout the first nine months of the
year in response to the healthy economy. Spreads widened,
however, in the fourth quarter as corporate bonds responded
less positively to deflationary fears than did Treasuries.
Mortgage securities performed well in the fourth quarter as
investors focused on their quality, however, prepayment
rates are likely to rise as long-term interest rates have
fallen to historically low levels inducing homeowners to
refinance their mortgages.
Foreign bond markets performed similarly well as interest
rates fell across the globe. As in the U.S., government bond
yield curves flattened in most European countries and Japan.
In Italy, government yields fell across all maturities by
almost two percentage points. Australian yields also moved
lower in parallel by more than one percentage point. The
yield curve for British Government bonds moved to a sharply
inverted position such that three-month securities yielded
0.9 percentage points more than 30-year bonds at year-end.
These markets provided double digit returns for the year
in local currencies. However, the strength of the U.S.
Dollar, which appreciated significantly versus all foreign
currencies during the year, reduced foreign bond returns in
U.S. Dollar terms. Far Eastern bonds other than Japanese
bonds suffered as credit quality in the region diminished
and currencies crashed.
Thus, while returns were diverse across countries, the
Salomon Brothers World Government Bond Index, which
represents the average of the major markets, returned a
meager 0.2% in U.S. Dollar terms for the year.
In addition to discussions of each Fund's 1997
performance, this report provides you 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 if
you'd like to receive a prospectus and additional
information on any of the other funds in our family, or an
information kit on our new no fee IRA and Roth IRA accounts.
As always, should you have any questions on this report,
please feel free to contact us.
We thank you for your continued investment in The
Managers Funds.
Sincerely,
/s/ Robert P. Watson
Robert P. Watson
President
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2
<PAGE>
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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+
----------------------------------------------------------
Since Inception Morningstar
1 Year 3 Years 5 Years 10 Years Inception Date Rating++
------ ------- ------- -------- --------- --------- -----------
<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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[FN]
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 Income Funds, or for a
prospectus for the Equity Funds or the Money Market Fund,
please call The Managers Funds at (800) 835-3879, or your
investment adviser. 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.
</FN>
3
<PAGE>
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MANAGERS SHORT GOVERNMENT FUND
Investment Manager's Comments
- ------------------------------------------------------------
MANAGERS SHORT GOVERNMENT FUND, managed by The Managers
Funds, L.P. since its inception in 1987, seeks high current
income while preserving capital by investing primarily in
U.S. Government securities with an average maturity of less
than three years. The Managers Funds currently utilizes a
single independent sub-advisor, Thomas Doyle, of Jennison
Associates Capital Corp,. to manage the portfolio. Tom has
managed the Fund since December, 1994.
THE PORTFOLIO MANAGER
Tom Doyle and the fixed income team at Jennison Associates
specialize in managing high quality, fixed income
portfolios. They do not attempt to time the market or
forecast interest rates, and thus maintain the portfolio's
duration* in line with that of the Fund's benchmark, the
Merrill Lynch 1-2.99 Year Treasury Index. Tom attempts to
add value through bottom-up analysis of undervalued
securities which will provide the best returns under a wide
range of interest rate scenarios. In making purchase
decisions, Jennison models potential returns for a given
security and compares them to the returns for similar
duration Treasury and mortgage securities. Given the high
quality, high liquidity, and short duration parameters of
the Fund, Tom concentrates the portfolio in U.S. Treasury
and Government Agency bonds. He also makes use of
collateralized mortgage obligations (CMOs) when individual
CMOs or combinations of CMOs have better risk/return
properties than mortgage pools.
THE YEAR IN REVIEW
During the final six months of 1997, MANAGERS SHORT
GOVERNMENT FUND provided a total return of +3.1% which
brought the return for the full year to +5.6%. For the same
periods, the Merrill Lynch 1-2.99 Year Treasury Index
returned +3.7% and +6.7%, respectively.
All through 1997, the duration of the portfolio was
managed so it closely mirrored the duration of its
benchmark, the Merrill Lynch 1-2.99 Year Treasury Index. The
Fund's returns fell behind the Index, mainly due to the
impact of Fund expenses and the Fund's relatively small
asset size.
At year end, the Fund's portfolio was concentrated in U.S.
Treasury securities, with components of U.S. Government
Agencies and CMOs. The Fund's effective duration and average
life at year end were 1.8 and 1.5 years, respectively. At
December 31, 1997, the Fund's average yield to maturity was
5.8% and its 30-day SEC yield was 4.4%.
* Duration is the weighted average time (typically quoted
in years) to the receipt of cash flows (principle +
interest) for a bond or portfolio. It is used to evaluate
the interest rate sensitivity of a bond or portfolio. The
longer the duration, the more sensitive the price of the
bond is to movements in interest rates.
4
<PAGE>
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MANAGERS SHORT GOVERNMENT FUND
Cumulative Total Return Performance
- ------------------------------------------------------------
THE MANAGERS SHORT GOVERNMENT FUND'S cumulative total
return is based on the monthly change in net asset value
(NAV), and assumes that all dividends were reinvested.
The Merrill Lynch 1-2.99 Year Treasury Index consists of
58 U.S. Treasury securities with maturities between one and
three years. The Index assumes reinvestment of all
dividends.
This chart compares a hypothetical $10,000 investment made
in Managers Short Government Fund on December 31, 1987, to
a $10,000 investment made in the Merrill Lynch 1-2.99 Year
Treasury Index for the same time period. Past performance
is not indicative of future results.
<TABLE>
<CAPTION>
Measurement Period Managers Short ML 1-2.99 Year
(Fiscal Year Covered) Government Fund Treasury Index
<S> <C> <C>
1987 10000 10000
1988 10590 10622
1989 11510 11777
1990 12323 12921
1991 13657 14431
1992 14189 15340
1993 14730 16170
1994 13827 16262
1995 15169 18044
1996 15759 18949
1997 16633 20210
</TABLE>
This table shows the average annual total returns for
Managers Short Government Fund for the one-year, five-
year and ten-year periods through December 31, 1997, and
comparable returns for the Merrill Lynch 1-2.99 Year
Treasury Index.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ANNUALIZED
----------------------------------
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
Managers Short Government Fund 5.6% 3.2% 5.2%
ML 1-2.99 Year Treasury Index 6.7 5.7 7.3
</TABLE>
5
<PAGE>
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MANAGERS SHORT AND INTERMEDIATE BOND FUND
Investment Manager's Comments
- ------------------------------------------------------------
MANAGERS SHORT AND INTERMEDIATE BOND FUND, managed by The
Managers Funds, L.P. since its inception in 1984, seeks high
current income by investing in fixed income securities while
maintaining an average portfolio maturity between one and
five years. The Managers Funds currently utilizes a single
independent sub-advisor, Howard Rubin of Standish, Ayer &
Wood, who has managed a portion of the portfolio since
August, 1991, and the entire portfolio since December, 1995.
THE PORTFOLIO MANAGER
Howard Rubin's investment philosophy involves constructing
a portfolio using active sector positioning and credit
analysis. Howard does not attempt to forecast interest rates
or make shifts in duration* in an attempt to add value,
rather, he manages the portfolio's duration within 85% and
115% of the Fund's benchmark, which is the Merrill Lynch 1-
4.99 Year Government/Corporate Index. Howard typically
constructs a diverse portfolio, using investment grade bonds
including bonds from a variety of corporate sectors, asset-
backed securities, private and agency mortgage securities,
Treasury securities and a small portion of foreign corporate
and government bonds.
THE YEAR IN REVIEW
During the final six months of 1997, MANAGERS SHORT AND
INTERMEDIATE BOND FUND provided a total return of +3.4%
which brought the return for the full year to +5.9%. For the
same periods, the Merrill Lynch 1 to 4.99 year Government/
Corporate Bond Index returned +4.2% and +7.2%, respectively.
Howard's most significant portfolio change in 1997 was a
reduction in the number of positions from 131 securities at
the end of 1996 down to 63 securities at year end 1997. This
was accomplished primarily by selling a number of mortgage
securities which had diminished in size due to principal
paydown. The allocation in mortgages moved from 14% of
assets to 9%, and the primary benefit of this action was a
reduction of the administrative cost of carrying and valuing
the securities. The portfolio remains very well diversified,
both on an issuer and sector basis. In conjunction with
lowering the allocation in mortgage securities and U.S.
Treasury securities throughout the year, Howard increased
the allocation in foreign corporate bonds.
The Fund currently has 7% of its assets invested in U.S.
Treasury securities, 9% invested in mortgage securities, 7%
in foreign corporate securities and 73% in domestic
corporate bonds, most of which are financial institutions
bonds and asset-backed securities. The Fund's duration at
year end was 2.3 years with the Index at 2.2 years. At
December 31, 1997, the Fund's average yield to maturity was
6.5% and its 30-day SEC yield was 5.3%.
* Duration is the weighted average time (typically quoted in
years) to the receipt of cash flows (principle + interest)
for a bond or portfolio. It is used to evaluate the interest
rate sensitivity of a bond or portfolio. The longer the
duration, the more sensitive the price of the bond is to
movements in interest rates.
6
<PAGE>
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MANAGERS SHORT AND INTERMEDIATE BOND FUND
Cumulative Total Return Performance
- ------------------------------------------------------------
THE MANAGERS SHORT AND INTERMEDIATE BOND FUND'S cumulative
total return is based on the monthly change in net asset
value (NAV), and assumes that all dividends were reinvested.
The Merrill Lynch 1-5 Year Government/Corporate Index
consists of over 2,200 government and investment grade
corporate bonds with maturities between one and five years.
The index is heavily weighted in U.S. Treasury issues, which
make up over 75% of the index. The index assumes
reinvestment of dividends.
This chart compares a hypothetical $10,000 investment made
in Managers Short and Intermediate Bond Fund on December 31,
1987, to a $10,000 investment made in the Merrill Lynch 1-5
Year Government/Corporate Index for the same time period.
Past performance is not indicative of future results.
<TABLE>
<CAPTION>
Measurement Period Managers Short and ML 1-4.99 Year
(Fiscal Year Covered) Intermediate Bond Fund Govt/Corp Index
<S> <C> <C>
1987 10000 10000
1988 10579 10636
1989 11873 11873
1990 13021 13021
1991 14717 14717
1992 15731 15731
1993 16853 16853
1994 16760 16760
1995 18925 18925
1996 19806 19806
1997 21224 21224
</TABLE>
This table shows the average annual total returns for
Managers Short and Intermediate Bond Fund for the one-
year, five-year and ten-year periods through December 31,
1997, and comparable returns for the Merrill Lynch 1-5
Year Government/Corporate Index.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ANNUALIZED
--------------------
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
Managers Short and
Intermediate Bond Fund 5.9% 4.8% 7.2%
Merrill Lynch 1-5 Year
Government/Corporate Index 7.2 6.2 7.8
</TABLE>
7
<PAGE>
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MANAGERS INTERMEDIATE MORTGAGE FUND
Investment Manager's Comments
- ------------------------------------------------------------
MANAGERS INTERMEDIATE MORTGAGE FUND, managed by The
Managers Funds, L.P. since its inception in 1987, seeks high
current income by investing primarily in mortgage related
securities. The Managers Funds currently utilizes Jennison
Associates Capital Corp., an independent outside sub-
adviser, to manage the portfolio. Jennison has managed the
Fund since October, 1994, with Thomas Doyle currently
heading the team.
THE PORTFOLIO MANAGER
Tom Doyle utilizes an experienced fixed income team as
well as a proprietary analytical system to analyze and
select undervalued securities which will provide stable
returns under a wide range of interest rate scenarios. Tom
makes no attempt to time the market or forecast interest
rates, rather, he maintains the portfolio duration* close to
that of the Fund's benchmark, the Salomon Brothers Mortgage
Pass-through Index. In making purchase decisions, the team
models potential returns for a given security and compares
them to the returns for similar duration Treasury and
mortgage securities. Tom also makes use of the
collateralized mortgage obligation (CMO) market, selecting
individual securities and combinations of securities which
have better risk/return properties than can be found in the
generic mortgage market.
THE YEAR IN REVIEW
During the final six months of 1997, MANAGERS INTERMEDIATE
MORTGAGE FUND provided a total return of +5.0% which brought
the return for the full year to +8.2%. For the same periods,
the Salomon Brothers Mortgage Pass-through Index returned
+5.3% and +9.3%, respectively.
The Fund benefited from marginal yet well timed moves
between mortgages and U.S. Treasury securities in both the
first and second quarters. Because the changes between the
mortgages' yield spread over Treasuries was minimal, the
Fund's consistent heavy concentration in mortgage securities
was beneficial. Toward the end of the year, yield spreads
widened slightly, but remain extremely narrow.
The portfolio is concentrated in fixed-rate mortgage
pools, with small allocations to Treasuries and fixed-rate
CMOs. The average life of the portfolio was 5.8 years at
year end, and the effective duration was 2.6 years. At
December 31, 1997, the Fund's 30-Day SEC yield was 5.61%.
* Duration is the weighted average time (typically quoted in
years) to the receipt of cash flows (principle + interest)
for a bond or portfolio. It is used to evaluate the interest
rate sensitivity of a bond or portfolio. The longer the
duration, the more sensitive the price of the bond is to
movements in interest rates.
8
<PAGE>
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MANAGERS INTERMEDIATE MORTGAGE FUND
Cumulative Total Return Performance
- ------------------------------------------------------------
THE MANAGERS INTERMEDIATE MORTGAGE FUND'S cumulative total
return is based on the monthly change in net asset value
(NAV), and assumes that all dividends were reinvested.
The Salomon Brothers Mortgage Pass-through Index is
designed to cover the performance of the entire mortgage
pass-through market, including single family pools of GNMA,
FHLMC and FNMA mortgage securities.
This chart compares a hypothetical $10,000 investment made
in Managers Intermediate Mortgage Fund on December 31, 1987,
to a $10,000 investment made in the Salomon Brothers
Mortgage Pass-through Index for the same time period. Past
performance is not indicative of future results.
<TABLE>
<CAPTION>
Measurement Period Managers Intermediate Solomon Brothers
(Fiscal Year Covered) Mortgage Fund Mortgage Index
<S> <C> <C>
1987 10000 10000
1988 10738 10880
1989 12315 12530
1990 13570 13894
1991 16037 16069
1992 17722 17253
1993 19753 18467
1994 14807 18203
1995 17364 21256
1996 17942 22409
1997 19420 24473
</TABLE>
This table shows the average annual total returns for
Managers Intermediate Mortgage Fund for the one-year,
five-year and ten-year periods through December 31, 1997,
and comparable returns for Salomon Brothers Mortgage Pass-
through Index.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ANNUALIZED
--------------------
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
<S> <C> <C> <C>
Managers Intermediate
Mortgage Fund 8.2% 1.9% 6.9%
Solomon Brothers Mortgage
Pass-through Index 9.3 7.2 9.4
</TABLE>
9
<PAGE>
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MANAGERS SHORT GOVERNMENT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES -- 62.9%
7.750%, 11/30/99
(cost $3,187,429) $3,075,000+ $3,188,867
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 33.1%
Federal Home Loan Mortgage Corporation,
Series 1295, Class E,
PAC, 7.250%, 03/15/04 15,993 15,948
Series 1319, Class E,
PAC, 7.000%, 11/15/04 16,882 16,839
Series 30, Class C,
PAC, GNMA,
5.950%, 06/25/13 34,522 34,386
Federal National Mortgage Corporation,
Series 93-10, Class PD,
PAC, 6.000%, 06/25/02 6,863 6,837
Series 93-32, Class PD,
PAC-1, 5.000%,
11/25/19 888,822 882,983
Financing Corporation Coupon Strips,
Series E,
0.000%*, 11/02/98 300,000 286,146
0.000%*, 11/02/99 486,000 437,283
---------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(cost $1,669,145) 1,680,423
---------
ASSET-BACKED SECURITIES -- 3.2%
Green Tree Home
Improvement Loan
Trust, Series 96-F,
Class HIA1, 6.100%,
11/15/27 53,167 53,731
Ford Credit Grantor Trust,
Series 94-B, Class A,
7.300%, 10/15/99 108,387 109,200
--------
TOTAL ASSET-BACKED SECURITIES
(cost $162,833) 162,931
--------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 0.5%
JPM Prime Money
Market Fund, 5.58%**
(cost $25,794) 25,794 $ 25,794
----------
TOTAL INVESTMENTS -- 99.7%
(cost $5,045,201) 5,058,015
OTHER ASSETS, LESS LIABILITIES -- 0.3%
15,940
-----------
NET ASSETS -- 100.0% $ 5,073,955
-----------
</TABLE>
- ------------------------------------------------------------------------
Note: Based on the cost of investments of $5,045,201
for federal income tax purposes at December 31, 1997, the
aggregate gross unrealized appreciation and depreciation
was $13,445 and $631, respectively, resulting in net
unrealized appreciation of investments of $12,814.
+ Certain principal amounts held are segregated as
collateral against open futures contracts.
* Zero coupon security.
** Yield shown for each investment company 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.
ABBREVIATIONS:
PAC: Planned Amortization Class (PAC) tranches provide
investors with scheduled payments (PAC Schedule) over a
range of prepayment speeds (PAC band or range). PAC
tranches typically are combined with companion tranches
that reduce the risk of prepayments varying from a
constant speed or range.
LONG FUTURES CONTRACTS OUTSTANDING AT DECEMBER 31, 1997:
6 Two-Year U.S. Treasury Note contracts, expiring 3/98, face
amount $1,200,000, with unrealized appreciation of $2,344.
The accompanying notes are an integral part of these
financial statements.
10
<PAGE>
- ------------------------------------------------------------------------
MANAGERS SHORT AND INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
CORPORATE DEBT SECURITIES -- 84.7%
ASSET-BACKED SECURITIES -- 34.2%
Advanta Home Equity
Loan Trust, Series 92-2,
Class A1, MBIA insured,
7.150% , 06/25/08 $322,025 $320,817
AFC Home Equity Loan
Trust, Series 93-1,
Class A, 5.900%,
05/20/08 76,124 74,292
AFC Home Equity Loan
Trust, Series 96-3,
Class 1A2, 7.220%,
02/25/27 150,000 150,093
Citicorp Mortgage
Securities Inc.,
Series 97-5, PAC,
6.500%, 11/25/27 150,000 150,468
Contimortgage Home
Equity Loan Trust,
Series 94-3, Class A4,
MBIA insured,
7.850%, 07/15/24 217,006 221,820
Contimortgage Home
Equity Loan Trust,
Series 94-4, Class A6,
MBIA insured,
8.270%, 12/15/24 143,276 147,928
Equicon Home Equity
Loan Trust, Series 95-2,
Class A2, FGIC insured,
6.500%, 07/18/10 224,578 224,017
EquiCredit Home Equity
Loan Trust, Series 93-4,
Class A, FGIC insured,
5.725%, 12/15/08 63,665 62,506
First Sierra Equipment
Lease, Series 96-2,
Class A, 6.290%,
11/10/04 212,166 212,611
ASSET-BACKED SECURITIES (continued)
HFC Home Equity
Trust, Series 92-2A,
Class A, MBIA insured,
6.650%, 11/20/12 $ 35,074 $ 35,318
Independent National
Mortgage Corp.,
Series 96-A, Class A3,
6.960%, 09/25/26 450,000 452,668
Newcourt Receivables
Asset Trust, Series
96-2, Class A,
6.870%, 06/20/04 208,417 209,205
Old Stone Credit Corp.
Home Equity Loan
Trust, Series 92-4,
Class A, FGIC insured,
6.550%, 11/25/07 38,336 38,216
Premier Auto Trust,
Series 97-1, Class B,
Sub. Notes, 6.550%,
09/06/03 300,000 301,779
Remodelers Home
Improvement Loan
Asset-Backed
Certificates, Series
95-3, Class A2,
6.800%, 12/20/07 159,121 159,009
Residential Funding
Mortgage Securities II,
Series 97-HS5,
Class A2, 6.560%,
5/25/27 200,000 200,000
Standard Credit Card
Master Trust, Series
94-3, Class B, 7.000%,
04/07/01 325,000 328,656
The Money Store Home
Equity Loan Trust,
Series 92-B, Class A,
MBIA insured, 6.900%,
07/15/07 70,487 70,987
</TABLE>
The accompanying notes are an integral part of these
financial statements.
11
<PAGE>
- ------------------------------------------------------------------------
MANAGERS SHORT AND INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES (continued)
The Money Store Home
Equity Loan Trust,
Series 95-C, Class A3,
MBIA insured, 6.550%,
06/15/17 $475,000 $475,741
TLFC Equipment Lease
Trust, Series 96-1,
Class A, 5.98%,
11/20/02 208,087 207,809
UCFC Home Equity
Loan, Series 96-D1,
Class A3, MBIA
insured, 6.541%,
11/15/13 400,000 401,372
UCFC Loan Trust,
Series 93-B1,
Class A1, FGIC
insured, 6.075%,
07/25/14 206,275 203,866
World Omni Automobile
Lease Securitization
Trust, Series 96-B,
Class B, 6.850%,
11/15/02 (a) 250,000 251,405
World Omni Automobile
Lease Securitization
Trust, Series 97-A,
Class B, 7.300%*,
06/25/03 (a) 250,000 253,828
---------
TOTAL ASSET-BACKED SECURITIES
5,154,411
---------
BANKS AND FINANCE -- 33.8%
Aames Financial Corp.,
Senior Notes, 9.125%,
11/01/03 50,000 48,500
Advanta National Bank,
Senior Notes, 6.440%,
05/01/98 425,000 424,923
American Health
Properties, Inc., Notes,
7.050%, 01/15/02 350,000 356,283
<CAPTION>
BANKS AND FINANCE (continued)
Chelsea GCA Realty
Partners, Notes,
7.750%, 01/26/01 $225,000 $232,436
Conseco Inc., Senior
Notes, 8.125%,
02/15/03 300,000 319,692
First Interstate
Bancorp., Sub.
Notes, 9.900%,
11/15/01 225,000 252,554
First Nationwide
Holdings, Inc.,
Senior Notes,
12.250%, 05/15/01 225,000 248,625
Franchise Finance Corp.
of America, Senior
Notes, 7.000%,
11/30/00 200,000 202,074
Lehman Brothers
Holdings, Inc.,
Medium-Term
Notes, Series B,
7.110%, 09/27/99 425,000 431,732
Merrill Lynch & Co.,
Inc. Medium-Term
Notes, Series B,
Adjustable Rate,
6.110%, 03/25/02** 525,000 535,385
Reliance Group
Holdings, Inc.,
Senior Notes,
9.000%, 11/15/00 150,000 157,251
Salomon, Inc., 3 Year
CMT, Adjustable Rate,
5.580% , 04/05/99** 180,000 178,650
St. George Bank Ltd.,
Notes, 6.875%,
04/01/99 (a) 400,000 403,164
United Companies
Financial Corp.,
Senior Notes, 7.000%,
07/15/98 100,000 100,330
</TABLE>
The accompanying notes are an integral part of
these financial statements.
12
<PAGE>
- ------------------------------------------------------------------------
MANAGERS SHORT AND INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------
- ------------
<S> <C> <C>
BANKS AND FINANCE (continued)
United Companies
Financial Corp.,
Senior Notes, 9.350%,
11/01/99 $475,000 $492,323
Wellsford Residential
Property Trust,
Medium-Term Notes,
Adjustable Rate,
6.230%, 11/24/99 ** 400,000 400,272
Wharf Capital International
Ltd., 8.875%, 11/01/04 300,000 312,279
---------
TOTAL BANKS AND FINANCE
5,096,473
---------
INDUSTRIALS --16.7%
Cox Enterprises Inc.,
6.250%, 08/26/99 (a) 200,000 200,066
Crescent Real Estate
Equities Co., 6.625%,
09/15/02 (a) 375,000 374,599
ITT Corp., Notes,
6.250%, 11/15/00 275,000 270,407
Kaufman & Broad
Home Corp., Senior
Notes, 7.750%, 10/15/04 150,000 148,500
Kern River Funding
Corp., Series B, Senior
Notes, 6.720%,
09/30/01 (a) 200,000 203,576
Royal Caribbean Cruises
Ltd., Senior Notes,
8.125%, 07/28/04 325,000 349,355
TCI Communications,
Inc., Senior Notes,
8.650%, 09/15/04 300,000 328,665
USA Waste Services,
Inc., Notes, 6.500%,
12/15/02 175,000 174,773
Videotron Holdings,
Senior Notes, 11.125%,
07/01/04 200,000 190,496
<CAPTION>
INDUSTRIALS (continued)
WorldCom, Inc., Senior
Notes, 9.375%,
01/15/04 $261,000 $276,339
----------
TOTAL INDUSTRIALS
2,516,776
----------
TOTAL CORPORATE DEBT SECURITIES
(cost $12,709,401) 12,767,660
----------
U.S. TREASURY NOTES -- 7.0%
6.625%, 06/30/01 50,000 51,383
6.500%, 08/15/05 500,000 521,720
6.375%, 03/31/01 75,000 76,406
6.000%, 06/30/99 300,000 301,500
5.750%, 08/15/03 100,000 100,062
5.625%, 11/30/98 10,000 10,000
---------
TOTAL U.S. TREASURY NOTES
(cost $1,057,578) 1,061,071
---------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 0.6%
8.750%, 04/01/01
through 10/01/01 88,754 92,876
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 1.6%
Series 94-85, Class E,
6.000%, 11/25/06 250,000 248,827
--------
RESOLUTION TRUST CORPORATION -- 1.9%
Series 92-7, Class A1,
6.825% , 03/25/22 233,391 282,417
--------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(cost $629,092) 624,120
--------
FOREIGN CORPORATE OBLIGATIONS -- 1.6%
Brascan Ltd., 7.375%, 10/01/02
(cost $230,663) 225,000 232,502
</TABLE>
The accompanying notes are an integral part of
these financial statements.
13
<PAGE>
- ------------------------------------------------------------------------
MANAGERS SHORT AND INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 2.3%
OTHER INVESTMENT COMPANIES -- 0.1%
JPM Prime Money
Market Fund, 5.58%*** 2,656 $2,656
--------
<CAPTION>
- ------------------------------------------------------------------------
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------
DISCOUNT NOTES -- 2.2%
Goldman Sachs Group
L.P., Notes, 6.300%,
01/05/98 $350,000 349,755
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $352,411) 352,411
--------
TOTAL INVESTMENTS -- 99.7%
(cost $14,979,145) 15,037,764
OTHER ASSETS, LESS
LIABILITIES -- 0.3% 44,204
----------
NET ASSETS -- 100.0% $15,081,968
-----------
</TABLE>
- ------------------------------------------------------------------------
Note: Based on the cost of investments of $14,979,145
for federal income tax purposes at December 31, 1997, the
aggregate gross unrealized appreciation and depreciation
was $103,445 and $44,826, respectively, resulting in net
unrealized appreciation of investments of $58,619.
- ------------------------------------------------------------------------
OTHER INFORMATION (UNAUDITED):
The composition of long-term debt holdings as a percentage
of the total value of investments in securities is as
follows:
<TABLE>
<CAPTION>
S&P'S/MOODY'S
RATINGS
<S> <C>
Gov't/AAA 42%
AA 4
A 18
BBB 30
BB 6
---
100%
</TABLE> ---
* Zero coupon security.
** Variable rate security. Coupon or dividend ratedisclosed is that
in effect at December 31, 1997.
*** Yields shown for each investment company represent 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.
(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
$1,686,628, or 11.2% of net assets.
ABBREVIATIONS:
CMT: Constant Maturity Treasury Index
FGIC: Financial Guaranty Insurance Co.
MBIA: Municipal Bond Investors Assurance Corp.
The accompanying notes are an integral part of these
financial statements.
14
<PAGE>
- ------------------------------------------------------------------------
MANAGERS INTERMEDIATE MORTGAGE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -- 81.2%
8.00%, 06/01/26 $1,787,517 + $1,851,743
7.50%, 02/01/26
through 09/01/27 7,092,537 + 7,260,897
7.50%, TBA** 4,000,000 4,095,000
7.00%, 05/01/27 446,009 449,212
6.50%, 09/01/10 3,869,128 + 3,893,310
----------
TOTAL FNMAs
(cost $17,237,910) 17,550,162
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -- 10.5%
10.50%, 12/15/20 587,223 659,962
10.00%, 07/15/22
through 02/15/25 730,466 812,322
5.00%, TBA** 800,000 791,250
----------
TOTAL GNMAs
(cost $2,222,301) 2,263,534
----------
U.S. TREASURY NOTES -- 10.0%
7.50%, 11/15/01 500,000 530,080
7.25%, 08/15/04 1,500,000 + 1,621,170
----------
TOTAL U.S. TREASURY NOTES
(cost $2,133,984) 2,151,250
----------
ASSET-BACKED SECURITIES -- 1.0%
Green Tree Home
Improvement Loan
Trust, Series 96-F,
Class HIA1, 6.10%,
11/15/27
(cost $220,812) 220,847 223,190
<CAPTION>
- -----------------------------------------------------------------------
SHARES VALUE
- -----------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 19.3%
OTHER INVESTMENT COMPANIES -- 12.4%
Calvert Cash Reserves
Institutional Prime
Fund, 5.90%* 948,333 948,333
OTHER INVESTMENT COMPANIES (continued)
JPM Prime Money
Market Fund, 5.58%* 701,293 $ 701,293
Landmark Institutional
Liquid Reserves,
5.60%* 1,022,798 1,022,798
---------
TOTAL OTHER INVESTMENT COMPANIES 2,672,424
---------
<CAPTION>
- -----------------------------------------------------------------------
PRINCIPAL
AMOUNT
- -----------------------------------------------------------------------
REPURCHASE AGREEMENT -- 6.9%
State Street Bank &
Trust Co., dated 12/31/97,
due 01/02/98, 5.000%,
total to be received
$1,499,416 (secured
by $1,565,000 FNMA
7.00%, due 08/25/19
market value
$1,566,455), at cost $1,499,000 1,499,000
---------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,171,424) 4,171,424
---------
TOTAL INVESTMENTS -- 122.0%
(cost $25,986,431 ) 26,359,560
OTHER ASSETS, LESS
LIABILITIES -- (22.0%) (4,759,231)
-----------
NET ASSETS -- 100.0% $21,600,329
-----------
</TABLE>
- ------------------------------------------------------------------------
Note: Based on the cost of investments of $25,986,431
for federal income tax purposes at December 31, 1997, the
aggregate gross unrealized appreciation and depreciation
was $373,674 and $545, respectively, resulting in net
unrealized appreciation of investments of $373,129.
* Yield shown for each investment company
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.
The accompanying notes are an integral part of
these financial statements.
15
<PAGE>
- ------------------------------------------------------------------------
MANAGERS INTERMEDIATE MORTGAGE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (concluded)
December 31, 1997
- ------------------------------------------------------------------------
**TBA securities are purchased on a forward commitment basis with an
approximate principal amount, interest rate, and no definite maturity
date. The actual principal amount, interest rate, and maturity will be
determined upon settlement. Such securities are subject to market
fluctuations during the period from transaction date to settlement
date. At December 31, 1997, such securities amounted to $4,886,250, or
22.6% of net assets.
+Certain principal amounts held are segregated as collateral
for TBA securities.
ABBREVIATIONS:
PAC:Planned Amortization Class (PAC) tranches provide
investors with scheduled payments (PAC Schedule) over a
range of prepayment speeds (PAC band or range). PAC
tranches typically are combined with companion tranches
that reduce the risk of prepayments varying from a
constant speed or range.
The accompanying notes are an integral part of these
financial statements.
16
<PAGE>
- ------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Managers Managers Managers
Short Short and Intermediate
Government Intermediate Mortgage
Fund Bond Fund Fund
----------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments at value* $5,058,015 $15,037,764 $26,359,560
Cash -- -- 458
Foreign currency
(cost $382) -- 396 --
Receivable for Fund
shares sold 961 3,702 16,448
Interest receivable 25,554 192,226 151,824
Variation margin receivable 1,219 -- --
Prepaid expenses 8,116 11,175 12,785
----------- --------- ----------
TOTAL ASSETS 5,093,865 15,245,263 26,541,075
----------- ---------- -----------
LIABILITIES:
Payable for Fund
shares repurchased 1,237 118,374 25,518
Dividends payable
to shareholders 1,479 -- --
Payable for investments
purchased, delayed
delivery -- -- 4,869,097
Accrued expenses:
Investment advisory and
management fees 868 6,537 8,285
Administrative fees -- 3,268 4,603
Other 16,326 35,116 33,243
-------- -------- ---------
Total liabilities 19,910 163,295 4,940,746
-------- --------- ---------
NET ASSETS $ 5,073,955 $ 15,081,968 $ 21,600,329
------------- ------------ -------------
Shares outstanding 292,088 772,847 1,392,245
------------- ------------ -------------
Net asset value, offering
and redemption
price per share $17.37 $19.51 $15.51
------ ------ ------
NET ASSETS REPRESENT:
Paid-in capital $18,515,467 $ 28,151,855 $101,356,880
Undistributed net
investment income 129 13,915 10,323
Accumulated net realized
loss from investments,
futures, and foreign
currency transactions(13,456,798) (13,142,435) (80,140,003)
Net unrealized
appreciation of
investments,
futures and foreign
currency translations 15,157 58,633 373,129
------------ ------------ ------------
NET ASSETS $ 5,073,955 $ 15,081,968 $ 21,600,329
------------ ------------ -------------
*Investments at cost $ 5,045,201 $ 14,979,145 $ 25,986,431
------------ ------------ -------------
The accompanying notes are an integral part of these
financial statements.
17
<PAGE>
- -----------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Managers Managers Managers
Short Short and Intermediate
Government Intermediate Mortgage
Fund Bond Fund Fund
----------- ------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 351,860 $1,232,078 $1,566,735
Dividend income -- 780 --
Other income -- 112 --
----------- ----------- -----------
Total investment income 351,860 1,232,970 1,566,735
EXPENSES:
Investment advisory
and management fees 23,790 88,839 101,414
Administrative fees 10,573 44,420 56,341
Custodian fees 10,597 36,891 25,330
Audit fees 14,712 30,630 26,561
Transfer agent fees 11,661 20,075 22,475
Registration fees 9,495 12,019 13,398
Insurance 1,138 4,356 5,135
Legal fees 229 1,206 1,565
Trustee fees 215 697 851
Miscellaneous expenses 2,031 9,674 16,492
------- ------- -------
Total expenses 84,441 248,807 269,562
Less: fee waiver (23,790) -- --
-------- ------- -------
Net expenses 60,651 248,807 269,562
-------- ------- -------
Net investment income 291,209 984,163 1,297,173
-------- ------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain
(loss) on investment
transactions and
futures contracts (65,047) (177,477) 108,768
Net unrealized
appreciation of
investments, futures
and foreign currency
translations 50,692 156,158 358,209
------- -------- --------
Net realized and
unrealized gain (loss) (14,355) (21,319) 466,977
------- -------- --------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS $ 276,854 $ 962,844 $1,764,150
----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
18
<PAGE>
- ------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
MANAGERS SHORT
GOVERNMENT FUND
-----------------------------------
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------------
1997 1996
-------- -------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income $291,209 $333,857
Net realized gain (loss) on
investments, futures and
foreign currency transactions (65,047) (34,469)
Net unrealized appreciation
(depreciation) of investments,
futures and foreign currency
translations 50,692 (80,145)
-------- --------
Net increase in net assets
resulting from operations 276,854 219,243
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (293,161) (334,814)
--------- --------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 2,165,355 4,423,184
Net asset value of shares issued
in connection with reinvestment
of dividends 271,442 270,219
Cost of shares repurchased (3,459,258) (4,301,319)
---------- -----------
Net increase (decrease) from
capital share transactions(1,022,461) 392,084
---------- ----------
Total increase (decrease) in
net assets (1,038,768) 276,513
NET ASSETS:
Beginning of year 6,112,723 5,836,210
---------- ---------
End of year $ 5,073,955 $ 6,112,723
----------- -----------
End of year undistributed
(overdistributed) net
investment income $ 129 $ 2,447
----------- -----------
- ------------------------------------------------------------------------
SHARE TRANSACTIONS:
Sale of shares 124,860 252,519
Shares issued in connection
with reinvestment of dividends 15,680 15,437
Shares repurchased (199,713) (245,221)
-------- --------
Net increase (decrease)
in shares (59,173) 22,735
-------- --------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
19
<PAGE>
- ------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
MANAGERS SHORT MANAGERS
AND INTERMEDIATE INTERMEDIATE
BOND FUND MORTGAGE FUND
-----------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------------
1997 1996 1997 1996
------- ------- ------ ------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income $984,163 $1,260,301 $1,297,173 $1,846,805
Net realized gain (loss)
on investments,
futures and foreign
currency transactions (177,477) (122,043) 108,768 (210,231)
Net unrealized appreciation
(depreciation) of
investments,
futures and foreign
currency translations 156,158 (185,227) 358,209 (884,250)
-------- -------- ------- --------
Net increase in net
assets resulting
from operations 962,844 953,031 1,764,150 752,324
-------- -------- --------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment
income (954,428) (1,196,229) (1,260,846)(1,797,552)
--------- ----------- ----------- ---------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale
of shares 6,970,193 8,757,123 4,166,005 5,181,660
Net asset value of shares
issued in connection with
reinvestment of
dividends 770,320 872,417 941,342 1,102,190
Cost of shares
repurchased (15,046,564)(12,247,849) (8,856,088)(20,414,820)
----------- ---------- ---------- ----------
Net increase (decrease)
from capital share
transactions (7,306,051)(2,618,309) (3,748,741)(14,130,970)
--------- ----------- --------- ----------
Total increase (decrease)
in net assets (7,297,635)(2,861,507) (3,245,437)(15,176,198)
--------- ----------- ---------- ----------
NET ASSETS:
Beginning of year 22,379,603 25,241,110 24,845,766 40,021,964
---------- ---------- ---------- ----------
End of year $15,081,968$22,379,603 $21,600,329 $24,845,766
-----------------------------------------------
End of year undistributed
(overdistributed) net
investment income $ 13,915$ (12,041) $ 10,323 $ (3,239)
-----------------------------------------------
- --------------------------------------------------------------------
SHARE TRANSACTIONS:
Sale of shares 357,625 449,976 273,349 342,073
Shares issued in
connection with
reinvestment of
dividends 39,627 44,946 61,782 73,023
Shares repurchased (774,840) (627,949) (581,240)(1,352,144)
--------- --------- --------- ---------
Net increase (decrease)
in shares (377,588) (133,027) (246,109) (937,048)
-------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
20
<PAGE>
- ------------------------------------------------------------------------
MANAGERS SHORT GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------
1997 1996 1995(b) 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $17.40 $17.76 $16.96 $19.35 $19.86
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.97 1.02 0.98 0.86 1.28
Net realized and
unrealized gain (loss)
on investments (0.02) (0.37) 0.63 (2.01) (0.53)
------ ------ ----- ------ ------
Total from
investment
operations 0.95 0.65 1.61 (1.15) 0.75
------ ------ ----- ------ -----
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment
income (0.98) (1.01) (0.50) (1.17) (1.26)
In excess of net
investment
income -- -- (0.31) (0.07) --
------ -------- -------- ------- ------
Total distributions to
shareholders (0.98) (1.01) (0.81) (1.24) (1.26)
-------- ------- ------- -------- ------
NET ASSET VALUE,
END OF YEAR $17.37 $17.40 $17.76 $ 16.96 $19.35
------- ------- ------ ------- ------
- -----------------------------------------------------------------------------
Total Return(c) 5.55% 3.89% 9.71% (6.18)% 3.81%
- -----------------------------------------------------------------------------
Ratio of net expenses
to average net assets 1.15% 1.17% 1.25% 0.97% 0.87%
Ratio of net
investment income
to average net assets 5.51% 5.85% 5.62% 7.06% 8.71%
Portfolio turnover 191% 169% 238% 140% 189%
Net assets at end
of year
(000's omitted) $5,074 $6,113 $5,836 $10,263 $87,874
- ---------------------------------------------------------------------------
Expense Waiver(a)
Ratio of total
expenses to
average net assets 1.60% 1.62% 1.65% 1.03% 0.96%
Ratio of net
investment income
to average net assets 5.06% 5.40% 5.22% 7.00% 8.62%
- ----------------------------------------------------------------------------
<FN>
(a)Ratio information assuming no waiver of investment
advisory and management fees and/or administrative fees in
effect for the years presented. (See Note 2).
(b)Calculated using the average shares outstanding during
the year.
(c)The total return would have been lower had certain
expenses not been reduced during the years shown.
</FN>
</TABLE>
21
<PAGE>
- -----------------------------------------------------------------------
MANAGERS SHORT AND INTERMEDIATE BOND 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 $19.45 $19.67 $18.06 $21.23 $20.89
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.08 1.03 1.28 1.45 1.38
Net realized and
unrealized gain (loss)
on investments 0.03 (0.24) 1.45 (3.17) 0.34
------ ------ ----- ------ ------
Total from
investment
operations 1.11 0.79 2.73 (1.72) 1.72
------ ------ ----- ------ -----
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment
income (1.05) (1.01) (1.09) (1.37) (1.38)
In excess of net
investment
income -- -- (0.03) (0.08) --
------ ------- ------ ------ -------
Total distributions to
shareholders (1.05) (1.01) (1.09) (1.37) (1.38)
-------- ------- ------- ------ --------
NET ASSET VALUE,
END OF YEAR $19.51 $19.45 $19.67 $ 18.06 $21.23
------- ------- ------ ------- ------
- -----------------------------------------------------------------------------------
Total Return(c) 5.87% 4.15% 15.57% (8.37)% 8.49%
- -------------------------------------------------------------------------------------
Ratio of net expenses
to average net assets 1.40% 1.45% 1.50% 1.05% 0.94%
Ratio of net
investment income
to average net assets 5.54% 5.43% 6.52% 7.11% 6.58%
Portfolio turnover 91% 96% 131% 57% 126%
Net assets at end
of year (000's omitted) $15,082 $22,380 $25,241 $30,956 $112,228
- ---------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
- ------------------------------------------------------------------------
MANAGERS INTERMEDIATE MORTGAGE FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------
1997 1996 1995(b) 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $15.17 $15.54 $14.20 $20.65 $21.13
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.87 0.87 0.93 1.52 1.94
Net realized and
unrealized gain (loss)
on investments 0.33 (0.38) 1.45 (6.56) (0.44)
------ ------ ----- ------ ------
Total from
investment
operations 1.20 0.49 2.38 (5.04) 2.38
------ ------ ----- ------ -----
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment
income (0.86) (0.86) (1.03) (1.41) (2.28)
From net realized
gain on
investments -- -- -- -- (0.51)
In excess of net
investment
income -- -- (0.01) -- --
In excess of net
realized gain
on investments -- -- -- -- (0.07)
------ ------- ------ ------ -------
Total distributions to
shareholders (0.86) (0.86) (1.04) (1.41) (2.86)
-------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $15.51 $15.17 $15.54 $ 14.20 $20.65
------- ------- -------- ------- ------
- --------------------------------------------------------------------------------
Total Return(c) 8.23% 3.33% 17.27% (25.00)%(b)11.45%
- --------------------------------------------------------------------------------
Ratio of net expenses
to average net assets 1.20% 1.19% 1.17% 0.85% 0.75%
Ratio of net
investment income
to average net assets 5.76% 5.78% 6.33% 8.37% 8.90%
Portfolio turnover 317% 232% 506% 240% 253%
Net assets at end
of year
(000's omitted) $21,600 $24,846 $40,022 $55,986 $271,861
- ------------------------------------------------------------------------------
Expense Waiver(a)
- -----------------
Ratio of total
expenses to
average net assets N/A N/A N/A 0.92% 0.82%
Ratio of net
investment income
to average net assets N/A N/A N/A 8.30% 8.83%
- -------------------------------------------------------------------------------
<FN>
(a)Ratio information assuming no waiver of investment
advisory and management fees and/or administrative fees in
effect for the years presented. (See Note 2).
(b)The total return would have been lower had certain
expenses not been reduced during the year.
</FN>
</TABLE>
23
<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, registered under the Investment Company Act
of 1940, as amended. Currently the Trust is comprised of 11
investment series. Included in this report are Managers
Short Government Fund ("Short Government"), Managers Short
and Intermediate Bond Fund ("Short and Intermediate") and
Managers Intermediate Mortgage Fund ("Intermediate
Mortgage"), 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
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Fixed income securities are valued based upon valuations
furnished by independent pricing services that utilize
matrix systems which reflect such factors as security
prices, yields, maturities, and ratings, and are
supplemented by dealer and exchange quotations. Exchange-
traded equity securities are valued at the last quoted sales
price, or in the absence of any sales, on the basis of the
last quoted bid price. Over-the-counter securities for which
market quotations are readily available are valued at the
last quoted bid price. Short-term investments, having a
remaining maturity of 60 days or less, are valued at
amortized cost which approximates market. Securities for
which market quotations are not readily available are valued
at fair value, as determined in good faith and pursuant to
procedures adopted by the Board of Trustees.
Investments in certain mortgage-backed, stripped mortgage-
backed and other debt securities, including derivative
securities, not traded on an organized market are valued on
the basis of valuations provided by dealers or by a pricing
service which uses information with respect to transactions
in such securities, various relationships between securities
and yield to maturity in determining value.
(B) SECURITY TRANSACTIONS
Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the
basis of identified cost.
(C) INVESTMENT INCOME AND EXPENSES
Interest income is determined on the basis of interest
accrued. Discounts and premiums are amortized using the
effective interest method when required for Federal income
tax purposes. Dividend income is recorded on the ex-dividend
date. Non-cash dividends included in dividend income, if
any, are recorded at the fair market value of the securities
received. Other income and expenses are recorded on an
accrual
24
<PAGE>
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------
basis. Expenses which cannot be directly attributed to a
particular fund are apportioned among the Funds in the Trust
based upon their average net assets.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends resulting from net investment income normally will
be declared daily for Short Government and monthly for Short
and Intermediate and Intermediate Mortgage. These dividends
normally will be payable on the third to the last business
day of the month. Distributions of capital gains to
shareholders will only be made to the extent that net
capital gains realized for tax purposes exceed that Fund's
capital loss carryovers.
Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences
are primarily due to differing treatments for mortgage-
backed securities, option transactions, futures, market
discount and losses deferred due to wash sales. Permanent
book and tax basis differences, if any, relating to
shareholder distributions will result in reclassifications
to paid-in capital.
(E) REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements provided that
the value of the underlying collateral, including accrued
interest, will be equal to or exceed the value of the
repurchase agreement during the term of the agreement. The
underlying collateral for all repurchase agreements is held
in safekeeping by the Fund's custodian or at the Federal
Reserve Bank.
If the seller defaults and the value of the collateral
declines, or if bankruptcy proceedings commence with respect
to the seller of the security, realization of the collateral
by that Fund may be delayed or limited.
(F) FEDERAL TAXES
Each Fund intends to comply with the requirements under
Subchapter M of the Internal Revenue Code of 1986, as
amended, and to distribute substantially all of its taxable
income and gains to its shareholders and to meet certain
diversification and income requirements with respect to
investment companies. Therefore, no provision for federal
income or excise tax is included in the accompanying
financial statements.
(G) CAPITAL LOSS CARRYOVER
As of December 31, 1997, the Funds had accumulated net
realized capital loss carryovers from securities
transactions for Federal income tax purposes as shown in the
following chart. These amounts may be used to offset
realized capital gains, if any, through December 31, 2005.
<TABLE>
<CAPTION>
Capital
Loss
Fund Amount Expires
<S> <C> <C>
Short
Government $ 1,580,146 2001
11,764,816 2002
48,483 2004
61,007 2005
Short and
Intermediate 2,885,440 1998
2,344,832 2002
7,662,253 2003
70,518 2004
179,401 2005
Intermediate
Mortgage 59,119,637 2002
20,796,333 2003
224,035 2004
</TABLE>
25
<PAGE>
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------
(H) 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.
(I) DELAYED DELIVERY TRANSACTIONS
The Funds may purchase or sell securities on a when-issued
or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The
price of the underlying securities and the date when the
securities will be delivered and paid for are fixed at the
time the transaction is negotiated.
The Funds may receive compensation for interest forgone on
entering into delayed delivery transactions. The Funds
identify cash or securities as segregated in its custodial
records with a value at least equal to the amount of the
forward purchase commitment.
(J) 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 will
represent: (1) foreign exchange gains and losses from the
sale and holdings of foreign currencies; (2) gains and
losses between trade date and settlement date on investment
securities transactions and forward foreign currency
exchange contracts; and (3) gains and losses from the
difference between amounts of interest and dividends
recorded and the amounts actually received.
In addition, the Funds do not isolate that portion of the
results of operations resulting from changes in exchange
rates from the fluctuations resulting from changes in market
prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss on
investments.
(2) AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Managers Funds, L.P. (the "Investment Manager") provides
or oversees investment advisory and management services to
the Funds under Management Agreements with each Fund. The
Investment Manager selects portfolio managers for each Fund
(subject to Trustee approval), and monitors the portfolio
manager's 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 each Fund's
average daily net assets. The annual investment advisory and
management fee rates for Short Government, Short and
Intermediate and Intermediate Mortgage as a percentage of
each Fund's average daily net assets for the fiscal year
ended December 31, 1997, were 0.45%, 0.50% and 0.45%,
26
<PAGE>
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------
respectively. With respect to Short Government, the
Investment Manager has elected to waive 0.25% of its
advisory and management fee for the fiscal year ended
December 31, 1997. This waiver may be modified or terminated
at any time at the sole discretion of the Investment
Manager.
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.
For the fiscal year ended December 31, 1997, Short and
Intermediate and Intermediate Mortgage each paid a fee to
the Administrator at the rate of 0.25% per annum of each
Fund's average daily net assets. For this period, the
Administrator was due a fee from Short Government of 0.20%
per annum of the Fund's average daily net assets, all of
which was waived. This waiver may be modified or terminated
at any time at the sole discretion of the administrator. The
fees paid to the Administrator are established by the
Trustees and may not exceed the annual rate of 0.25% of each
Fund's average daily net assets.
An aggregate annual fee of $10,000 is paid to each outside
Trustee for serving as a Trustee of the Trust. In addition,
these Trustees receive meeting fees of $750 for each 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
Portfolio purchases, and sales or maturities, of long-term
securities, U.S. Government securities and futures contracts
during the fiscal year ended December 31, 1997 were as
follows:
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-term U.S. Government
Securities Securities Only
----------------------- -------------------------
Fund Purchases Sales Purchases Sales
----- ----------- ------ ---------- -----
<S> <C> <C> <C> <C>
Short Government $10,722,606 $10,086,981 $ 9,465,901 $10,075,994
Short and
Intermediate 15,874,808 21,808,214 4,325,804 6,375,403
Intermediate
Mortgage 74,496,965 76,288,764 6,949,684 6,288,705
Long Futures Contracts Short Futures Contracts
----------------------- ------------------------
Fund Opened Closed Opened Closed
----- ------ ------ -------- -------
<S> <C> <C> <C> <C>
Short Government $ 5,170,845 $ 4,554,951 -- --
Intermediate Mortgage -- -- -- $1,084,375
- ---------------------------------------------------------------------------------
27
<PAGE>
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------
(4) FORWARD COMMITMENTS
Certain transactions, such as futures and forward
transactions, dollar roll agreements, or purchases of when-
issued or delayed delivery securities may have a similar
effect on a Fund's net asset value as if the Fund had
created a degree of leverage in its portfolio. However, if a
Fund enters into such a transaction, the Fund will establish
a segregated account with its Custodian in which it will
maintain cash, U.S. government securities or other liquid
high-grade debt obligations equal in value to its
obligations in respect to such transaction. Securities and
other assets held in the segregated account may not be sold
while the transaction is outstanding, unless other suitable
assets are substituted.
(A) FORWARD FOREIGN CURRENCY CONTRACTS
(SHORT AND INTERMEDIATE ONLY)
From time to time, Short and Intermediate may invest in
forward foreign currency exchange contracts. These
investments may involve greater market risk than the amounts
disclosed in the Fund's financial statements.
A forward foreign currency exchange contract is an agreement
between a Fund and another party to buy or sell a currency
at a set price at a future date. The market value of the
contract will fluctuate with changes in currency exchange
rates. The contract is marked-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 to protect against a
possible loss resulting from an adverse change in the
relationship between the U.S. dollar and such foreign
currency.
Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 1997, Short and
Intermediate made no investments in forward foreign currency
exchange contracts.
(B) FUTURES CONTRACTS
A futures contract is an agreement between two parties to
buy and sell a financial instrument at a set price on a
future date. Upon entering into such a contract the Fund is
required to pledge to the broker an amount of cash or
securities equal to the minimum "initial margin"
requirements of the exchange on which the contract is
traded. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or
payments are known as "variation margin" and are recorded by
the Fund as unrealized gains or losses. When the contract is
closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time
it was opened and the value of the contract at the time it
was closed.
There are several risks in using futures contracts. Futures
prices may not cor-
28
<PAGE>
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------
relate perfectly with the behavior of cash market prices of
the instrument being hedged so that even a correct forecast
of general price trends may not result in a successful
transaction, or the Fund's portfolio manager may be
incorrect in its expectation of future prices. There is also
a risk that a secondary market in the instruments that the
Fund holds may not exist or may not be adequately liquid to
permit the Fund to close out positions when it desires to do
so.
A Fund may use futures contracts as a hedge to protect the
value of its portfolio against changes in prices of the
financial instruments in which it may invest. During the
fiscal year ended December 31, 1997, Intermediate Mortgage
and Short Government each entered into futures contracts to
manage the Fund's duration to that of its respective
benchmark index.
(C) DOLLAR ROLL AGREEMENTS
Short Government and Intermediate Mortgage may enter into
dollar roll agreements whereby the Fund sells securities and
agrees to repurchase them or substantially similar
securities, at a mutually agreed upon date and price. Dollar
roll agreements involve the risk that the market value of
the securities retained in lieu of sale by the Fund may
decline below the price of the securities the Fund has sold
but is obligated to repurchase.
In the event the buyer of the securities under a dollar roll
agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of
time to determine whether to enforce the Fund's obligation
to repurchase the securities, and the Fund's use of the
proceeds of the dollar roll agreement may effectively be
restricted pending such decision.
(5) RISKS ASSOCIATED WITH COLLATERAL MORTGAGE OBLIGATIONS
("CMOS") AND INDEXED SECURITIES
The net asset values of the Funds may be sensitive to
interest rate fluctuations because the Funds may hold
several instruments, including CMOs, inverse floaters, super
floaters and other derivatives, whose values can be
significantly impacted by interest rate movements. CMOs are
obligations collateralized by a portfolio of mortgages or
mortgage-related securities. Payments of principal and
interest on the mortgage are passed through to the holder of
the CMOs on the same schedule as they are received from
mortgagees, although certain classes of CMOs have priority
over others with respect to the receipt of prepayments on
the mortgages. Therefore, the investment in CMOs may be
subject to a greater or lesser risk of prepayment than other
types of mortgage-related securities. In another version of
mortgage-related securities, all interest payments go to one
class of holders -- "Interest Only" or "IO" --and all of the
principal goes to a second class of holders -- "Principal
Only" or "PO." The yield to maturity on an IO is extremely
sensitive to the rate of principal prepayments on the
related underlying mortgage assets and a rapid rate of
principal prepayments may have an adverse effect on yield to
maturity. If greater than anticipated prepayments of
principal are experienced, the Fund may fail to fully recoup
its investment. Conversely, if less than anticipated
prepayments of principal occur, the yield on a PO class
could be materially affected.
CMOs may have a fixed or variable rate of interest,
including inverse floating rate securities on which the
interest
29
<PAGE>
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ------------------------------------------------------------------------
rates typically decline as market rates increase and
increase as market values decline. Accordingly, such
instruments can be expected to be more volatile than fixed
rate or other variable rate securities.
The Funds may also invest in indexed securities whose value
is linked either directly or indirectly to changes in
foreign currencies, interest rates, equities, indices, or
other reference instruments. Indexed securities may be more
volatile than the reference instrument itself, but any loss
is limited to the amount of the original investment.
(6) CONTINGENCIES
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 for 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 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 lawsuit 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, the Management
intends to defend vigorously against these actions.
30
<PAGE>
- ------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------
To the Trustees of The Managers Funds and the Shareholders
of Managers Short Government Fund, Managers Short and
Intermediate Bond Fund and Managers Intermediate Mortgage
Fund:
We have audited the accompanying statements of assets and
liabilities of Managers Short Government Fund, Managers
Short and Intermediate Bond Fund and Managers Intermediate
Mortgage Fund, including the schedules of portfolio
investments, as of December 31, 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 Short
Government Fund, Managers Short and Intermediate Bond Fund
and Managers Intermediate Mortgage 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
31
<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
Shereff, 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
</TABLE>
