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INTERNATIONAL EQUITY FUND
EMERGING MARKETS EQUITY FUND
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ANNUAL REPORT
DECEMBER 31, 1998
WHERE LEADING MONEY MANAGERS CONVERGE
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MANAGERS INTERNATIONAL EQUITY FUND
MANAGERS EMERGING MARKETS EQUITY FUND
ANNUAL REPORT
DECEMBER 31, 1998
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, 1998
Investment Manager's Comments........................................ 4
Discussion of investment results during the period
and cumulative total return graphs versus relevant indices
Summary of Industry Weightings and Top Ten Holdings.................. 15
Side by side comparison of the Funds' sector breakdown
and top ten holdings
Summary of Country Allocations....................................... 16
Side by side comparison of the Funds' country breakdown
Schedules of Portfolio Investments................................... 17
Detailed portfolio listings by security type and industry
sector, as valued at December 31, 1998
Statements of Assets and Liabilities................................. 25
Fund balance sheets, Net Asset Value (NAV) per share
computation and cumulative undistributed amounts
Statements of Operations............................................. 26
Details of income, fund expenses, and realized and
unrealized gains (losses) during the period
Statements of Changes in Net Assets.................................. 27
Detail of changes in fund assets and distributions to
shareholders for the past two periods
Financial Highlights................................................. 28
Historical net asset values, distributions, total returns,
expense ratios, turnover ratios and net assets
Notes to Financial Statements........................................ 30
Accounting and distribution policies, details of agreements
and transactions with fund management and description of
certain investment risks
Report of Independent Accountants.................................... 37
</TABLE>
[FN]
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.
</FN>
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PRESIDENT'S MESSAGE
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[PHOTO OF PRESIDENT]
DEAR FELLOW SHAREHOLDER:
The past year will be remembered as one of the most tumultuous years for
financial assets in recent history. While the U.S. economy grew steadily
throughout the year and inflation remained very moderate, several important
events sent financial markets throughout the world on a roller-coaster of
valuation.
Early in the year, despite continued uncertainty about the health of many
emerging economies, U.S. equity and fixed-income markets rose as continued
growth in gross domestic product (GDP) and the reality of low inflation
encouraged investors and consumers. Consumer spending continued to rise
along with personal income, while unemployment reached post-WWII lows. As
might be expected, consumer confidence estimates reached all-time highs.
During the summer, however, the continuing problems in foreign economies
threw a wrench into the works. A 7.7% drop in exports confirmed that the
economic crises in the Far East was having an impact on the U.S. economy,
and raised the possibility that the emerging markets could drag relatively
healthy developed markets, including the U.S., into recession. In mid-
August, Russia devalued its currency by one third and defaulted on much of
its debt to foreign creditors. Long Term Capital Management (LTCM), a hedge
fund consisting of some of the "smartest money" on Wall Street, had to be
bailed out by a consortium of large investment banking institutions after
LTCM's funds lost nearly 90 percent of their value. The Malaysian government
instituted capital controls over its currency, effectively eliminating
further foreign investment. These events set off a vicious cycle that led
to sharp declines of almost all of the world's financial markets. In
addition, U.S. manufacturing activity and construction spending leveled off
and U.S. job growth grew at a slower than expected pace in September. Again,
not surprisingly, consumer confidence fell for three straight months
into September. From their peak in mid-July most foreign and domestic stock
indices fell 20% or more by the end of August. Liquidity in the credit
markets dwindled as dealers and investors attempted to reduce their risk
exposure at all costs, sending corporate bond and all lower credit quality
debt prices lower. The beneficiaries were U.S. Treasury securities along
with a few other countries' government debt which rose dramatically in price
during the period.
In reaction to these events and the market weakness, the Federal Reserve
1
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Board reduced the Federal Funds Rate by one quarter percentage point on
September 29th, and followed that with a surprise reduction in mid-October.
In explaining his decision, Fed Chairman Greenspan told the Senate Budget
Committee that "deteriorating foreign economies and their spillover to
domestic markets have increased the possibility that the slowdown in the
growth of the American economy will be more than sufficient to hold
inflation in check." Several foreign central banks augmented the Fed's move
by reducing their own rates.
The global equity markets celebrated the rate reductions along with some
encouraging corporate earnings news by surging to one of their best
quarterly performances ever. Before the end of the calendar year, the broad
large and medium capitalization indices were hitting all-time highs.
The increased volatility of the financial markets was clear evidence that
the success of the markets depends heavily on the continuation of a near
perfect environment; low inflation, high employment, an extended economic
expansion, strong corporate earnings driven by structural and technological
improvements, and low interest rates. Any threats to this environment will
likely trigger more volatility and dispersion of investment results. Now
more than ever, we believe that past performance is no guarantee of future
results, and that diversification is very important.
This past year was also a successful one for The Managers Funds. Most of
our funds performed within or exceeded our expectations during the year. In
February, we successfully launched a new fund, Managers Emerging Markets
Equity Fund. Although the emerging markets were not a particularly
profitable area of investment in 1998, we believe that there is excellent
opportunity going forward. We made one investment manager change during
the year in Managers Capital Appreciation Fund, which, incidentally, had a
very successful year. Please see page 3 for the performance results of all
of our funds.
I would like to take this opportunity to personally thank Bill Graulty, who
recently retired from the Funds' Board of Trustees, for his many years of
service to our shareholders. Bill has been a Trustee to the Funds since
their inception in 1984. Early in 1999 a proxy vote will be held to elect a
replacement for Bill Graulty. We wish him well in his future endeavors.
As always, should you have any questions about this report, please feel free
to contact us at 1-800-835-3879.
We thank you for your continued investment in The Managers Funds.
Sincerely,
/S/ ROBERT P. WATSON
Robert P. Watson
President
2
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THE MANAGERS FUNDS PERFORMANCE (unaudited)
All periods ending December 31, 1998
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<TABLE>
<CAPTION>
AVERAGE ANNUAL 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 11.77% 18.49% 17.68% 14.43% 15.22% Oct. '84 ***
Capital Appreciation
Fund 57.41% 26.34% 21.51% 18.36% 17.77% Jun. '84 ****
Special Equity Fund 0.20% 15.88% 15.35% 16.64% 15.80% Jun. '84 ***
International
Equity Fund 14.54% 12.70% 11.16% 11.62% 14.05% Dec. '85 ****
Emerging Markets
Equity Fund -- -- -- -- (22.60)% Feb. '98 NA
Income Funds:
Short & Intermediate
Bond Fund 5.36% 5.13% 4.23% 7.13% 8.15% Jun. '84 ***
Intermediate
Mortgage Fund 6.08% 5.84% 0.83% 6.72% 7.12% May '86 *
Bond Fund 3.34% 6.19% 7.77% 9.75% 10.73% Jun. '84 ***
Global Bond Fund 19.27% 7.64% -- -- 8.24% Mar. '94 **
Money Market Fund 5.25% 5.36% 4.94% 5.19% 5.83% 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 any of the Managers Funds, please call The Managers Funds at (800)835-3879,
or your investment adviser. Please 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
12/31/98 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
Treasury 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 2,821, 1,721 and 751 equity funds, the International
Equity Fund was rated against 872, 417 and 124 international equity funds, and
each of the Income Funds was rated against 1,499, 998 and 378 taxable
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
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MANAGERS INTERNATIONAL EQUITY FUND
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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
4
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make comparisons across countries 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 it's 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.
5
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THE YEAR IN REVIEW
Managers International Equity Fund provided a total return of 14.5% during
1998 while the Morgan Stanley Capital International - Europe Australasia Far
East Index (EAFE) returned 20.0%.
In summary, the Fund's poor performance relative to the benchmark can be
attributed to a relatively low allocation in Japanese stocks, and a
relatively high allocation in basic material producers. These differences
were manifest primarily during the fourth quarter although the entire year
was a volatile yet rewarding one in which the Fund outperformed most of its
competitor funds.
During the first quarter, European stocks moved sharply higher as a result
of the perceived stabilization of the crisis in the Far East, along with low
interest rates, low inflation, industry consolidation and the release of
positive European economic data. Developed Far Eastern markets such as
Japan and Hong Kong performed poorly while the Far Eastern emerging markets
rebounded somewhat from their catastrophic performance during the previous
year.
The Fund's heavy allocation in European stocks was clearly a benefit during
the first quarter, although the holdings did not keep pace with the European
averages. Weakness came primarily from the Far Eastern holdings. Despite
small positions in the smaller Far Eastern countries which rose
dramatically, the bulk of the Far Eastern investments were in Japan, Hong
Kong and Australia. The large brand name Japanese multinationals accounted
for four of the five biggest detractors to the Fund's performance.
From a sector perspective, strength was broad, however, financial companies,
which make up the portfolio's largest sector position added the most value.
Financial holdings returned 18% on average during the first quarter, while
the capital goods and basic industries positions returned 18% and 14%,
respectively.
The Fund outperformed the benchmark in the second quarter primarily as a
result of its overweighting in European stocks and underweighting of
Pacific region investments. It is important to note, however, that the
allocations were a result of stock selection and long-term thematic ideas as
opposed to country allocation decisions.
The Fund outperformed many of its competitors because of the performance of
individual issues. German software giant, SAP, one of the Fund's long time
holdings rose 60% during the second quarter, while other German holdings
RWE, Hoechst, Mannesmann, Viag and Deutsche Telekom appreciated
significantly. Service sector stocks throughout Europe also performed well,
including Mirror Group (publishing), Metro (retailing), and Railtrack
(Transportation). Weakness was concentrated in the Far East and emerging
markets. The Japanese holdings lost 4% on average, while small positions in
many of the small Pacific markets depreciated between 10% and 50% during the
second quarter.
In the third quarter, foreign markets traded sharply lower as economic
failures in the emerging markets began to
6
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significantly affect financial markets in the developed countries. As large
financial institutions and aggressively leveraged investors throughout the
world saw their emerging markets portfolios disintegrate, they were forced, by
margin calls, to sell any and all "risky" assets. Thus, from mid-July through
August, there was indiscriminate selling of securities across all industries
and countries. The underlying causes of the downturn were indeed fundamental:
deflationary pressures brought on by the explosion in worldwide productivity
and capacity; a lack of strong, experienced political leadership in many of the
emerging markets; and poor utilization of the large inflows of capital into
developing markets during the recent decade. Many of the securities that
were sharply devalued, however, continued to have strong fundamental
prospects.
From a regional perspective, the Fund's European holdings, which made up
approximately 67% of the portfolio, dropped 15% on average during the third
quarter. The Pacific holdings lost 13% and the small amount invested in
emerging markets dropped 20% on average. Small positions in Ghana,
Singapore and Malaysia rose in price. From a sector perspective, the
biggest detractors were financial holdings, which suffered as investors
became wary of these companies' loans and investments in emerging markets.
Consumer durable, capital goods and basic industries positions also fared
poorly due to expectations of global deflation. A small position in
consumer non-durables rose while utilities, transportation, energy and
healthcare holdings fell only moderately during the third quarter. The
Fund's defensive positions in U.S. and British Treasury securities performed
well.
The Fund's portfolio managers did very little selling during the third
quarter, instead adding positions as they came down to compelling
valuations. The biggest increase was in the U.K. where eight positions were
added across several sectors to bring the U.K weighting up to 20% of the
portfolio. In addition, two Singapore bank positions were initiated, in the
expectation that these will survive and benefit from the gradual recovery of
the emerging economies.
In the fourth quarter the global markets sharply rebounded, largely as a
result of a series of interest rate cuts by the U.S. Federal Reserve Bank
that were followed by rate cuts from several European central banks. While
most global regions offered strong equity returns, the Pacific region, due
to brightening economic prospects and a bit more stability, performed the
best. In particular, the Japanese Yen rose sharply against the U.S. Dollar
so that dollar-based investors in the Japanese stock market earned a 28%
return during the fourth quarter.
Much of the Fund's underperformance during the fourth quarter can be
attributed to the holdings in Japan. Not only did the Fund maintain a
below-market weighting in Japan, but the individual Japanese holdings
underperformed the Japanese averages during the fourth quarter. For the
past several years, the portfolio managers have emphasized the large
globally competitive Japanese exporters such as Sony, Nintendo,
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and Nissan Motors, while avoiding the ailing Japanese financial companies.
From a long-term perspective this has been a very rewarding strategy. However,
the sharply rising Yen put pressure on the pricing and profitability of these
exporters during the fourth quarter, while the Japanese financial companies
began to demonstrate the possibility of recovery. The Fund did, however,
maintain a large allocation in financial stocks other than in Japan, and
which rebounded significantly in the fourth quarter.
Another source of the Fund's poor performance during the fourth quarter was
its large investment in basic material stocks. While these stocks have
performed poorly as a result of falling demand and prices for commodities,
the original thesis of deflation-driven consolidation remains intact.
LOOKING FORWARD
One significant change in the global financial markets heading into 1999 has
been the introduction of the Euro, the unification of the monetary policies
of 11 separate European countries under one central bank. The sub-advisors
for the International Equity Fund are encouraged by this change, believing
that the unification has the potential to offer efficiencies in all areas of
monetary commerce in continental Europe.
Many of the investment themes which the managers were beginning to apply in
1998 remain important as we move into 1999. Although global companies have
dominated the portfolio in the past few years, both managers are finding
compelling investments among domestic companies (as defined above). These
companies have less flexibility to allocate resources across borders but
some of them are beginning to follow in the footsteps of the global
companies by rationalizing their operations and focusing on shareholder
value. In addition, the European companies have an opportunity to benefit
from increased flexibility and open markets as a result of the European
Monetary Union.
While Scudder's "Secure Streams of Income" theme was generally a drag on
performance throughout the year, it was successful in reducing the risk of
the portfolio. Scudder will continue adding to this theme in 1999, which
involves investing in companies which generate predictable earnings and
dividends. As an example, Scudder has continued to add to holdings such as
National Grid, a British electric transmission holding company. In
addition, Scudder is developing a new theme, "The Empowered Consumer," which
seeks to capitalize on the increasing benefits of technology to consumers
which results in price arbitrage and more efficient ordering and delivery
systems. An example of investments within this theme include British
Telecom, Sharp, and TDK. The latter two companies are Japanese businesses
which produce non-commodity technologies that benefit from the empowering of
consumers.
At Lazard, John Reinsberg will continue to concentrate on finding value
within individual stocks, but with a particular focus development with
respect to the transition to the Euro, and the possible recovery of the
Japanese financial companies.
8
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MANAGERS INTERNATIONAL EQUITY FUND
Cumulative Total Return Performance
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The Managers International Equity Fund's cumulative total return is based on the
daily change in net asset value (NAV), and assumes that all distributions
were reinvested.
The MSCI EAFE Index 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, 1988, to a $10,000 investment made in
the EAFE for the same period. Past performance is not indicative of future
results.
[Line Graph comparing hypothetical $10,000 investment for the past ten years
between the International Equity Fund and the MSCI EAFE Index]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----- ---- ----- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
International Equity
Fund 10,000 11,510 10,384 12,269 12,791 17,681 18,035 20,964 23,641 26,202 30,011
MSCI EAFE Index 10,000 11,080 8,510 9,573 8,439 11,219 12,091 13,446 14,259 14,513 17,413
</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, 1998, and comparable returns for the EAFE Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
ANNUALIZED
----------------------------------------
ONE YEAR FIVE YEARS TEN YEARS
-------- ----------- ---------
<S> <C> <C> <C>
Managers International Equity Fund 14.5% 11.2% 11.6%
EAFE Index 20.0% 9.2% 5.7%
</TABLE>
9
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MANAGERS EMERGING MARKETS EQUITY FUND
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Managers Emerging Markets Equity Fund, managed by The Managers Funds, L.P.
since its inception in February 1998, seeks long-term capital appreciation
through investment in companies within countries considered to be emerging
or developing by the World Bank or the United Nations. Throughout 1998, The
Managers Funds utilized two independent sub-advisors who each managed
approximately half of the total portfolio: Bryan Sudweeks of Montgomery
Asset Management and Ken King of King Street Advisors. In mid-January 1999,
The Managers Funds restructured the Fund so that going forward, only one
sub-advisor, Ken King of King Street Advisors will be managing the
portfolio.
THE PORTFOLIO MANAGER
Ken King's investment strategy is to earn investment return and manage
investment risk by analyzing and actively managing country and industry
exposure in the portfolio, and investing in companies within the targeted
country and industry ranges which demonstrate strong but, most importantly,
profitable earnings growth.
COUNTRY ALLOCATION
Through years of experience analyzing and investing in emerging markets Ken
King has come to the belief that the political, economic and financial
health of countries within the emerging markets is essential to the success
of the companies domiciled within them. In addition, King believes that
emerging markets are inefficient in the technical sense that past behavior
contains information about future behavior. Individually, they are highly
volatile. They regularly and predictably overshoot fair value and then, in
relatively short periods, revert towards the mean. Market capitalization
weighted indices fail to recognize this; the markets that have risen most
take on a larger index weight just as it becomes increasingly likely that
they will underperform. Poorly performing markets will have a reduced index
weight just as the chance of relative outperformance increases. Market
capitalization weighted indices thus encourage managers to chase markets and
expose portfolios to the risk of being "whipsawed." This reduces returns
and increases volatility.
Because of this, King Street Advisors uses a fixed-weight index to define
its neutral position. King Street splits the markets into two groups: Top
tier are the twelve most liquid markets (countries) and bottom tier are all
other eligible markets. Within each tier, all markets are given an equal
weight: Top tier markets have a weight of 5.6% so that the neutral
allocation in top tier markets is 67% of the portfolio. Bottom tier markets
have a weight of 2.6% and make up 33% of the portfolio.
The investment team at King Street analyzes political, economic and market
factors for each country and ranks them into favorable, neutral and
unfavorable rankings that determine the target allocations within the
portfolio. A "favorable" rating means exposure to a country in the
portfolio should match the neutral weight at a minimum. "Unfavorable"
should match the neutral
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weight only at a maximum. A "neutral" ranking implies a band which ranges by
1%-2% on either side of the fixed weight depending on the market's tier.
Among the market factors which King Street analyzes are the recent performance
of each country along with an assessment of the availability of attractively
valued stocks.
STOCK SELECTION
King Street Advisors are great believers in stock selection. They believe
that the quality of company research in the emerging markets is poor. Many
companies in the emerging markets have been very successful at destroying
shareholder wealth. King Street Advisors' research centers on avoiding
companies that generate "profitless growth."
After screening the emerging markets universe for minimum capitalization and
liquidity parameters, the King Street investment team analyzes roughly 300
companies in detail.
In order to identify companies which can and will undergo profitable growth,
King Street's research entails:
* Studying published accounts and accounting policies for the underlying
development of earnings;
* Performing a "duPont Analysis" of return on equity;
* Analyzing the return on invested capital and the economic value added; and
* Analyzing the cash flow, capital spending and capital requirements of each
company.
The portfolio is thus constructed from both a top down and a bottom up
perspective. It will typically have 40 to 60 stocks of companies exhibiting
profitable growth, and will typically be very diversified across emerging
market countries. Because of the fixed weight benchmark allocation method
described above, the portfolio will typically be underweighted relative to
the weightings of the largest three or four emerging countries in the
capitalization weighted index. The benchmark for this Fund is the Morgan
Stanley Capital International - Emerging Markets Free Index.
It is important to note that the portfolio listed in this report (as of
December 31, 1998) is the combination of portfolios of both King Street
Advisors and Montgomery Asset Management. Given the change to a single
manager format, the portfolio is expected to be restructured somewhat
throughout early 1999.
THE YEAR IN REVIEW
Managers Emerging Markets Equity Fund provided a total return of -22.6%
from its inception on February 9, 1998 through December 31, 1998. For the
same period, the Morgan Stanley Capital International - Emerging markets
Free Index (EMF) returned -24.4%.
The Fund was opened for investment on February 9, 1998, with a Net Asset
Value of $10.00 per share. From February 9 through March 6 the assets were
invested in U.S. Treasury bills until the Fund was large enough to invest in
a diversified portfolio of foreign securities. From March 6 through March
31, the Fund returned +3.90%. The MSCI Emerging Markets Free Index returned
+5.4% for the same period.
During the second quarter, emerging markets traded down sharply as effects
11
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from continuing depreciation of currencies in the Far East reverberated
around the globe. While there are many types of businesses throughout the
emerging markets, many of these countries' economies are heavily biased
toward production and exportation of raw materials and basic goods. Since
the initial crisis in the second half of 1997, commodities prices have
deteriorated as demand, which was partly driven by the infrastructure growth
around the globe, has diminished. Thus, even though the financial crisis
was focused in the Far East, the effects reverberated to emerging countries
in Europe, Africa and Latin America. In addition, many of the smaller Far
Eastern countries are dependent on exports to Japan, which was also
suffering from serious financial difficulties and a weakening currency.
In the portfolio, there were few bright spots during the second quarter.
Ceske Radiokomunikace, a Czech broadcasting company, was added during the
quarter and rose 31%. Molope Foods, a South African food and commercial
service company appreciated 11%, and two Turkish holdings, Efes Sinai
Yatrim, a Coca-Cola bottler, and Yapi ve Kredi Bankasi, a commercial bank,
appreciated 10% each during the quarter. Other holdings in Greece, Egypt
and Israel rose slightly during the period.
The remainder of the portfolio fell sharply in the second quarter. Worst
hit were two Russian energy companies, Unified Energy Systems, and Tatneft,
which fell by 60% in U.S. Dollars terms.
Emerging markets stocks continued to disintegrate during the summer,
dropping about 40% from mid-July to the end of August before rebounding
somewhat in September.
The causes of the debacle run deep and are somewhat different for each
country, however, some generalizations can be made. First, the political
leadership within many emerging countries, not to mention the mature
countries surrounding them, has been weak, inexperienced and often corrupt.
Second, outside investors sent more money more quickly than could be
efficiently put to work. Third, speculators, as opposed to investors,
became a dominating force in markets, which were not yet ready for them.
During the third quarter, most of the portfolio traded sharply lower as the
market concurrently lowered its expectations about future growth and raised
its assessment of risk. The worst performing market was Russia, where the
Fund's investments (1.5% of assets at the start of the quarter) dropped 88%
as the Russian government devalued its currency and defaulted on its
sovereign debt. Although Russia's economy is minute in the global context,
the action was enough to ruin some investors and strike fear into the hearts
of many others that Russia's situation was not unique. In some cases, the
fall in values that started over a year ago triggered margin calls which
forced investors to indiscriminately raise capital by selling any risky
assets. Almost all equity markets, developed or not, fell sharply.
There were a few investments that appreciated during the third quarter.
The Fund's investments in Thailand rose almost 40% in a rebound from
12
<PAGE>
earlier losses. This supports King Street's central philosophy that these
markets tend to overreact in both directions.
The Malaysian market also rebounded, however, this was partially an
artificial result of capital constraints instituted on the currency by the
Malaysian Government in early September. Positions in India, Czech
Republic, Philippines and Poland also rose moderately during the quarter.
During Brazil's 22% decline in the third quarter, the Fund's managers
purchased a number of Brazilian telephone and regional cellular telephone
companies, along with some in other countries, thereby almost doubling the
Fund's exposure in communication services.
The other large increase was in utility companies. Thus, by the end of the
third quarter the portfolio was heavily skewed toward companies that provide
for basic consumer necessities throughout the developing nations.
Communications, utilities, and consumer basics, which consists mostly of
food and beverage companies, made up just under 50% of the portfolio.
These are the types of companies that must develop in order for the
economies to grow and prosper.
As most of the global equity markets rebounded during the fourth quarter, so
did the emerging markets. The Fund returned 15.4% during the fourth
quarter. A modest overweighting of South Africa, along with a relatively
heavy weighting in basic materials companies detracted from the Fund's
performance during the quarter. However, the Fund was very successful in
other areas. The South Korean stock market rose more than 100% in U.S.
Dollars in the fourth quarter and the Fund's modestly overweight position
rose more than 160%. Although the portfolio was somewhat underweight in
Greece, the 5% of Fund assets invested there rose 58% during the quarter.
National Bank of Greece and Commercial Bank of Greece rose 63% and 26%,
respectively, during the fourth quarter. A 4% position in Hungarian
companies was also productive, returning 44% for the quarter.
GOING FORWARD
As a result of the change to a single sub-advisor portfolio, investors
should expect to see a reduction in the allocations in Brazil and South
Africa with increases in the allocations across many of the smaller markets.
Although most experts agree that the path to recovery for the emerging
economies is likely to be long and difficult, there are some encouraging
points for the markets. In countries such as South Korea, the distress is
forcing the large conglomerates to de-leverage, sell off portions of their
businesses, examine their cost of capital and begin managing to optimize
return on equity and economic value added. Additionally, there are some
stocks, particularly in Latin America which are sustaining relatively high
cash flows and paying relatively high dividends.
While there are certainly continued risks that some of these economies will
submerge instead of emerge, the good news is that crisis is often the only
catalyst for real change. There is no doubt in our minds that some of these
markets will grow and prosper. The challenge is finding them.
13
<PAGE>
- -----------------------------------------------------------------------
MANAGERS EMERGING MARKETS EQUITY FUND
Cumulative Total Return Performance
- -----------------------------------------------------------------------
The Managers Emerging Markets Equity Fund's cumulative total return is based
on the daily change in net asset value (NAV).
The Morgan Stanley Capital International Emerging Market Free Index (MSCI EMF)
is a market capitalization-weighted index covering over 1,000 stocks in 25
emerging nations in the Asia/Far East, South American, Eastern European and
African regions. MSCI designates nations as emerging based upon several factors,
most importantly per capita GDP. In cases where restrictions on foreign
investment exist, as is recently the case in Malaysia, the "Free" index limits
its coverage to the oportunity set generally available to foreign investors.
This chart below compares a hypothetical $10,000 invested in Managers
Emerging Markets Equity Fund on February 9, 1998, to a $10,000 investment
in the MSCI EMF Index for the same period. Past performance is not
indicative of future results.
[Line Graph comparing hypothetical $10,000 investment for the past ten months
between the Emerging Markets Equity Fund and the MSCI EMF Index]
<TABLE>
<CAPTION>
02/09 02/28 03/31 04/30 05/31 06/30 07/31 08/31 09/30 10/31 11/30 12/31
----- ---- ----- ---- ---- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Managers Emerging Markets
Equity Fund 10,000 10,010 10,400 10,560 9,230 8,450 8,870 6,020 6,710 7,320 7,910 7,740
MSCI EMF Index 10,000 10,332 10,780 10,663 9,201 8,236 8,497 6,041 6,424 7,100 7,691 7,558
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------
THE MANAGERS FUNDS
SUMMARY OF INDUSRTY WEIGHTINGS AS OF DECEMBER 31, 1998 (unaudited)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS
INTERNATIONAL EMERGING MARKETS
MAJOR SECTORS EQUITY FUND EQUITY FUND
------------- ----------- -----------------
<S> <C> <C>
Basic Materials 13.4% 9.9%
Capital Goods 5.7 2.6
Communication Services 6.4 17.3
Conglomerates 1.7 0.4
Consumer Cyclicals 11.6 2.7
Consumer Staples 11.0 10.3
Energy 6.8 5.4
Entertainment and Leisure - 3.9
Financials 24.1 17.9
Health Care 4.9 0.9
Technology 2.5 6.6
Transportation 1.8 -
Utilities 5.1 12.4
Other 5.0 9.7
</TABLE>
- ---------------------------------------------------------------------------
TOP TEN HOLDINGS AS OF DECEMBER 31, 1998 (unaudited)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS INTERNATIONAL EQUITY FUND MANAGERS EMERGING MARKETS EQUITY FUND
- ---------------------------------- -------------------------------------
% FUND % FUND
<S> <C> <S> <C>
Allianz AG 1.8 % Housing & Commmercial Bank Korea 3.6 %
AXA-UAP* 1.7 Liberty Life Association of
Africa Ltd. 3.2
Unilever PLC* 1.6 Telecomunicacoes de Sao Paulo SA 3.1
Nestle SA* 1.6 National Bank of Greece SA 3.1
Hoechst AG* 1.5 Bank LeumiLe-Israel 3.0
Vivendi 1.5 Samsung Electronics Ltd. 2.7
British Aerospace PLC* 1.4 Philippine Long Distance Telephone Co. 2.7
Viag AG* 1.4 BEC World PLC 2.6
Zurich Allied AG 1.3 Pohang Iron & Steel Co Ltd. 2.5
Metro AG 1.3 Huaneng Power International, Inc. 2.4
</TABLE>
[FN]
* A top 10 holding at December 31, 1997.
</FN>
15
<PAGE>
- -------------------------------------------------------------------
THE MANAGERS FUNDS
SUMMARY OF COUNTRY ALLOCATIONS RELATIVE TO MSCI INDECES
as of December 31, 1998 (unaudited)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS
MANAGERS EMERGING MSCI
INTERNATIONAL MSCI MARKETS EM
COUNTRY EQUITY EAFE COUNTRY EQUITY FREE
ALLOCATION FUND Index ALLOCATION FUND INDEX
- ---------- ------- ------ ---------- ------- -------
<S> <C> <C> <S> <C> <C>
United Kingdom 22.9 % 21.2 % Brazil 14.5 % 11.9 %
Japan 14.4 21.0 South Africa 12.3 10.3
Germany 14.0 10.7 Korea 8.7 10.7
France 10.7 9.4 Mexico 6.8 11.3
Switzerland 7.7 8.1 Taiwan 5.2 9.9
Sweden 4.0 2.6 Greece 5.1 7.3
Australia 3.5 2.6 Argentina 4.9 4.6
Italy 3.2 5.2 Hong Kong 4.6 0.0
Netherlands 3.0 6.5 Thailand 4.2 2.8
Spain 2.9 3.4 Hungary 4.1 1.6
Canada 2.4 0.0 India 3.6 7.9
U.S. 2.2 0.0 Egypt 3.2 0.0
Singapore 1.5 0.7 Turkey 3.2 2.0
Hong Kong 1.5 2.1 Israel 3.0 3.3
Denmark 0.7 0.9 Poland 2.9 1.4
Finland 0.6 1.6 Philippines 2.7 2.1
Brazil 0.5 0.0 Chile 1.9 4.5
South Africa 0.5 0.0 Malaysia 1.8 0.0
Argentina 0.5 0.0 Croatia 1.7 0.0
Austria 0.3 0.3 Peru 1.7 1.0
Malaysia 0.3 0.0 Czech Republic 1.6 1.1
Chile 0.3 0.0 Indonesia 0.8 1.8
Ghana 0.2 0.0 Russia 0.5 1.3
China 0.1 0.0 China 0.4 0.7
Norway 0.0 0.4 Sri Lanka 0.0 0.1
Portugal 0.0 0.7 Pakistan 0.0 0.4
Belgium 0.0 1.9 Venezuela 0.0 1.0
Ireland 0.0 0.5 Colombia 0.0 0.8
New Zealand 0.0 0.2 Jordan 0.0 0.2
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - 95.0%
BASIC MATERIALS - 13.4%
AGA AB, Series B, Switzerland
Certificate (Sweden) 224,200 $ 2,938,817
Air Liquide (France) 16,957 3,108,733
Alcan Aluminium Ltd. (Canada) 64 1,730
Anglo American Platinum Corp.
Ltd, ADR (USA) 120,476 1,652,738
Aracruz Celulose SA,
Sponsored ADR (Brazil) 87,400 699,200
Ashanti Goldfields Co. Ltd.,
Sponsored GDR (Ghana) 117,355 1,100,203
Barrick Gold Corp. (Canada) 129,600 2,513,994
BASF AG (Germany) 105,688 4,033,215
Bayer AG (Germany) 87,326 3,644,260
BOC Group PLC (UK) 234,853 3,367,306
Canadian Hunter Exploration
Ltd. (Canada)* 21,200 138,698
Ciba Specialty Chemicals AG,
Registered (Switzerland) 24,925 2,086,609
Clariant AG, Registered (Switzerland) 2,739 1,280,074
Compagnie De Saint-Gobain (France) 27,270 3,848,333
Companhia Vale do Rio Doce,
Sponsored ADR (Brazil) 93,300 1,196,946
Hoechst AG (Germany) 203,053 8,418,914
Holderbank Financiere Glaris AG,
Bearer Shares (Switzerland) 2,827 3,346,220
Impala Platinum Holdings, ADR
(South Africa) 61,900 841,803
Imperial Chemical Industries PLC (UK) 410,000 3,552,334
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
BASIC MATERIALS (continued)
Kymmene OY (Finland) 54,040 $ 1,504,938
Lafarge SA (France)* 26,887 2,553,568
Nexfor Inc. (Canada) 36,972 146,340
Noranda, Inc. (Canada) 84,800 846,058
Normandy Mining Limited (Australia) 1,107,100 1,024,401
Quimica Minera Chile SA,
Sponsored ADR (Chile) 43,100 1,451,931
Rhone Poulenc SA, Class A (France) 111,682 5,744,901
RTZ Corp. PLC (UK) 229,290 2,666,606
Stillwater Mining Co. (USA)* 49,400 2,025,400
Sumitomo Metal Mining Co. (Japan) 242,000 785,617
Teijin Limited (Japan) 873,000 3,212,455
Thyssen AG (Germany) 10,400 1,928,861
WMC Ltd. (Australia) 797,600 2,404,677
----------
TOTAL BASIC MATERIALS 74,065,880
----------
CAPITAL GOOODS - 5.7%
ABB AG, Class A (Sweden) 265,600 2,827,688
Alcatel Alsthom (France)* 33,100 4,049,437
General Electric Co. PLC (UK) 602,171 5,452,454
Heidelberger Druckmaschinen AG
(Germany) 7,691 569,926
Matsushita Electric Works, Ltd.
(Japan) 273,000 2,789,164
Minebea Co., Ltd. (Japan) 213,000 2,438,054
Omron Corp. (Japan) 98,000 1,341,919
Siebe PLC (UK) 1,090,200 4,283,640
Siemans AG (Germany) 64,800 4,179,767
Toshiba Corporation (Japan) 606,000 3,607,590
----------
TOTAL CAPITAL GOODS 31,539,639
----------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
17
<PAGE>
- --------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATION SERVICE - 6.4%
BCE, Inc. (Canada) 70,300 $ 2,660,684
British Telecommunications PLC (UK) 276,583 4,186,196
Deutsche Telekom AG (Germany) 43,669 1,435,894
Deutsche Telekom AG,
Sponsored ADR (Germany) 41,173 1,348,416
Nippon Telegraph & Telephone
Corp. (Japan) 624 4,813,162
NTT Mobile Communication Network,
Inc. (Japan) 118 4,853,605
Swisscom AG (Switzerland)* 8,268 3,460,799
Telecom Italia SpA (Italy)* 943,700 5,935,758
Telefonica De Espana (Spain) 147,627 6,554,506
Telefonica SA, Rights (Spain)* 147,627 130,882
----------
TOTAL COMMUNICATION SERVICE 35,379,902
----------
CONGLOMERATES - 1.7%
Citic Pacific Ltd. (Hong Kong) 1,105,000 2,381,834
Hutchison Whampoa Ltd. (Hong Kong) 381,000 2,692,414
Suez Lyonnaise des Eaux (France) 20,900 4,291,397
Swire Pacific Ltd. (Hong Kong) 300 1,344
----------
TOTAL CONGLOMERATES 9,366,989
----------
CONSUMER CYCLICALS - 11.6%
DaimlerChrysler AG (Germany) 38,592 3,809,183
Electrolux AB, Series B (Sweden) 246,700 4,235,753
Elsevier NV (Netherlands) 187,490 2,624,680
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS (continued)
Flughafen Wien AG (Austria)* 37,855 $ 1,857,476
Genting Berhad (Malaysia) 707,900 1,075,539
Granada Group PLC (UK) 289,300 5,070,801
Matsushita Electric Industries (Japan) 335,000 5,923,618
Metro AG (Germany) 90,504 7,222,508
Michelin, Class B, Registered (France)* 57,200 2,286,568
Mirror Group PLC (UK) 453,500 1,132,055
Nintendo Corp. Ltd. (Japan) 35,400 3,428,837
Nissan Motor Co., Ltd. (Japan) 564,000 1,726,174
Philips Electronics NV (Netherlands) 46,900 3,145,473
SAP AG (Germany) 6,605 3,151,504
Sharp Corporation (Japan) 342,000 3,082,689
SHIMANO Inc. (Japan) 117,000 3,016,851
Societe Generale de Surveillance
Holding SA (Switzerland) 1,521 1,489,223
Sony Corp. (Japan) 85,900 6,253,490
Swatch Group AG, The (Switzerland)* 2,400 1,485,040
Volvo AB, Series B (Sweden) 87,500 2,003,126
-----------
TOTAL CONSUMER CYCLICALS 64,020,588
-----------
CONSUMER STAPLES - 11.0%
Asahi Breweries Ltd. (Japan) 286,000 4,212,207
Cadbury Schweppes PLC (UK) 145,293 2,486,323
Canal Plus (France) 18,430 5,026,963
Carlton Communications PLC (UK) 310,914 2,861,711
Companhia Cervejaria Brahma (Brazil) 112,800 1,064,550
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
18
<PAGE>
- --------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (continued)
Diageo PLC (UK) 411,776 $ 4,566,547
EMI Group PLC (UK) 326,400 2,185,400
Fosters Brewing Group Ltd. (Australia) 1,108,060 3,001,180
Great Universal Stores PLC (UK) 628,031 6,625,680
Heineken NV (Netherlands) 84,050 5,055,437
Molson Cos. Ltd. (Canada) 138,300 1,990,579
Nestle SA, Registered (Switerzland) 4,089 8,900,131
Reuters Group PLC (UK) 377,795 3,985,709
Unilever PLC (UK) 800,395 9,002,615
----------
TOTAL CONSUMER STAPLES 60,965,032
----------
ENERGY - 6.8%
British Petroleum Company PLC (UK) 347,000 5,165,509
Broken Hill Proprietary Co.
Ltd. (Australia) 885,667 6,522,968
Elf Aquitaine SA (France)* 39,300 4,540,833
Ente Nazionale Idrocarburi SpA (Italy) 644,700 4,211,050
Enterprise Oil PLC (UK) 198,918 974,926
LASMO PLC (UK) 667,939 1,109,718
RWE AG (Germany) 92,298 5,053,518
Sasol Ltd., Sponsored ADR (South Africa) 78,634 304,707
Shell Transport & Trading Co.,
Registered (UK) 585,247 3,597,631
Woodside Petroleum Ltd. (Australia) 729,350 3,262,611
YPF Sociedad Anonima, Class D,
Sponsored ADR (Argentina) 98,200 2,743,462
----------
TOTAL ENERGY 37,486,933
----------
FINANCIALS - 24.1%
Aegon NV (Netherlands) 20,704 2,541,301
Allianz AG, Warrants (Germany)* 22,989 198,599
Allianz AG, (Vinkuliert) (Germany) 26,543 9,731,053
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
FINANCIALS (continued)
Allied Zurich AG (UK)* 224,200 $ 3,369,146
Argentaria SA (Spain) 217,200 5,616,451
Assurances Generales de France (France) 25,178 1,503,205
AXA-UAP (France) 64,111 9,288,126
Banque Nationale de Paris (France) 56,800 4,675,257
Bayerische Vereinsbank AG (Germany) 41,993 3,288,183
Cheung Kong (Holdings) Ltd. (Hong Kong) 189,000 1,360,002
Daiwa Securities Co., Ltd. (Japan) 594,000 2,028,164
Development Bank of Singapore
Limited (Singapore)* 92,000 830,285
EXEL Ltd., Class A (UK) 44,300 3,322,500
HSBC Holding PLC, Registered (Hong Kong) 170,261 4,241,362
ING Groep NV (Netherlands)* 32,300 1,968,569
Istituto Bancario San Paolo di
Torino (Italy) 325,800 5,753,642
Istituto Nazionale delle
Assicurazioni (Italy) 667,000 1,760,836
Kerry Properties Ltd. (Hong Kong) 830,325 669,824
Merita Ltd., Class A (Finland) 270,700 1,709,461
Munchener Ruckvericherungs-Gesellschaft,
Registered (Germany)* 11,386 5,513,322
Munchener Ruckvericherungs-Gesellschaft,
Warrants (Germany)* 425 19,763
National Westminster Bank PLC (UK) 278,100 5,382,730
New World Development Co., Ltd.
(Hong Kong) 394,503 992,928
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
19
<PAGE>
- --------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
FINANCIALS (continued)
Nichiei Co. (Japan) 14,000 $ 1,114,551
Nordbanken Holding AB (Sweden) 179,900 1,151,388
Orix Corp. Ltd. (Japan) 65,300 4,875,117
Overseas Union Bank Ltd. (Singapore) 1,069,000 4,661,902
Promise Co. (Japan) 70,980 3,691,839
Prudential Corp. PLC (UK) 384,700 5,868,417
Royal & Sun Alliance Insurance
Group PLC (UK) 582,800 4,744,509
Schweizerische Rueckversicherungs,
Registered (Switzerland) 1,252 3,263,749
Shohkoh Fund (Japan) 4,100 1,320,124
Sumitomo Trust and Banking Co. (Japan) 859,000 2,279,522
Svenska Handelsbanken, Class A (Sweden) 98,200 4,133,566
Nikko Securities Co., Ltd., The (Japan) 875,000 2,438,080
Unidanmark A/S, Class A (Denmark) 40,400 3,650,048
United Assurance Group, PLC (UK) 151,279 1,369,780
United OverSeas Bank Ltd. (Singapore) 437,000 2,805,693
Westpac Banking Corporation
Ltd. (Australia) 424,000 2,837,233
Zurich Allied AG (Switzerland) 10,025 7,421,872
----------
TOTAL FINANCIALS 133,392,099
-----------
HEALTH CARE - 4.9%
Astra AB, Series B (Sweden) 226,500 4,599,806
Novartis AG, Bearer (Switzerland) 1,521 2,989,517
Novartis AG, Registered (Switzerland) 1,528 3,003,276
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE (continued)
Ono Pharmaceutical Co., Ltd. (Japan) 60,000 $ 1,873,507
Roche Holdings AG (Switzerland) 297 3,623,586
Schering AG (Germany) 24,162 3,033,660
SmithKline Beecham Unit PLC (UK) 335,809 4,654,071
Yamanouchi Pharmaceutical Co.,
Ltd. (Japan) 111,000 3,573,994
-----------
TOTAL HEALTH CARE 27,351,417
-----------
TECHNOLOGY - 2.5%
British Aerospace PLC (UK) 917,804 7,822,453
Ricoh Company Ltd. (Japan) 462,000 4,258,328
Samsung Electronics Ltd., GDR
representing 1/2 voting
Shares (South Korea)* 31 1,194
TDK Corporation (Japan) 16,000 1,462,008
----------
TOTAL TECHNOLOGY 13,543,983
----------
TRANSPORTATION - 1.8%
Canadian National Railway Co. (Canada) 66,700 3,460,062
Canadian Pacific, Ltd. (Canada) 81,800 1,538,600
Konink Nedlloyd Groep NV (Netherlands) 80,500 1,092,644
Railtrack Group PLC (UK) 143,000 3,730,022
---------
TOTAL TRANSPORTATION 9,821,328
---------
UTILITIES - 5.1%
Endesa S.A. (Spain) 141,800 3,751,534
Huaneng Power International, Inc.,
ADR (China)* 53,600 777,200
National Grid Group PLC (UK) 575,200 4,587,074
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
20
<PAGE>
- --------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (continued)
Veba AG (Germany) 60,288 $ 3,606,572
Viag AG (Germany) 12,808 7,508,350
Vivendi (France)* 31,200 8,091,576
----------
TOTAL UTILITIES 28,322,306
----------
TOTAL COMMON STOCKS
(cost $447,269,764) 525,256,096
-----------
<CAPTION>
- ------------------------------------------------------------------------
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATION - 1.2%
U. S. Treasury Bonds, 6.125%, 08/15/07
(cost $6,708,360) $ 6,005,000 6,558,601
---------
FOREIGN GOVERNMENT OBLIGATIONS - 1.6%
United Kingdom Treasury Bonds, 8.500%,
07/16/07 (UK)
(cost $8,148,542) 4,275,000 9,091,211
---------
<CAPTION>
- -------------------------------------------------------------------------
SHARES
- -------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 2.7%
OTHER INVESTMENT COMPANIES - 1.1%
Calvert Cash Reserves Institutional
Prime Fund, 5.26%** 4,604,239 4,604,239
JPM Prime Money Market Fund, 4.92%** 1,482,504 1,482,504
----------
TOTAL OTHER INVESTMENT COMPANIES 6,086,743
----------
<CAPTION>
- ---------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT - 1.6%
Donaldson, Lufkin & Jenrette, Inc. dated
12/31/98, due 01/04/99, 5.00%, total
to be received $8,630,792 (secured by
$8,561,000 U.S. Treasury Notes 3.625%,
due 01/15/08, market value $8,713,129),
at cost $ 8,626,000 8,626,000
TOTAL SHORT-TERM INVESTMENTS
(cost $14,712,743) 14,712,743
-----------
TOTAL INVESTMENTS - 100.5%
(cost $476,839,409) 555,618,651
OTHER ASSETS, LESS LIABILITIES - (0.5)% (2,792,583)
------------
NET ASSETS - 100.0% $ 552,826,068
------------
------------
</TABLE>
[FN]
Note: Based on the cost of investments of $480,391,922 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized
appreciation and depreciation was $107,833,921 and $32,607,192,
respectively, resulting in net unrealized appreciation of investments
of $75,226,729.
* Non-income-producing security.
** Yield shown for each investment company represents the December 31, 1998
seven-day average yield, which refers to the sum of the previous seven
days' dividends paid, expressed as an annual percentage.
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.
The accompanying notes are an integral part of these financial statements.
</FN>
21
<PAGE>
- --------------------------------------------------------------------------
MANAGERS EMERGING MARKETS EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK - 85.2%
BASIC MATERIALS - 9.9%
Anglogold Limited (South Africa) 2,100 $ 81,714
Cementos de Mexico, Sponsored ADR (Mexico) 315 1,376
Cementos Lima, S.A. (Peru) 5,617 72,948
Cemex SA, Series B, Sponsored ADR (Mexico) 10,500 51,917
Companhia Vale do Rio Doce,
Sponsored ADR (Brazil) 7,600 97,500
Eregli Demir Ve Celik Fabrikalari
T.A.S. (Turkey)* 1,250,000 51,512
Pohang Iron & Steel Company
Ltd. (South Korea) 2,000 107,232
-------
TOTAL BASIC MATERIALS 464,199
-------
CAPITAL GOODS - 2.6%
Barlow Ltd. (South Africa) 16,079 61,692
New World Infrastructure,
Ltd. (Hong Kong)* 40,000 58,599
-------
TOTAL CAPITAL GOODS 120,291
-------
COMMUNICATION SERVICE - 14.2%
Egyptian Mobile Phone Network (Egypt) 13,333 81,132
Philippine Long Distance Telephone Co.,
Sponsored ADR (Philippines) 4,400 114,125
Telecom Agrentina Stet - France Telecom SA,
Sponsored ADR (Argentina) 2,000 55,000
Telecomunicacoes Brasileiras SA -
Telebras (Brazil) 600,000 26,815
Telecomunicacoes Brasileiras SA -
Telebras, Sponsored ADR (Brazil) 850 61,784
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATION SERVICE (continued)
Telefonica de Argentina S.A.,
Sponsored ADR (Argentina) 2,400 $ 67,050
Telefonos de Mexico S.A.,
Sponsored ADR (Mexico) 1,600 77,900
Telekomunidacja Polksa S.A.,
GDR (a) (Poland)* 13,113 67,204
Videsh Sanchar Nigam, Ltd.,
Sponsored GDR (India) 5,800 69,600
Videsh Sanchar Nigam, Ltd.,
Sponsored GDR (a) (India) 3,800 45,600
-------
TOTAL COMMUNICATION SERVICE 666,210
-------
CONGLOMERATES - 0.4%
Shanghai Industrial Holdings,
Ltd. (Hong Kong) 9,000 18,180
CONSUMER CYCLICALS - 2.7%
Bajaj Auto, Ltd., Sponsored GDR (a) (India) 2,600 40,300
Controladora Comercial Mexicana SA
de CV (Mexico) 5,900 83,706
-------
TOTAL CONSUMER CYCLICALS 124,006
-------
CONSUMER STAPLES - 10.3%
Al-Ahram Beverage Co. S.A.E.,
GDR (a) (Egypt)* 2,000 57,000
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar, Sponsored ADR (Brazil) 4,000 61,500
Efes Sinai Yatirim Holdings AS,
Sponsored GDR (Turkey) 35,700 26,775
Fomento Economico Mexica, UBD (Mexico) 29,000 77,571
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
22
<PAGE>
- --------------------------------------------------------------------------
MANAGERS EMERGING MARKETS EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (continued)
Illovo Sugar Limited (South Africa) 90,000 $ 95,496
Molope Group Limited (South Africa)* 60,000 52,969
Pliva d.d. Registered GDR (Croatia) 4,500 74,700
Standard Foods Taiwan, Ltd.,
GDR (a) (Taiwan) 3,600 34,200
-------
TOTAL CONSUMER STAPLES 480,211
-------
ENERGY - 5.4%
Gulf Indonesia Resources, Ltd.
(Indonesia)* 5,500 35,750
MOL Magyar Olaj-es Gazipari Rt.,
GDR (a) (Hungary) 1,600 44,160
Petroleo Brasileiro SA,
Sponsored ADR (Brazil) 3,300 37,363
Sasol Limited (South Africa) 13,500 50,995
YPF Sociedad Anonima, Class D,
Sponsored ADR (Argentina) 3,100 86,606
-------
TOTAL ENERGY 254,874
-------
ENTERTAINMENT AND LEISURE - 3.9%
BEC World PLC (Thailand) 20,200 111,141
Ceske Radiokomunikace, Sponsored GDR (a)
(Czech Republic)* 2,175 70,144
-------
TOTAL ENTERTAINMENT AND LEISURE 181,285
-------
FINANCIALS - 17.9%
Aksigorta AS (Turkey) 1,500,000 45,648
Anglo American Investment Trust
Limited (South Africa) 4,500 52,332
Bank Leumi Le-Israel (Israel) 92,000 129,945
Commercial Bank of Greece (Greece) 900 88,563
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Haci Omer Sabanci Holdings AS (Turkey) 802,500 12,338
Housing & Commercial Bank, Sponsored
GDR (a) (South Korea) 13,000 153,400
Liberty Life Association of Africa
Limited (South Africa) 10,000 137,514
National Bank of Greece SA, Sponsored
GDR (Greece) 3,000 131,700
ROC Taiwan Fund (USA) 14,000 86,625
-------
TOTAL FINANCIALS 838,065
-------
HEALTH CARE - 0.9%
Richter Gedeon Rt., Sponsored
GDR (Hungary) 1,000 42,300
-------
TECHNOLOGY - 6.6%
China Telecom Ltd., Sponsored ADR
(Hong Kong)* 1,000 34,750
Prokom Software, Sponsored GDR (a)
(Poland) 3,000 55,950
Samsung Electronics Ltd., GDR representing
1/2 voting Shares (South Korea) 2,968 114,268
Synnex Technology International Corp.,
GDR (Taiwan) 3,236 56,954
Yageo Corp., GDR (a) (Taiwan) 6,860 44,384
-------
TOTAL TECHNOLOGY 306,306
-------
UTILITIES - 10.4%
Chilectra SA, Sponsored ADR (a) (Chile) 3,600 79,776
Companhia Energetica de Minas Gerais SA,
Sponsored ADR (Brazil) 3,793 72,219
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
23
<PAGE>
- --------------------------------------------------------------------------
MANAGERS EMERGING MARKETS EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (continued)
December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES (continued)
Demasz Rt (Hungary) 1,000 $ 87,972
Electricity Generating Authority (Thailand) 25,000 67,744
Huaneng Power International, Inc. (China)* 290,000 102,935
Unified Energy Systems, GDR (Russia) 7,000 21,350
YTL Power International Berhad (Malaysia) 100,000 55,064
-------
TOTAL UTILITIES 487,060
-------
TOTAL COMMON STOCKS
(cost $4,548,844) 3,982,987
---------
PREFERRED STOCK - 5.1%
COMMUNICATION SERVICES - 3.1%
Telecomunicacoes de Sao Paulo SA (Brazil) 970,000 132,218
Telerj Celular SA, Preferred B (Brazil) 480,000 11,322
-------
TOTAL COMMUNICATION SERVICES 143,540
-------
UTILITIES - 2.0%
Companhia de Gas de Sao Paulo (Brazil) 1,500,000 67,036
Companhia Paranaense de Energia-Copel,
Preferred B (Brazil) 4,000,000 28,801
-------
TOTAL UTILITIES 95,837
-------
TOTAL PREFERRED STOCKS
(cost $333,760) 239,377
-------
SHORT-TERM INVESTMENTS - 1.4%
OTHER INVESTMENT COMPANIES
JPM Prime Money Market Fund, 4.92%**
(cost $64,606) 64,606 64,606
-------
<CAPTION>
- ---------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS - 91.7%
(cost $4,947,210) $ 4,286,970
OTHER ASSETS, LESS LIABILITIES - 8.3% 390,304
---------
NET ASSETS - 100.0% $ 4,677,274
---------
---------
</TABLE>
[FN]
Note: Based on the cost of investments of $4,953,449 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized
appreciation and depreciation was $426,577 and $1,093,056, respectively,
resulting in net unrealized depreciation of investments of $666,479.
* Non-income-producing security.
** Yield shown for this investment company represents the December 31, 1998
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, 1998, the
value of these securities amounted to $692,118, or 14.8% 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.
The accompanying notes are an integral part of these financial statements.
</FN>
24
<PAGE>
- ---------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS
INTERNATIONAL EMERGING MARKETS
EQUITY EQUITY
FUND FUND
-------------- ---------------
<S> <C> <C>
ASSETS:
Investments at value* $ 555,618,651 $ 4,286,970
Cash 1,533 329
Foreign currency (cost $8,747 and $134,790) 6,125 135,644
Receivable for investments sold 2,909,434 41,720
Receivable for Fund shares sold 8,320,743 413,575
Receivable for open forward foreign
currency contracts 12,998,863 --
Deferred organization expenses -- 8,715
Dividends, interest and other receivables 938,996 15,514
Foreign withholding tax receivable 792,649 --
Prepaid expenses 51,124 3,032
--------- -------
Total assets 581,638,118 4,905,499
--------- ---------
LIABILITIES:
Payable for Fund shares repurchased 6,185,271 32,031
Payable for investments purchased 7,327,128 178,371
Payable for open forward foreign
currency contracts 14,573,683 --
Accrued expenses:
Investment advisory and management fees 420,728 2,708
Administrative fees 116,869 --
Other 188,371 15,115
---------- ---------
Total liabilities 28,812,050 228,225
---------- ---------
NET ASSETS $ 552,826,068 $ 4,677,274
----------- ----------
----------- ----------
Shares outstanding 11,317,474 604,042
Net asset value, offering and redemption
price per share $ 48.85 $ 7.74
------- ------
------- ------
NET ASSETS REPRESENT:
Paid-in capital $ 473,381,035 $ 5,945,693
Distribution in excess of net investment
income (1,169,364) ---
Accumulated net realized gain
(loss) from investments
and foreign currency transactions 3,390,534 (609,137)
Net unrealized appreciation (depreciation)
of investments and foreign currency
contracts and translations 77,223,863 (659,282)
------------ ----------
NET ASSETS $ 552,826,068 $ 4,677,274
------------- ----------
------------- ----------
* Investments at cost $ 476,839,409 $ 4,947,210
------------- ----------
------------ ---------
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
</FN>
25
<PAGE>
- --------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS MANAGERS
INTERNATIONAL EMERGING MARKETS
EQUITY EQUITY
FUND FUND*
------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 10,489,462 $ 82,609
Interest income 2,900,278 8,750
Foreign withholding tax (1,106,162) (4,298)
------------- ---------
Total investment income 12,283,578 87,061
------------- ---------
EXPENSES:
Investment advisory and management fees 4,490,305 40,849
Administrative fees 1,247,718 8,880
Custodian fees 684,066 20,797
Transfer agent fees 416,880 17,868
Registration fees 56,056 18,330
Audit fees 53,006 17,065
Trustee fees 14,778 100
Legal fees 18,797 121
Amortization of organization expenses -- 1,873
Miscellaneous expenses 100,009 769
------------ --------
Total expenses before reduction/waiver 7,081,615 126,652
Less: Fee waivers -- (31,417)
Expense reduction (44,868) (4,972)
------------ --------
Net expenses 7,036,747 90,263
------------ --------
Net investment income (loss) 5,246,831 (3,202)
------------ --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment
transactions 31,977,813 (598,425)
Net realized loss on foreign currency contracts
and transactions (908,083) (7,877)
Net unrealized appreciation (depreciation)
of investments 33,366,595 (659,386)
Net unrealized appreciation (depreciation)
from foreign currency contracts and
translations (1,390,591) 104
------------ ---------
Net realized and unrealized gain (loss) 63,045,734 (1,265,584)
------------ ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 68,292,565 $ (1,268,786)
------------ -------------
------------ -------------
</TABLE>
[FN]
* Commencement of operations was February 9, 1998.
The accompanying notes are an integral part of these financial statements.
</FN>
26
<PAGE>
- ------------------------------------------------------------------------------
THE MANAGERS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGERS INTERNATIONAL MANAGERS EMERGING
EQUITY FUND MARKETS EQUITY FUND
---------------------- -------------------
FOR THE FOR THE FOR THE PERIOD
YEAR ENDED YEAR ENDED FEBRUARY 9, 1998 TO*
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ ----------------- ------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) $ 5,246,831 $ 2,504,920 $ (3,202)
Net realized gain (loss) on
investments and foreign
currency transactions 31,069,730 21,873,797 (606,302)
Net unrealized appreciation
(depreciation) of investments and
foreign currency translations 31,976,004 7,660,345 (659,282)
------------ ---------- ----------
Net increase (decrease)
in net assets resulting
from operations 68,292,565 32,039,062 (1,268,786)
------------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (4,019,280) (5,097,844) --
From net realized gain on
investments (32,137,834) (16,879,378) --
------------- ------------ ----------
Total distributions to
shareholders (36,157,114) (21,977,222) --
-------------- ------------ ----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 744,729,587 306,117,193 8,313,314
Net asset value of shares issued
in connection with reinvestment
of dividends and distributions 31,404,010 17,953,124 --
Cost of shares repurchased (642,067,138) (217,076,415) (2,367,254)
------------- ------------- -----------
Net increase from capital
share transactions 134,066,459 106,993,902 5,946,060
-------------- ------------- -----------
Total increase in net assets 166,201,910 117,055,742 4,677,274
NET ASSETS:
Beginning of period 386,624,158 269,568,416 --
------------ ----------- ----------
End of period $ 552,826,068 $ 386,624,158 $ 4,677,274
------------- ------------- -----------
------------- ------------- -----------
End of period distribution in excess
of net investment income $ (1,169,364) $ (2,074,297) --
------------ ------------- ----------
------------ ------------- ----------
- -----------------------------------------------------------------------------
SHARE TRANSACTIONS:
Sale of shares 15,011,971 6,507,742 916,005
Shares issued in connection
with reinvestment of
dividends and distributions 647,906 399,903 --
Shares repurchased (12,824,573) (4,595,434) (311,963)
------------ ----------- ---------
Net increase in shares 2,835,304 2,312,211 604,042
------------ ----------- ---------
------------ ----------- ---------
</TABLE>
[FN]
* Commencement of operations.
The accompanying notes are an integral part of these financial statements.
</FN>
27
<PAGE>
- ----------------------------------------------------------------------------
MANAGERS INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout each year
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996 1995 1994
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $45.58 $43.69 $39.97 $36.35 $35.92
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.54 0.42 0.32 0.31(a) 0.16
Net realized and unrealized
gain on investments 6.06 4.27 4.76 5.59 0.56
------ ------ ------- ----- -------
Total from investment
operations 6.60 4.69 5.08 5.90 0.72
---- ---- ----- ----- -----
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income (0.37) (0.65) (0.33) (0.13) (0.08)
From net realized gain
on investments (2.96) (2.15) (1.03) (2.15) ---
In excess of net realized gain
on investments --- --- --- --- (0.21)
------- ------- ------- ------ -----
Total distributions to
shareholders (3.33) (2.80) (1.36) (2.28) (0.29)
------- ------- -------- ------ ------
NET ASSET VALUE, END OF YEAR $48.85 $45.58 $43.69 $39.97 $36.35
------- ------ ------- ------ ------
- ----------------------------------------------------------------------------
Total Return 14.54% 10.83% 12.77% 16.24% 2.00%
- ---------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.41%(b) 1.45%(b) 1.53% 1.58% 1.49%
Ratio of net investment income
to average net assets 1.05% 0.75% 0.97% 0.80% 0.60%
Portfolio turnover 56% 37% 30% 73% 22%
Net assets at end of year
(000's omitted) $552,826 $386,624 $269,568 $140,488 $86,924
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
[FN]
(a) Calculated using the weighted average shares outstanding during the year.
(b) The Fund has entered into an arrangement with one or more third-party
broker-dealer(s) who have paid a portion of the Fund's expenses. In
addition, the Fund has received credits against its custodian expense
for uninvested overnight cash balances. Absent these expense reductions,
the ratio of expenses to average net assets for the years ended
December 31, 1998 and 1997 would have been 1.42% and 1.45%, respectively.
(See Note 1c of Notes to Financial Statements.)
28
<PAGE>
- ----------------------------------------------------------------------------
MANAGERS EMERGING MARKETS EQUITY FUND
FINANCIAL HIGHLIGHTS
For a share of capital stock outstanding throughout the period
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 9, 1998*
TO DECEMBER 31, 1998
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.01)
Net realized and unrealized loss
on investments (2.25)
------
Total from investment operations (2.26)
------
NET ASSET VALUE, END OF PERIOD $7.74
------
------
- -----------------------------------------------------------------------------
Total Return (b) (22.60)% (c)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ratio of net expenses to average net assets 2.54% (d)
Ratio of net investment loss to average
net assets (0.09)% (d)
Portfolio turnover 89% (c)
Net assets at end of period (000's omitted) $ 4,677
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Expense Waiver/Reduction(a)
- --------------------------
Ratio of total expenses to average net assets 3.57% (d)
Ratio of total investment loss to average
net assets (1.11)% (d)
- -----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
[FN]
(a) Ratio information assuming no waiver of investment advisory
and management fees and no reduction of custodian expenses
due to credits received for uninvested overnight cash balances.
(See Notes 1c and 2 of Notes to Financial Statements.)
(b) The total return would have been lower had certain expenses
not been reduced during the period shown.
(c) Not annualized.
(d) Annualized.
* Commencement of operations
29
<PAGE>
- ----------------------------------------------------------------------------
THE MANAGERS FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- ----------------------------------------------------------------------------
(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 10 investment series. Included in this report are Managers
International Equity Fund (International Equity) and Managers Emerging Markets
Equity Fund (Emerging Markets 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 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.
(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 amortiza-
30
<PAGE>
- -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
tion 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.
International Equity had certain portfolio trades directed to various brokers
who paid a portion of the Fund's expenses. For the year ended December 31,
1998, International Equity's custody expenses were reduced by $43,033 under
this arrangement.
In addition, each of the Funds has a "balance credit" arrangement with the
custodian bank whereby each Fund is credited with an interest factor equal to
0.75% of the nightly Fed Funds rate for account balances left uninvested
overnight. These credits serve to reduce custody expenses that would otherwise
be charged to the Funds. For the year ended December 31, 1998, International
Equity and Emerging Markets Equity Funds' custody expenses were reduced by
$1,835 and $4,972, respectively, under these arrangements.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends resulting from net investment income, if any, normally will be
declared and paid annually for the Funds. 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) ORGANIZATION COSTS (EMERGING MARKETS EQUITY ONLY)
Organization and registration related costs of $10,588 have been deferred and
are being amortized over a period of time not to exceed 60 months from the
commencement of operations on February 9, 1998.
(F) 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
31
<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.
(G) 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.
As of December 31, 1998, Emerging Markets Equity had an accumulated net realized
capital loss carryover from securities transactions for Federal income tax
purposes amounting to $ 455,631, expiring December 31, 2006.
(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.
At December 31, 1998, certain omnibus accounts held greater than 10% of the
outstanding shares of the following Funds: International Equity- one owns 27%;
and Emerging Markets Equity- one owns 31%.
(I) 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 oversees
investment advisory and
32
<PAGE>
- -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
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 annualized
investment advisory and management fee rates, as a percentage of average
daily net assets for the year ended December 31, 1998 (for the period
February 9, 1998, commencement of operations, to December 31, 1998 with
respect to Emerging Markets Equity), were as follows:
<TABLE>
<CAPTION>
INVESTMENT ADVISORY
FUND AND MANAGEMENT FEE
---- -------------------
<S> <C>
International Equity 0.90%
Emerging Markets Equity 1.15%*
- ----------------------------------------------------------
</TABLE>
[FN]
*For the period February 9, 1998 (commencement of operations) to December 31,
1998, the Investment Manager voluntarily waived a portion of its investment
advisory and management fee, amounting to $22,537.
</FN>
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 year ended December 31, 1998, International
Equity paid a fee to the Administrator at the rate of 0.25% per annum of the
Fund's average daily net assets. For the period February 9, 1998 (commencement
of operations) to December 31, 1998, the Administrator voluntarily waived its
entire administrative fee with respect to Emerging Markets Equity, amounting to
$8,880. All fee waivers may be modified or terminated at any time at the sole
discretion of The Managers Funds, L.P.
King Street Advisors, Ltd., a portfolio manager for Emerging Markets Equity,
is an affiliate of the Fund's custodian and transfer agent, and, pursuant to
its Portfolio Management Agreement, is entitled to receive a fee from the
Investment Manager no to exceed 0.75% of average daily 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 meet-
33
<PAGE>
- -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------
ing 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
year ended December 31, 1998 (for the period February 9, 1998, commencement of
operations, to December 31, 1998 with respect to Emerging Markets Equity) were
as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
----- --------- -------
<S> <C> <C>
International Equity $ 390,215,308 $ 260,436,903
Emerging Markets Equity 8,630,692 3,149,663
</TABLE>
Only International Equity had purchases or sales of U.S. Government securities,
which amounted to $71,486,854 and $65,700,878, respectively.
(4) PORTFOLIO SECURITIES LOANED
Each 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. During the year ended
December 31, 1998, neither Fund participated in any security lending program.
(5) FORWARD FOREIGN CURRENCY CONTRACTS
During the year ended December 31, 1998, 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 Funds may invest in non-U.S. dollar denominated instruments subject to
limitations, and enter into forward foreign currency exchange contracts to
facilitate transactions in foreign securities and protect against
34
<PAGE>
- -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- -------------------------------------------------------------------------
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.
Open forward foreign currency exchange contracts for International Equity at
December 31, 1998 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
Deutsche Mark 01/04/99 $ 34,159 $ 69
Netherlands Guilder 01/04/99 497,320 1,136
Japanese Yen 01/05/99 1,224,771 15,721
Swedish Krona 01/05/99 436,146 (2,147)
British Pound 01/07/99 2,082,586 (18,294)
----------- ---------
TOTAL BUY CONTRACTS
(Payable Amount $4,278,497) $ 4,274,982 $ (3,515)
----------- ---------
SELL CONTRACTS
Japanese Yen 03/29/99 $ 10,295,186 $ (1,571,305)
(Receivable Amount $8,723,881) ------------ ------------
------------ ------------
(6) FOREIGN SECURITIES
There are certain considerations and risks associated with investing in foreign
securities and currency transactions that are not inherent in investments of
domestic origin. The Funds' investments in emerging market countries may
involve greater risks than investments in more developed markets. These risks
of investing in foreign and emerging markets may include foreign currency
exchange rate fluctuations, perceived credit risks, adverse political and
economic developments and possible adverse foreign government intervention.
Securities issued in these markets may be less liquid, subject to government
ownership controls, delayed settlements, and their prices may be more volatile
than those of comparable securities in the United States.
35
<PAGE>
- -----------------------------------------------------------------------------
SUBSEQUENT EVENTS (unaudited)
- ----------------------------------------------------------------------------
(7) SUBSEQUENT EVENTS
On January 29, 1999, The Managers Funds, L.P. (the Manager) and its partners
entered into an agreement (the Purchase Agreement) with Affiliated Managers
Group, Inc. (AMG). Under the Purchase Agreement, at the closing, The Manager
will convert into a Delaware limited liability company (LLC) and AMG will
acquire a 95% interest in its profits and a 100% interest in the capital of
the Manager with the remaining 5% interest in the profits to be retained by
certain key employees of the Manager (the Transaction). AMG will become the
managing member of the LLC. AMG is a publicly-traded Delaware corporation that
acquires and holds interests in investment management firms. The Transaction
is expected to close on or about April 2, 1999, subject to various conditions.
At an in-person meeting held on January 13, 1999, the Board of Trustees of The
Managers Funds considered the proposed Transaction and approved a new advisory
agreement between each of the 10 Funds comprising the Trust (other than
Managers Money Market Fund) and the LLC, new sub-advisory agreements and other
contracts with the LLC on the same terms as the existing contracts, and to take
effect upon effective date of the Transaction. The approval of the advisory
agreements with the LLC and of the Sub-Advisory Agreement on behalf of Managers
Capital Appreciation Fund and Essex Investment Management Company, LLC (an
affiliate of AMG) are subject to the approval by the shareholders of the
applicable Funds. A special meeting of shareholders will be held to consider
these matters before the proposed Transaction is consummated. A proxy statement
describing the matters to be considered will be mailed to each shareholder in
advance of the meeting.
36
<PAGE>
- -----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
To the Trustees of The Managers Funds and the Shareholders of Managers
International Equity Fund and Managers Emerging Markets Equity Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of portfolio investments, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material aspects, the financial position of Managers
International Equity Fund and Managers Emerging Markets Equity Fund (two of
the series constituting The Managers Funds, hereafter referred to as the Funds)
at December 31, 1998, and the results of each of their operations, the changes
in each of their net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financials statements and financial highlights (hereafter referred to as
"financial statements") are teh responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 17, 1999
37
<PAGE>
[LOGO}
WHERE LEADING MONEY MANAGERS CONVERGE
FUND DISTRIBUTOR
THE MANAGERS FUNDS, L.P.
40 Richards Avenue
Norwalk, Connecticut 06854-2325
(203) 857-5321 or (800) 835-3879
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
LEGAL COUNSEL
Swidler Berlin Shereff Friedman, 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 information of shareholders. It is authorized
for distribution to prospective investors only when preceded by an effective
prospectus.
THE MANAGERS FUNDS
EQUITY FUNDS:
- ------------
INCOME EQUITY FUND
Scudder Kemper Investments, Inc.
Chartwell Investment Partners, L.P.
CAPITAL APPRECIATION FUND
Essex Investment Management Co., Inc.
Roxbury Capital Management, LLC
SPECIAL EQUITY FUND
Liberty Investment Management
Pilgrim Baxter & Associates, Ltd.
Westport Asset Management, Inc.
Lazard Asset Management
INTERNATIONAL EQUITY FUND
Scudder, Kemper Investments, Inc.
Lazard Assed Management
EMERGING MARKETS EQUITY FUND
King Street Advisors, Limited
INCOME FUNDS:
- ------------
MONEY MARKET FUND
J.P. Morgan
SHORT AND INTERMEDIATE BOND FUND
Standish, Ayer & Wood, Inc.
INTERMEDIATE MORTGAGE FUND
Jennison Associates Capital Corp.
BOND FUND
Loomis, Sayles & Company, L.P.
GLOBAL BOND FUND
Rogge Global Partners
</TABLE>
