As filed with the Securities and Exchange Commission
on June 2, 2000
File No. 33-44909
File No. 811-6520
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M N-1A
Registration Statement Under the Securities Act of 1933
Post-Effective Amendment No. 19
and
Registration Statement Under the Investment Company
Act of 1940
Amendment No. 21
_____________________
SMITH BREEDEN TRUST
(Exact Name of Registrant as Specified in Charter)
100 Europa Drive, Suite 200
Chapel Hill, North Carolina 27514
(Address of Principal Executive Office)
(919) 967-7221
(Registrant's Telephone Number, Including Area Code)
MICHAEL J. GIARLA
100 Europa Drive, Suite 200
Chapel Hill, North Carolina 27514
(Name and Address of Agent for Service)
_______________
Please Send Copy of Communications to:
MARIANTHE S. MEWKILL
Smith Breeden Associates, Inc.
100 Europa Drive, Suite 200
Chapel Hill, NC 27514
(919)-967-7221
This filing shall become effective on August 1, 2000
pursuant to paragraph (a)1 of Rule 485 under the
Securities Act of 1933.
The Registrant has previously registered an indefinite
number of shares of beneficial interest pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended.
The Rule 24f-2 notice for the Registrant's most recent
fiscal year was filed on June 22, 1999.
PROSPECTUS DATED AS OF AUGUST 1, 2000
THE MANAGERS FUNDS
We pick the talent. You reap the results.
Managers Short Duration Government Fund
Managers Intermediate Government Fund
Managers 500 Plus Fund
SUMMARY INFORMATION
Founded in 1983, The Managers Funds LLC ("Managers")offers individual
and institutional investors the experience and discipline of
some of the world's most highly regarded investment professionals.
This Prospectus describes three of Managers' no-load mutual funds offering
you a choice of investments to help fulfill your asset allocation needs:
Managers Short Duration Government Fund (the "Short Fund", formerly
known as the Smith Breeden Short Duration U.S. Government Fund)
Managers Intermediate Government Fund (the "Intermediate Fund",
formerly known as the Smith Breeden Intermediate Duration U.S. Government
Fund)
Managers 500 Plus Fund (the "500 Plus Fund", formerly known as the
Smith Breeden U.S. Equity Market Plus Fund)
Each Fund is a series of The Managers Trust I or The Managers Trust II,
each a registered open-end management investment company.
TABLE OF CONTENTS
MANAGERS SHORT DURATION FUND AND INTERMEDIATE FUND
MANAGERS 500 PLUS FUND
PRINCIPAL RISK FACTORS
CHARACTERISTICS AND RISKS OF THE SECURITIES IN WHICH THE FUNDS MAY INVEST
THE MANAGERS TRUST I AND TRUST II..................
YOUR ACCOUNT
HOW TO PURCHASE SHARES
HOW TO REDEEM SHARES
INVESTOR SERVICES
THE FUNDS AND THEIR POLICIES
ACCOUNT STATEMENTS
DIVIDENDS AND DISTRIBUTIONS
TAX INFORMATION
FOR MORE INFORMATION
FINANCIAL HIGHLIGHTS......................................
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
MANAGERS SHORT DURATION GOVERNMENT FUND
MANAGERS INTERMEDIATE GOVERNMENT FUND
Investment Objectives
Managers Short Duration Government Fund seeks to provide investors
with a high level of current income, consistent with a low volatility of
net asset value.
Managers Intermediate Government Fund seeks to provide investors
with a total return in excess of the total return of the major market
indices for mortgage-backed securities.
The investment objectives of the Short and Intermediate Funds are
fundamental which means that they may not be
changed without a vote of the shareholders of the relevant Fund.
Principal Investment Strategies
The Short Fund seeks to achieve its objective by matching the
duration, or interest-rate risk, of a portfolio
that invests exclusively in six month U.S. Treasury securities on a
constant maturity basis.
The Intermediate Fund seeks to achieve its objective by matching the
duration, or interest-rate risk, of a portfolio that invests exclusively in
mortgage-backed securities, as weighted in the major market indices
for mortgage-backed securities. These indices currently include the
Salomon Brothers Mortgage Index and the Lehman Brothers Mortgage Index, each of
which includes all outstanding government sponsored fixed-rate mortgage-backed
securities, weighted in proportion to their current market capitalization. The
duration of these indices is generally similar to that of intermediate-
term U.S. Treasury Notes, and typically will range between three and
five years.
Duration is a measure of the price sensitivity of a portfolio to changes in
interest rates. The maturity of a security, another commonly used measure of
price sensitivity, measures only the time until final payment is
due, whereas duration takes into account the pattern of all payments of
interest and principal on a security over time, including how these payments
are affected by prepayments and by changes in interest rates. Each
year of duration represents an approximate 1% change in price for a 1%
change in interest rates. For example, if a bond fund has an average duration
of three years, its price will fall approximately 3% when
interest rates rise by one percentage point. Conversely, the bond fund's
price will rise approximately 3% when interest rates fall by one percentage
point.
Under normal circumstances, each Fund will invest at least 70% of its
total assets in U.S. Government Securities which are primarily mortgage-backed
securities issued by the U.S. Government, its agencies and instrumentalities.
Each of the Short and Intermediate Funds will not purchase a put or call
option on U.S. Government Securities or mortgage-backed securities if, as a
result of such purchase, more than 10% of its total assets would be
invested in such options. The Short and Intermediate Funds will engage
in OTC option transactions only with primary U.S. Government Securities dealers
recognized by the Federal Reserve Bank of New York. The Short and Intermediate
Funds will also not sell options that are not covered.
In addition, as a matter of fundamental policy, each of these Funds will
limit purchases to securities from the following classes of assets:
Securities issued directly or guaranteed by the U.S. Government or its
agencies or instrumentalities.
Mortgage-backed securities rated AAA by Standard & Poor's
Corporation ("S&P") or Aaa by Moody's Investors Service, Inc. ("Moody's").
Securities fully collateralized by assets in either of the above classes.
Assets which would qualify as liquidity items under federal
regulations (which may change from time to
time) if held by a commercial bank or savings institution.
Hedge instruments and stripped mortgage-backed securities, which
may only be used for risk management purposes.
MANAGERS 500 PLUS FUND
Investment Objectives
The Managers 500 Plus Fund seeks to provide a total return exceeding
the Standard & Poor's 500 Composite Stock Index (the "S&P 500 Index") without
additional equity market risk.
Principal Investment Strategies
The Fund does not invest principally in the common stocks that make up
the S&P 500 Index or any other
index. Instead, the Fund invests primarily in an actively managed short
duration fixed income portfolio and
maintains positions in S&P 500 futures or swaps, options and similar
instruments. The equity index futures, swaps and options positions are
designed to produce an exposure to the S&P 500 Index similar to the
exposure that would be achieved if all the Fund's assets were invested
directly in the stocks comprising the S&P 500 Index. The
Fund's investment strategy is designed to produce a total return with a
low tracking error relative to the S&P 500 Index.
The 500 Plus Fund's fixed-income securities will consist primarily of
U.S. Government Securities, including mortgage-backed securities, but
may also include corporate debt securities and mortgage-backed and
other asset-backed securities of non-governmental issuers. The Fund
typically employs hedging techniques, with instruments such as interest
rate futures, options, floors, caps and swaps, designed to reduce the
interest-rate risk of its fixed-income portfolio. The Fund generally
manages its fixed-income portfolio effective duration to a target of one
year or less. The Fund may also engage in loans of portfolio securities
and dollar rolls to enhance income and later return.
The 500 Plus Fund has received an exemptive order from the Securities
and Exchange Commission which
would permit the Fund to invest in the Short Fund for purposes of
pursuing its short duration fixed-income strategy.
The 500 Plus Fund's equity market positions are designed to produce a
return similar to the return that would be
achieved if all the 500 Plus Fund's assets were invested directly in the
stocks comprising the S&P 500 Index in proportion to their respective
weightings in the S&P 500 Index. The 500 Plus Fund's exposure to the
S&P 500 Index will be maintained primarily with futures, options, and
swaps. When futures contracts are purchased, only a
small percentage of the notional value of the contract must be posted as
margin. No margin is generally required when entering into a swap or option
contract. The 500 Plus Fund therefore commits only a small percentage
of its net assets to purchasing the instruments that it uses to obtain its
equity market exposure. With the remainder of its assets, the 500 Plus Fund
will invest in an actively managed short duration fixed income portfolio.
The 500 Plus Fund's success in achieving its performance objective
depends largely on whether the total return on the 500 Plus Fund's fixed-income
portfolio equals or exceeds a short term interest rate plus the Fund's total
operating expenses. The operating expenses of the 500 Plus Fund include the
transaction and financing costs of entering into the futures, options and
swap contracts used for interest rate risk management and for S&P 500 Index
replication. Other factors which will impact the success of the 500 Plus
Fund's strategies relate to how well the returns of the equity index futures,
swaps and options track the S&P 500 Index.
Principal Investment Risks
An investor could lose money by investing in any of these Funds.
The 500 Plus Fund should be invested in by individuals seeking the
return of the stock market, specifically that of the S&P 500 Index.
Although the Fund invests in certain types of bonds, it is not a typical
"bond" fund and should not be invested in by someone seeking a fixed
income return. The movements in the S&P 500 Index can be very
volatile from day-to-day and a person who invests in the 500 Plus Fund
should be aware that significant losses can be sustained in one day, as
well as over time. An investor in the 500 Plus Fund should also be
aware that the 500 Plus Fund's use of derivative instruments such as
futures, swaps and options to track the market index raises additional
risks. The 500 Plus Fund's opportunity for gain or loss may be greater
than if the 500 Plus Fund invested directly in the stocks represented by
the market index because the notional value of the financial instruments
utilized may not match exactly the 500 Plus Fund's net assets. For
example, the total net notional amount of the 500 Plus Fund's equity
swap contracts, S&P 500 Index futures contracts, plus the market value
of any common stocks owned may be more or less than its total net
assets. (Under normal market conditions, the 500 Plus Fund expects that
on any given day, such variations in its exposure to the index will be up
to 5% more or less than its net assets.)
Principal Investment Risks
Other primary risks of investing in the Funds are:
Basis Risk
Credit Risk
Derivatives Risk
Interest Rate and Maturity Risk
Leveraging Risk
Liquidity Risk
Management Risk
Market Risk
Prepayment Risk
Please see "Principal Risk Factors" for a discussion of these and other
risks of investing in the Funds.
Fund Annual Performance
The bar charts below show how the Funds' performance has varied from
year to year by illustrating the Fund's total calendar-year returns. The
table following the bar charts compares each Fund's average annual
returns for the periods indicated to those of a broad-based securities
market index. The charts and table are intended to illustrate some of the
risks of investing in the Funds by showing how the Funds' performance
can vary from year to year. Past performance does not guarantee future
results.
CALENDAR-YEAR TOTAL RETURNS
SHORT FUND
Best quarter: First quarter 1995, +2.40%
[graph appears here]
Worst quarter:
More recent return information: (January 1, 2000 - June 30, 2000)
CALENDAR-YEAR TOTAL RETURNS
INTERMEDIATE FUND
Best quarter: First quarter 1995, +5.45%
[graph appears here]
Worst quarter: First quarter
More recent return information: (January 1, 2000 - June 30, 2000)
CALENDAR-YEAR TOTAL RETURNS
500 PLUS FUND
Best quarter: Fourth quarter 1998, 21.07%
[graph appears here]
Worst quarter: Third quarter 1998, (10.82)%
More recent return information: (January 1, 2000 - June 30, 2000) ---%
AVERAGE ANNUAL TOTAL RETURNS
(for periods ended December 31, 1999)
Fund Inception
Short Fund 1 year 5years (March 31, 1992)
Short Fund
Merrill Lynch 6 Month US T-Bill
Fund Inception
Intermediate Fund(1) 1 year 5 years (March 31, 1992)
Intermediate Fund
Salomon Smith Barney Mortgage Index ("SBMI")
(1) The fund changed its investment objective 1/1/94. Prior to 1/1/94,
the Fund's objective was to provide a return in excess of the five year
U.S. Treasury note.
Fund Inception
500 Plus Fund 1 year 5 years (June 30, 1992)
Managers 500 Plus Fund
S&P 500 Index*
* The S&P 500 Index is a widely recognized, unmanaged index of
common stocks of the 500 largest capitalized U.S. companies.
The index does not incur expenses and cannot be purchased directly
by investors.
Your Expenses in the Funds
The information below describes the fees and expenses you may pay if
you buy and hold shares of the Funds. The Funds do not charge any
sales, exchange or redemption fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Short Intermediate 500 Plus
Management Fees (1) 0.% % %
Other Expenses 0.% % %
12b-1 Fee None None None
Total Annual Fund Operating Expenses (1) % % %
Fee Waiver and Reimbursement (%) (%) (%)
Net Annual Fund Operating Expense % % %
(1) Managers has contractually agreed that for the two-year period
following July 31, 2000, Managers will waive its fee and/or bear
expenses of each Fund to cause total expenses to be at
the annual rates of 0.88% for Intermediate Fund and 500
Plus Fund and 0.78% for Short Fund (the "Expense Agreement").The Expense
Agreement would not apply during any period that the total assets
of a Fund are below $50 million or if the shareholders of that Fund approve
a fund management agreement or a merger of that Fund into another mutual fund.
As of the date of this prospectus, total assets of the Short, Intermediate
and 500 Plus Funds are $_____ , $______ and $____, respectively. Currently,
Managers has also made a voluntary undertaking to limit the expenses to 0.88%
for the Intermediate Fund and 500 Plus Fund and 0.78% for the Short Fund for
the period ending March 31, 2001.
Examples
The examples below are intended to help you compare the cost of
investing in the Funds with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in each Fund for the time
periods indicated, that your investment earns a 5% return each year, that
you redeem all of your shares at the end of these periods, that the
Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would
be:
With Expense Limitation 1 Year 3 Years 5 Years 10 Years
Short Fund $ $ $ $
Intermediate Fund $ $ $ $
500 Plus $ $ $ $
Absent Expense Limitation 1 Year 3 Years 5 Years 10 Years
Short Fund $112 $350 $607 $1,341
Intermediate Fund $111 $347 $601 $1,329
500 Plus $106 $331 $574 $1,270
PRINCIPAL RISK FACTORS
The value of your investment in a Fund changes with the values of that
Fund's holdings. Many factors can affect those values. The "principal risk
factors" identified below represent the
factors that are most likely to have a material effect on each Fund's
portfolio as a whole. Each Fund may be subject to additional principal risks
and other risks in addition to the risks described here. The risks of a
Fund may change over time because the types of investments made by a
Fund can change over time. The following subsection on "Characteristics and
Risks of the Securities in Which the Funds May Invest" and the
Statements of Additional Information include more important
information about the Funds, their investment strategies and the related risks.
Basis Risk. Basis risk is the risk that changes in the value of a hedge
transaction will not completely offset changes in the value of the assets and
liabilities being hedged. Basis risk may occur in many ways. For
example, a hedge transaction may rise in value by $100 in response to
higher interest rates. At the same time, the security being hedged could
decline in value by $102 in response to the same market factor - higher
interest rates -and other factors unique to those assets including
credit risks that might be reflected in the assets' value. The
hedge would therefore not fully cover the loss in value of the
security caused by higher rates since a $2 differential
would exist between the gain in value on the hedge and the assets' loss in
value. The $2 differential reflects basis risk. Basis risk can manifest
itself in other ways; for example when a small change in interest rates occurs.
In that context, both the hedge transaction and the hedged assets
could decline in value, although by different amounts, following an
interest rate change. This means that a Fund may not achieve, and may at times
exceed, its targeted duration or the return of the market it tracks.
Credit Risk. An issuer of securities may be unable to pay principal and
interest when due, or the value of the security may suffer because investors
believe the issuer is less able to pay. Lower rated securities, while
usually offering higher yields, generally have more risk and volatility
because of reduced creditworthiness and greater chance of default.
While certain U.S. Government securities such as U.S. Treasury
obligations and GNMAs (discussed in the next section) are backed by the full
faith and credit of the U.S. Government, other fixed-income securities
in which the Funds may invest are subject to varying degrees of risk of
default. These risk factors include the creditworthiness of the issuer and,
in the case of mortgage-backed and asset-backed securities, the ability
of the mortgagor or other borrower to meet its obligations. The Short
and Intermediate Funds will seek to minimize credit risk by investing in
securities of the highest credit quality, while the 500 Plus Fund will seek
to minimize credit risk by investing in securities of at least investment
grade, except that its investment in mortgage-backed securities will be rated
at least A. Debt obligations that are deemed investment grade carry a rating
of at least Baa from Moody's or BBB from Standard and Poor's, or a comparable
rating agency from another rating agency.
Derivatives Risk. The Funds may use derivatives, which are financial
contracts whose value depends on,or is derived from, the value of an
underlying asset, interest rate or index. Using derivatives, a Fund can
increase or decrease its exposure to changing security prices and indices,
interest rates or other factors that affect security value, or to employ
temporary substitutes for anticipated future transactions. Techniques
involving derivatives include buying or selling financial futures
contracts, purchasing call or put options, or selling covered call options
on such futures or entering into swap agreements. Any or all of these
techniques may be used at one time. Use of any particular transaction is a
function of market conditions. There is no overall limitation on the
percentage of a Fund's assets which may be subject to a hedge position.
The use of derivatives involves costs and may result in losses. For example,
the losses from investing in futures transactions are potentially unlimited.
The use of options and futures strategies involves the risk of imperfect
correlation between movements in the values of the securities underlying the
futures and options purchased and sold by a Fund, of the option
and futures contract itself, and of the securities which are the subject of a
hedge. In addition to other risks such as the credit risk of the counterparty,
market risk, liquidity risk, and basis risk, derivatives involve the risk of
mispricing or improper valuation. In addition, the Funds' use of derivatives
may also have the effect of accelerating a Fund's recognition of gain.
At times, a Fund may sell interest rate futures in a different dollar
amount than the dollar amount of securities
being hedged, depending on the expected relationship between the
volatility of the prices of such securities
and the volatility of the futures contracts, based on duration calculations
by the Subadviser. If the actual
price movements of the securities and futures are inconsistent with the
Subadviser's estimates of their durations, the hedge may not be effective.
A Fund will not maintain open short positions in interest rate futures
contracts if, in the aggregate, the value of the open positions
(marked to market) exceeds the current market value of its fixed-income
securities portfolio plus or minus the unrealized gain or loss on these
open positions, adjusted for the expected volatility relationship between
the portfolio and the futures contracts based on duration calculations.
If this limitation should be exceeded at any time, a Fund will take prompt
action to close out the appropriate number of open contracts to bring its
open futures position into compliance with this limitation.
In accordance with regulations established by the Commodity Futures
Trading Commission, each Funds'
aggregate initial margin and premiums on all futures and options
contract positions not held for bona fide
hedging purposes, will not exceed 5% of a Fund's net assets, after taking
into account unrealized profits and
losses on such contracts. In addition to margin deposits, when the Fund
purchases a futures contract, it is
required to maintain at all times liquid securities in a segregated account
with its Custodian, in an amount
which, together with the initial margin deposit on the futures contract, is
equal to the current delivery or
cash settlement value of the futures contract. The Funds' ability to
engage in options and futures transactions
and to sell related securities might also be limited by tax considerations
and by certain regulatory
requirements. See "Taxes" in the relevant Statement of Additional Information.
Interest Rate and Maturity Risk. The market prices of a Fund's fixed-income
investments may decline due to an increase in market interest rates.
Generally, the longer the maturity or duration of a fixed-income
security, the more sensitive it is to changes in interest rates. The Short
Fund seeks to match the duration of a portfolio that invests exclusively in
six month U.S. Treasury securities on a constant maturity basis, and the
Intermediate Fund seeks to match the duration of a portfolio that invests
in mortgage-backed securities as weighted in the major market indices
(typically ranging from three to five years). The 500 Plus
Fund seeks a duration of one year or less. However, each Fund expects
that, under normal circumstances, the dollar-weighted average life (or period
until the next reset date) of its portfolio securities will be significantly
longer than its duration objective.
Leveraging Risk. When a Fund is borrowing money or otherwise
leveraging its portfolio, the value of an
investment in that Fund will be more volatile and all other risks will tend
to be compounded. This is because
leverage tends to exaggerate the effect of any increase or decrease in the
value of a Fund's portfolio holdings.
Each Fund may take on leveraging risk by using reverse repurchase
agreements, dollar rolls and other
borrowings, by investing collateral from loans of portfolio securities,
through the use of when-issued,
delayed-delivery or forward commitment transactions or by using other
derivatives. The use of leverage may
also cause a Fund to liquidate portfolio positions when it may not be
advantageous to do so to satisfy its obligations
or meet segregation requirements.
Liquidity Risk. Liquidity risk exists when particular investments are
difficult to sell. A Fund may not be
able to sell these illiquid investments at the best prices. Investments in
derivatives, and securities having
small market capitalization, substantial market and/or credit risk tend to
involve greater liquidity risk.
A Fund may invest up to 15% of its net assets in illiquid securities. The
term illiquid securities for this purpose
means securities that cannot be disposed of within seven days in the
ordinary course of business. The
SEC staff takes the position that this includes non-terminable repurchase
agreements having maturities of more than seven days.
The determination of whether certain IO/PO Strips issued by the U.S.
Government and backed by fixed-rate
mortgages or any other securities in which a Fund desires to invest are
liquid shall be made by Managers
under guidelines established by the Trustees in accordance with
applicable pronouncements of the SEC. At
present, all other IO/PO Strips, other residual interests of CMOs and
OTC options are treated as illiquid securities.
The SEC staff also currently takes the position that the interest rate
swaps, caps and floors discussed
in the Statements of Additional Information, as well as equity swap
contracts and reverse equity swap contracts, are illiquid.
Management Risk. Each Fund is subject to management risk because it
is an actively managed investment portfolio. Management risk is the chance
that poor security selection will cause the Fund to underperform
other funds with similar objectives. The Subadviser will apply its
investment techniques and risk analyses in
making investment decisions for the Funds, but there can be no
guarantee that these will produce the desired result.
Market Risk. The market price of securities held by a Fund may fall,
sometimes rapidly or unpredictably,
due to changing economic, political or market conditions, or due to the
financial condition of the issuer.
The value of a security may decline due to general market conditions
which are not specifically related to a
company or industry, such as real or perceived adverse economic
conditions, changes in the general outlook
for corporate earnings, changes in interest or currency rates or adverse
investor sentiment generally.
Prepayment Risk. Prepayment risk is the risk that principal will be
repaid at a different rate than anticipated,
causing the return on a security purchased to be less than expected.
Mortgage-backed securities,
which represent an interest in a pool of mortgages, present this risk, as
do many asset-backed securities. In
general, when market interest rates decline, many mortgages are
refinanced, and mortgage-backed securities
are paid off earlier than expected, forcing a Fund to reinvest the
proceeds at current yields, which are
lower than those paid by the security that was paid off. When market
interest rates increase, the market values
of mortgage-backed securities declines. At the same time, however,
mortgage refinancing slows, which
lengthens the effective maturities on these securities. As a result, the
negative effect of the rate increase on
the market value of mortgage securities is usually more pronounced than
it is for other types of fixed-income
securities. Asset-backed securities can present similar risks.
CHARACTERISTICS AND RISKS OF THE
SECURITIES IN WHICH THE FUNDS MAY INVEST
Subject to the percentage limitations on investment to which each Fund
is subject based on their investment
objective, and unless stated otherwise, each of the Funds may invest in
the following types of securities.
The Statement of Additional Information also includes information on
these and other securities and financial instruments in which the
Funds may invest.
U.S. Government Securities. The U.S. Government Securities in which
the Funds may invest include U.S.
Treasury Bills, Notes, Bonds, discount notes and other debt securities
issued by the U.S. Treasury, and obligations
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities including, but not
limited to, the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC").
(Other U.S. Government agencies
or instrumentalities include Federal Home Loan Banks, Bank for
Cooperatives, Farm Credit Banks, Tennessee
Valley Authority, Federal Financing Bank, Small Business
Administration, and Federal Agricultural
Mortgage Corporation.) Mortgage-backed securities are explained more
fully below.
Mortgage-Backed and Other Asset-Backed Securities. Mortgage-
backed securities are securities that
directly or indirectly represent a participation in, or are collateralized by
and payable from, mortgage loans
secured by real property. The term "mortgage-backed securities," as
used herein, includes adjustable-rate
mortgage securities, fixed-rate mortgage securities, and derivative
mortgage products such as collateralized
mortgage obligations, including residuals, stripped mortgage-backed
securities and other instruments.
Asset-backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or
interests in mortgage loans, the underlying assets may include, but are
not limited to, pools of automobile
loans, educational loans and credit card receivables. These securities are
described in detail below and in the Statement of Additional Information.
There are currently three basic types of mortgage-backed securities: (i)
those issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities, such as
GNMA, FNMA and FHLMC; (ii) those
issued by private issuers that represent an interest in or are collateralized
by mortgage-backed securities
issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities; and (iii) those
issued by private issuers that represent an interest in or are collateralized
by whole mortgage loans or
mortgage-backed securities without a government guarantee but usually
having some form of private credit
enhancement. Not all securities issued by the U.S. Government or its
agencies are backed by the full faith
and credit of the United States; some may be backed only by the assets
of the particular instrumentality or the ability of the agency to borrow.
The Short and Intermediate Funds may only invest in mortgage-backed
securities issued by private originators of, or investors in,
mortgage loans issued by private entities that are rated AAA by S&P or
Aaa by Moody's. The Short and Intermediate Funds will not pay any additional
fees for credit support and will not invest in private mortgage pass-
through securities unless they are rated AAA by S&P or Aaa by
Moody's. In addition, the Short and Intermediate Funds will only
purchase mortgage-backed securities which constitute "Mortgage
Related Securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984.
The Short and Intermediate Funds will not purchase privately-issued
mortgage-backed securities or Collateralized Mortgage Backed Obligations
("CMOs") collateralized by interests in whole mortgage loans (not guaranteed
by GNMA, FNMA or FHLMC) if the securities of any one issuer would exceed 10%
of any Fund's assets at the time of purchase. The Funds will not purchase
privately-issued mortgage-backed securities or CMOs collateralized by
U.S. Government agency mortgage-backed securities if the securities of
any one issuer would exceed 20% of any Fund's assets at the time or purchase.
The 500 Plus Fund's investments in mortgage-backed and other asset-backed
securities will be rated at least A by Moody's or S&P.
Mortgage-backed and asset-backed securities have yield and maturity
characteristics corresponding to their underlying assets. Unlike
traditional debt securities,which may pay a fixed rate of interest until
maturity when the entire principal amount comes due, payments on certain
mortgage-backed and asset-backed securities include both interest and a partial
payment of principal. This partial payment of principal may be comprised of a
scheduled principal payment as well as an unscheduled payment from the
voluntary prepayment, refinancing, or foreclosure of the underlying loans.
As a result of these unscheduled payments of principal,or prepayments on the
underlying securities, the price and yield of mortgage-backed securities can
be adversely affected. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Funds would be
required to reinvest the proceeds at the lower interest rates then available.
Prepayments of mortgages which underlie securities purchased at a premium
could result in capital losses because the premium may not have been fully
amortized at the time the obligation is prepaid. In addition, like other
interest-bearing securities, the values of mortgage-backed securities
generally fall when interest rates rise, but when interest rates fall,
their potential for capital appreciation is limited due to the existence
of the prepayment feature. In order to hedge against possible prepayment,
the Funds may purchase certain options and options on futures contracts as
described more fully in "Summary of Principal Risks and Investment Strategies"
and the Statements of Additional Information.
Adjustable-Rate Securities. Adjustable-rate securities have interest
rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate.
Some adjustable-rate securities are
backed by pools of mortgage loans. The Short and Intermediate Funds
will only invest in adjustable-rate
securities backed by pools of mortgage loans ("ARMs"). The fixed-
income portfolio of the 500 Plus Fund may also invest in adjustable-rate
securities backed by assets other than mortgage pools.
Although the rate adjustment feature may act as a buffer to reduce large
changes in the value of adjustable-rate
securities, these securities are still subject to changes in value based on
changes in market interest rates
or changes in the issuer's creditworthiness. Because the interest rate is
reset only periodically, changes in
the interest rate on adjustable-rate securities may lag changes in
prevailing market interest rates. Also, some
adjustable-rate securities (or the underlying mortgages or other
underlying loans or receivables) are subject
to caps or floors that limit the maximum change in interest rate during a
specified period or over the life of
the security. Because of the resetting of interest rates, adjustable-rate
securities are less likely than non-adjustable-
rate securities of comparable quality and maturity to increase
significantly in value when market
interest rates fall. Adjustable-rate securities are also subject to the
prepayment risks associated generally with mortgage-backed securities.
Securities Lending, Repurchase Agreements and Forward
Commitments. The Funds may lend portfolio
securities to broker-dealers and may enter into repurchase agreements.
These transactions must be
fully collateralized at all times but involve some risk to the Funds if the
other party should default on its obligations
and a Fund is delayed in or prevented from recovering the collateral.
None of the Funds will lend
portfolio securities if, as a result, the aggregate of such loans exceeds 33
1 /3 % of the total asset value (including
such loans). The Funds will only enter into repurchase agreements with
or lend securities to (i) member
banks of the Federal Reserve System having total assets in excess of
$500 million and (ii) securities dealers,
provided such banks or dealers meet the creditworthiness standards
established by the Board of
Trustees ("Qualified Institutions"). Managers will monitor the
continued creditworthiness of Qualified
Institutions, subject to the oversight of the Board of Trustees.
The Funds may also purchase securities for future delivery, which may
increase overall investment exposure
and involves a risk of loss if the value of the securities declines prior to
the settlement date. At the time a
Fund enters into a transaction on a when-issued or forward commitment
basis, a segregated account consisting
of liquid securities equal to at least 100% of the value of the when-
issued or forward commitment securities
will be established and maintained with the Funds' custodian. Subject to
this requirement, the Funds
may purchase securities on such basis without limit. Settlements in the
ordinary course, which may be substantially
more than three business days for mortgage-backed securities, are not
treated as when-issued or
forward commitment transactions, and are not subject to the foregoing
limitations, although some of the risks described above may exist.
Reverse Repurchase Agreements, Dollar Roll Agreements and
Borrowing. The Funds may enter into
reverse repurchase agreements or dollar roll agreements with
commercial banks and registered broker-dealers
in amounts up to 33 1 /3 % of their assets. The Short and Intermediate
Funds may only enter into these
transactions with commercial banks and registered broker-dealers which
are also Qualified Institutions. The
Statement of Additional Information for each Trust contains a more
detailed explanation of these practices.
Reverse repurchase agreements and dollar rolls are considered
borrowings by a Fund and require segregation
of assets with a Fund's custodian in an amount equal to the Fund's
obligations pending completion of
such transactions. Each Fund may also borrow money from banks in an
amount up to 33 1 /3 % of a Fund's total
assets to realize investment opportunities, for extraordinary or
emergency purposes, or for the clearance of
transactions. Borrowing from banks usually involves certain transaction
and ongoing costs and may require
a Fund to maintain minimum bank account balances. Use of these
borrowing techniques to purchase securities
is a speculative practice known as "leverage." Depending on whether the
performance of the investments
purchased with borrowed funds is sufficient to meet the costs of
borrowing, a Fund's net asset value
per share will increase or decrease, as the case may be, more rapidly
than if the Fund did not employ leverage.
Short Sales. The Funds may make short sales of securities. A short sale
is a transaction in which the Fund
sells a security it does not own in anticipation that the market price of
that security will decline. All of the
Funds expect to engage in short sales as a form of hedging in order to
shorten the overall duration of the
portfolio and maintain portfolio flexibility. While a short sale may act as
effective hedge to reduce the market
or interest rate risk of a portfolio, it may also result in losses which can
reduce the portfolio's total return.
When a Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer
through which it made the short sale as collateral for its obligation to
deliver the security upon completion
of the transaction. A Fund may have to pay a fee to borrow particular
securities, and is often obligated to
relinquish any payments received on such borrowed securities.
Until a Fund replaces a borrowed security, it will maintain daily a
segregated account with its custodian into
which it will deposit liquid securities such that the amount deposited in
the account plus any amount deposited
with the broker as collateral will at least equal the current value of the
security sold short. Depending on
arrangements made with the broker, a Fund may not receive any
payments (including interest) on collateral
deposited with the broker. If the price of the security sold short increases
between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price
declines, the Fund will realize a gain. Although a Fund's gain is limited
to the amount at which it sold the
security short, its potential loss is limited only by the maximum
attainable price of the security less the price
at which the security was sold.
A Fund will not make a short sale if, after giving effect to such sale, the
market value of all securities sold
exceeds 25% of the value of the Fund's total net assets. A Fund may also
effect short sales where the Fund
owns, or has the right to acquire at no additional cost, the identical
security (a technique known as a short
sale "against the box"). Such transactions might accelerate the
recognition of gain. See "Taxes" in the relevant
Statement of Additional Information.
Portfolio Turnover
Because of their relatively frequent trading, the Funds will frequently
realize taxable capital gains which must be distributed yearly to
shareholders. To the extent these gains are short-term capital gains, such
gains are generally taxed at ordinary income tax rates. If a shareholder
holds an investment in a Fund in something other than a tax-deferred
account (e.g. a retirement account), the payment of any taxes will impact
a shareholder's net return from holding an investment in a Fund.
Portfolio turnover also generally involves some expense to a Fund,
including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in other
securities. High portfolio turnover could adversely impact a Fund's
performance. However, the mortgage securities in which the Funds may
invest are generally traded on a "net" basis with dealers acting as
principals for their own account without a stated commission. The Funds
will pay commissions in connection with options and future transactions
and, for the 500 Plus Fund, in relation to any purchase of common
stocks or other equity securities.
THE MANAGERS TRUST I AND THE MANAGERS TRUST II
The Managers Trust I and The Managers Trust II are part of the Managers
fund family, a no-load mutual fund family comprised of
different Funds, each having distinct investment management objectives,
strategies, risks and policies.
The Managers Funds LLC (the "Investment Manager" or "Managers"), a
subsidiary of Affiliated Managers Group, Inc., serves as the investment
manager to the Funds and is responsible for the Funds' overall
administration and distribution. It selects and recommends, subject to
the approval of the Board of Trustees, one or more asset managers to
manage each Fund's investment portfolio. It also allocates assets to the
asset managers based on certain evolving targets, monitors the
performance, security holdings and investment strategies of these
external asset managers and, when appropriate, researches any potential
new asset managers for the Fund family.
Smith Breeden Associates, Inc ("Smith Breeden"), a registered
investment adviser, acts as sub-adviser to the Managers Short Duration
Government Fund, Managers Intermediate Government Fund and Managers
500 Plus Fund. Formerly, Smith Breeden was investment adviser to the Funds
and has served as either investment adviser or sub-adviser to the Funds
since their inception in 1992. Smith Breeden is located at 100 Europa Drive,
Chapel Hill, NC, 27514.
Smith Breeden is a money management and consulting
firm involved in (1) money management for separate accounts such as
pensions and endowments, (2) financial institution consulting and
investment advice, and (3) equity investments. The firm specializes in
high credit quality fixed-income investments, interest rate risk
management, and the application of option pricing to banking and
investments. Smith Breeden currently advises, or manages on a
discretionary basis, assets totaling over $27 billion.
John B. Sprow serves as portfolio manager to the 500 Plus Fund and is
responsible for its day-to-day operations. Daniel C. Dektar serves as the
portfolio manager responsible for the day-to-day operations of the Short
Fund and Timothy D. Rowe serves as portfolio manager responsible for
the day-to-day operations of the Intermediate Fund. All three individuals
are Senior Vice-Presidents of Smith Breeden.
Each of the Funds is obligated by its fund management contract to pay
annual management fees to Managers of 0.70% of average daily net
assets. Managers, in turn, pays a portion of this fee to Smith Breeden.
YOUR ACCOUNT
As an investor, you pay no sales charges to invest in the Funds.
Furthermore, you pay no sales charges to transfer within the Fund family
or even to redeem out of the Funds. The price at which you purchase
and redeem your shares is equal to the net asset value per share (NAV)
next determined after your purchase or redemption order is received on
each day the New York Stock Exchange (NYSE) is open for trading.
The NAV is equal to the Fund's net worth (assets minus liabilities)
divided by the number of shares outstanding. Each Fund's NAV is
calculated at the close of regular business of the NYSE, usually 4:00
p.m. New York Time.
Current holiday schedules indicate that the Funds' net asset values will
not be calculated on New Year's Day, Martin Luther King Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The Short Fund and Intermediate Fund will also not be priced
on Columbus Day and Veterans' Day.
A Fund's investments are valued based on market values. If market
quotations are not readily available for any security, the value of the
security will be based on an evaluation of its fair value, pursuant to
procedures established by the Board of Trustees.
Minimum Investments in the Funds
Cash investments in the Funds must be in U.S. Dollars. Third-party
checks which are payable to an existing shareholder who is a natural
person (as opposed to a corporation or partnership) and endorsed over to
the Fund or State Street Bank and Trust Company will be accepted.
The following table provides the minimum initial and additional
investments in the Funds:
Initial Investment Additional Investment
Regular accounts $2,000 $100
Traditional IRA 500 100
Roth IRA 500 100
Education IRA 500 100
SEP IRA 500 100
SIMPLE IRA 500 100
A Fund may, in its discretion, waive the minimum initial and additional
investment amounts at any time.
A Traditional IRA is an individual retirement account.
Contributions may be deductible at certain income levels and
earnings are tax-deferred while your withdrawals and distributions
are taxable in the year that they are made.
A Roth IRA is an IRA with non-deductible contributions and
tax-free growth of assets and distributions. The account must be held
for five years and certain other conditions must be met in order to
qualify.
You should consult your tax professional for more information on
IRA accounts.
HOW TO PURCHASE SHARES
By Mail
To open your account, complete and sign the appropriate
application and make your check payable to The Managers
Trusts. Mail the check and account application to the address
on the application.
To purchase additional shares, write a letter of instruction (or
complete your investment stub). Send a check and investment
stub or written instructions to the address on the stub. Please
include your account number and Fund name on the check.
By Telephone
After establishing this option on your account, call a client
service representative during normal business hours, 8 a.m. to 6
p.m. New York Time, at (800) 252-0682.
*A redemption made within 15 days of a purchase made by check may
be delayed if such check has not cleared.
For Bank Wires: Please call and notify the Fund at (800) 252-0682.
Then instruct your bank to wire the money to State Street Bank and
Trust Company, Boston, MA 02101; ABA #011000028; BFN - The
Managers Trusts A/C 9905-001-5, FBO shareholder name, account
number and Fund name. Please be aware that your bank may charge
you a fee for this service.
Through Broker-Dealers and Other Financial Intermediaries:
It is important to keep in mind that if you invest through a third-party
such as a bank, broker-dealer or other fund distribution organizations
rather than directly with us, the policies, fees and minimum investment
amounts may be different than those described in this Prospectus. The
Funds also participate in "No Transaction Fee" programs with many
national brokerage firms and may pay fees to these firms for
participating in such programs.
HOW TO REDEEM SHARES
You may sell your shares at any time. Your shares will be sold at the
NAV next calculated after the Funds' Transfer Agent receives your
order. Orders received after the close of regular business of the NYSE
(usually 4:00 p.m. New York Time) will receive the NAV per share
determined at the close of trading on the next NYSE trading day.
By Mail
Write a letter of instruction containing:
- the name of the Fund(s)
- the account number(s)
- dollar amount or number of shares to be redeemed
- the name(s) on the account
- the signature(s) of all account owners
- your daytime telephone number
and mail the written instructions to The Managers Trusts,
c/o Boston Financial Data Services, Inc., P.O. Box 8517,
Boston, MA 02266-8517.
By Telephone
After establishing this option on your account, call a client
service representative during normal business hours, 8 a.m. to 6
p.m. New York Time, at (800) 252-0682.
Telephone Redemptions are available only for redemptions
which are below $25,000.
Redemptions of $25,000 or more require a signature guarantee. A
signature guarantee helps to protect against fraud. You can obtain one
from most banks and securities dealers. A notary public cannot provide
a signature guarantee. In joint accounts, both signatures must be
guaranteed.
INVESTOR SERVICES
Automatic Investments allows you to make automatic deductions from a
designated bank account.
Automatic Reinvestment Plan allows your dividends and capital gain
distributions to be reinvested in additional shares of the Funds or another
Fund in the Fund family. You can elect to receive dividends in cash.
Exchange Privilege allows you to exchange your shares of the Funds for
shares of another of our Funds. There is no fee associated with this
privilege. Be sure to read the Prospectus for any Fund that you are
exchanging into. You can request your exchange in writing, by
telephone (if elected on the application) or through your investment
advisor, bank or investment professional.
Individual Retirement Accounts are available to you at no additional
cost. Call us at (800) 835-3879 for more information and an IRA kit.
Systematic Exchange Plan allows you to make automatic monthly
exchanges from a Fund to another of our Funds. Exchanges are
completed on the 15th day of each month. Be sure to read the current
Prospectus for any Fund that you are exchanging into. There is no fee
associated with this service. If the 15th day of any month is a weekend
or holiday, the exchange will be completed on the next business day.
Systematic Withdrawals allows you to make automatic monthly
withdrawals of $100 or more per Fund. Withdrawals by check are
normally completed on the 25th day of each month. If the 25th day of
any month is a weekend or a holiday, the withdrawal will be completed
on the next business day.
THE FUNDS AND THEIR POLICIES
Each Fund reserves the right to:
redeem an account if the value of the account falls below
$500 due to redemptions;
suspend redemptions or postpone payments when the
NYSE is closed for any reason other than its usual
weekend or holiday closings or when trading is restricted
by the Securities and Exchange Commission;
change its minimum investment amounts;
delay sending out redemption proceeds for up to seven
days (this usually applies to very large redemptions
without notice, excessive trading or during unusual
market conditions);
make a redemption in-kind (a payment in portfolio
securities instead of in cash) if the Fund determines that a
redemption is too large and/or may cause harm to the
Fund and its shareholders;
refuse any purchase or exchange request if we determine
that such request could adversely affect the Fund's NAV,
including if such person or group has engaged in
excessive trading (to be determined in our discretion);
after prior warning and notification, close an account due
to excessive trading;
impose exchange or redemption fees or otherwise change
the terms of your exchange privileges.
ACCOUNT STATEMENTS
You will receive quarterly and annual statements detailing your account
activity. All investors (other than IRA accounts) will also receive a
Form 1099-DIV in January, detailing the tax characteristics of any
dividends and distributions that are received on their account, whether
taken in cash or additional shares. You will also receive confirmations
after each trade executed in your account.
DIVIDENDS AND DISTRIBUTIONS
The Short Fund and Intermediate Fund intend to pay monthly
distributions to their shareholders of net
investment income. The 500 Plus Fund intends to make quarterly
distributions of net investment
income. All Funds will distribute net realized gains at least annually.
Each Fund may make additional
distributions if necessary to avoid imposition of a 4% excise tax or other
tax on undistributed income and gains.
The monthly distributions for the Short Fund's shares are quoted ex-
dividend on the business day after
record date (the "ex-date"). Record date is usually the first or second
business day of the month. If a shareholder
elects to reinvest dividends, the date the dividends are reinvested is also
the ex-date. Dividends are
paid in cash by the Short Fund generally one week after the ex-date.
The Intermediate Fund will declare a daily dividend for shareholders of
record. The Intermediate
Fund's dividend payable date, and the day that dividends are reinvested
for shareholders who have made this
election, is the last business day of the month. Shares begin accruing
dividends on the business day after
federal funds (funds credited to a member bank's account at the Federal
Reserve Bank) are available from
the purchase payment for such shares, and continue to accrue dividends
through and including the day the
redemption order for the shares is executed. If an investor closes his
account, any accrued dividends
through and including the day of redemption will be paid as part of the
redemption proceeds.
Dividends and capital gains distributions may be declared more or less
frequently at the direction of the
Trustees. In order to be entitled to a dividend or a distribution, an
investor must acquire a Fund's shares on
or before the record date. Caution should be exercised, however, before
purchasing shares immediately
prior to a distribution record date. Since the value of a Fund's shares is
based directly on the amount of its
net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will
result in a decrease in the value of its shares equal to the amount of the
distribution. While a dividend or
capital gain distribution received shortly after purchasing shares
represents, in effect, a return of the shareholder's
investment, it may be taxable as dividend income or capital gain.
We will automatically reinvest your distributions of dividends and
capital gains unless you tell us otherwise. You may change your
election by writing to us at least 10 days prior to the scheduled payment
date.
TAX INFORMATION
Please be aware that the following tax information is general and refers
only to the provisions of the Internal Revenue Code of 1986, as
amended, which are in effect as of the date of this Prospectus. You
should consult a tax adviser about the status of your distributions from
the Funds.
All Fund distributions from net investment income (whether paid in cash
or reinvested in additional shares)
will be taxable to its shareholders as ordinary income, except that any
distributions of a Fund's net long-term
capital gain will be taxable to its shareholders as long-term capital gain
(generally taxed at a 20% rate in the hands of non-corporate
shareholders), regardless of how long they have held their Fund shares.
An exchange of a Fund's shares for shares of another Fund will be
treated as a sale of a Fund's shares, and any gain on the transaction may
be subject to federal income tax.
The use of certain synthetic instruments(including certain futures and options
contracts by the 500 Plus Fund as a means of achieving equity exposure will
require the 500 Plus Fund to mark such isntruments to market, a practice
which will accelerate the 500 Plus Fund's recognition of gain or loss. With
respect to such instruments, 60% of any gain or loss recognized will be treated
as long-term capital gain or loss and 40% will be treated as short-term capital
gain or loss.
Keep in mind that distributions may be taxable to you at different rates
depending on the length of time the Fund held the applicable investment
and not on the length of time that you held your Fund shares. When you
sell your Fund shares, a capital gain may be realized, except for certain
tax-deferred accounts, such as IRA accounts.
Federal law requires a Fund to withhold taxes on distributions paid to
shareholders who:
fail to provide a social security number or taxpayer
identification number;
fail to certify that their social security number or taxpayer
identification number is correct; or
fail to certify that they are exempt from withholding.
FOR MORE INFORMATION
Additional information for the Funds, including the Statement of
Additional Information and the Semi-Annual and Annual Reports, are
available to you without charge and may be requested as follows:
By Telephone: Call 1-800-835-3879
By Mail: The Managers Funds LLC
40 Richards Avenue
Norwalk, CT 06854
On the Internet: Electronic copies are available on our website at
http://www.managersfunds.com
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Fund's performance
during its last fiscal year.
Current Fund documents are on file with the Securities and Exchange
Commission and are incorporated by reference (legally part of this
Prospectus). Text-only copies are also available on the EDGAR
database on the SEC's website at http://www.sec.gov, or upon payment
of a duplication fee and an email request to [email protected] or by
writing to the SEC's Public Reference Room, Washington, D.C.
20549-0102. (Call 1-202-942-8090 for hours of operation.) Information
about the Funds also may be reviewed and copied at the SEC's Public
Reference Room.
Investment Company Act Registration Numbers 811-6520 and 811-6431.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each
Fund's financial performance for the past five fiscal years or, if shorter,
since the period of the Fund's operations. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
each Fund's financial statements, are included in the annual report to
shareholders, which is available upon request.
MANAGERS SHORT DURATION GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
The following selected per share data and ratios cover the fiscal periods
from April 1, 1996 through March 31, 2000, and are part of the Short
Fund's financial statements which have been audited by Deloitte & Touche LLP,
independent auditors. This data should be read in conjunction with
the Short Fund's most recent annual audited financial statements and the
report of Deloitte & Touche LLP thereon, which appear in the Statement of
Additional Information for The Managers Trust II.
Year Ended Year Ended Year Ended Year Ended Year Ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
Net Asset Value,
Beginning of Year. $9.92 $9.83 $9.74 $9.90
Income From Investment Operations
Net investment income 0.442 0.484 0.476 0.621
Net realized and
unrealized gain
(loss) on investments 0.020 0.114 0.146 (0.148)
Total from investment
operations .......... 0.462 0.598 0.622 0.473
Less Distributions
Dividends from net
investment income .. (0.447) (0.508) (0.476) (0.621)
Dividends in excess
of net investment
income .. - - (0.056) (0.012)
Total Distributions (0.447) (0.508) (0.532) (0.633)
Net Asset Value,
End of Period .......... $9.94 $9.92 $9.83 $9.74
Total Return ........... 4.83% 6.24% 6.57% 4.95%
Ratios/Supplemental Data
Net assets,
end of period .......... $60,807,449 $78,427,855 $118,988,609 $221,825,136
Ratio of expenses to
average net assets
Before expense limitation 1.00% 1.00% 0.93% 0.93%
After expense limitation 0.78% 0.78% 0.78% 0.78%
Ratio of net income
to average net assets
Before expense limitation 4.56% 5.06% 4.90% 6.13%
After expense limitation 4.78% 5.28% 5.04% 6.29%
Portfolio turnover rate 298% 626% 556% 225%
Additional performance information is presented in the Short Fund's Annual
Report, which is available without charge upon request.
MANAGERS INTERMEDIATE GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
The following selected per share data and ratios cover the fiscal periods
from April 1, 1996 through March 31, 2000, and are part of the Intermediate
Fund's financial statements which have been audited by Deloitte & Touche LLP,
independent auditors. This data should be read in conjunction with the
Intermediate Fund's most recent annual audited financial statements and the
report of Deloitte & Touche LLP thereon, which appear in the Statement of
Additional Information for The Managers Trust II.
Years ended March 31,
2000 1999 1998 1997 1996
Net Asset Value,
Beginning of Period $10.00 $9.73 $10.01 $9.83
Income From Investment Operations
Net investment income 0.525 0.590 0.599 0.660
Net realized and unrealized
gain (loss) on
investments ......... 0.030 0.419 (0.024) 0.277
Total from investment
operations .............. 0.555 1.009 0.575 0.937
Less Distributions
Dividends from net
investment income ........ (0.515) (0.561) (0.604) (0.656)
Dividends in excess of
net investment income ..... --- - - -
Distributions from net
realized gains on
investments .............. (0.130) (0.178) (0.251) (0.101)
Distributions in excess of
net realized gains on
investments ............. - - - -
Total Distributions ......... (0.645) (0.739) (0.855) (0.757)
Net Asset Value,
End of Period ......... $9.91 $10.00 $9.73 $10.01
Total Return .......... 5.73% 10.65% 5.92% 9.69%
Ratios/Supplemental Data
Net assets, end of period $55,125,797 $38,641,879 $37,735,525 $36,446,940
Ratio of expenses to
average net assets
Before expense limitation 1.06% 1.13% 1.16% 1.14%
After expense limitation .. 0.88% 0.88% 0.89% 0.90%
Ratio of net income to
average net assets
Before expense limitation ..... 5.08% 5.36% 5.92% 6.26%
After expense limitation ...... 5.25% 5.61% 6.19% 6.49%
Portfolio turnover rate .... 423% 583% 409% 193%
Additional performance information is presented in the Intermediate Fund's
Annual Report, which is available without charge upon request.
MANAGERS 500 PLUS FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
The following selected per share data and ratios cover the fiscal periods
from April 1, 1996 through March 31, 2000, and are part of the Fund's
financial statements, which have been audited by Deloitte & Touche LLP,
independent auditors. This data should be read in conjunction with the Fund's
most recent annual audited financial statements and the report of Deloitte &
Touche LLP thereon, which appear in the Statement of Additional Information
for The Managers Trust I.
Years ended March 31,
2000 1999 1998 1997 1996
Net Asset Value,
Beginning of Period $16.86 $12.56 $12.27 $10.84
Income From Investment Operations
Net investment income 0.686 0.591 0.592 0.615
Net realized and
unrealized gain (loss)
on investments 1.765 4.940 1.813 2.768
Total from investment
operations .......... 2.451 5.531 2.405 3.383
Less Distributions
Dividends from net
investment income ............ (0.624) (0.586) (0.590) (0.583)
Dividends in excess of
net investment income ..... - - - -
Distributions from net
realized gains on
investments ........ (1.905) (0.645) (1.525) (1.370)
Distributions in excess
of net realized gains
on investments ............ - - - -
Total Distributions ..... (2.529) (1.231) (2.115) (1.953)
Net Asset Value,
End of Period ............ $16.78 $16.86 $12.56 $12.27
Total Return ....... 17.17% 45.71% 21.41% 32.30%
Ratios/Supplemental Data
Net assets, end of period .. $185,584,121 $136,667,439 $13,507,377 $4,766,534
Ratio of expenses to
average net assets
Before expense limitation 1.04% 1.23% 2.60% 4.58%
After expense limitation 0.88% 0.88% 0.88% 0.90%
Ratio of net income to
average net assets
Before expense limitation 4.45% 4.44% 3.58% 1.85%
After expense limitation 4.62% 4.79% 5.30% 5.53%
Portfolio turnover rate 527% 424% 182% 107%
Additional performance information is presented in the Fund's Annual Report,
which is available without charge upon request.
THE MANAGERS TRUST I
THE MANAGERS TRUST II
MANAGERS SHORT DURATION GOVERNMENT
FUND
MANAGERS INTERMEDIATE GOVERNMENT
FUND
MANAGERS 500 PLUS FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 1, 2000
This Statement of Additional Information contains
information pertaining to the Managers Trust I (the "Trust I"), a no-load
open-end management investment company offering redeemable shares
of beneficial interest in the Managers 500 Plus Fund ("500 Plus Fund",
formerly known as the Smith Breeden U.S. Equity Market Plus Fund)
and the Managers Trust II ("Trust II"), a no-load open-end management
investment company offering redeemable shares of beneficial interest in
two separate series, the Managers Short Duration Government Fund
(the "Short Fund", formerly known as the Smith Breeden Short
Duration U.S. Government Fund) and the Managers Intermediate
Government Fund (the "Intermediate Fund", formerly known as the
Smith Breeden Intermediate Duration U.S. Government Fund). This
Statement of Additional Information contains information which may
be useful to investors and which is not included in the Prospectus for
the Funds. This Statement of Additional Information is not a prospectus
and is only authorized for distribution when accompanied or preceded
by the Prospectus of the Short, Intermediate and 500 Plus Funds (each a
"Fund" and collectively the "Funds") dated August 1, 2000 as may be
amended from time to time. This Statement of Additional Information
should be read in conjunction with the Prospectus which may be
obtained by calling 1-800-835-3879. The executive offices of the Trusts
are located at 40 Richards Avenue, Norwalk, Connecticut, 06854.
Contents Page
MISCELLANEOUS INVESTMENT PRACTICES AND RISK
CONSIDERATIONS.........................................2
HEDGING AND OTHER STRATEGIES USING DERIVATIVES
CONTRACTS..............5
INVESTMENT
RESTRICTIONS.....................
...........8
BOARD OF TRUSTEES AND OFFICERS OF THE
TRUSTS....................10
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES................12
MANAGEMENT OF THE
FUND..........................
.....13
BROKERAGE ALLOCATION AND OTHER
PRACTISES.....................17
PURCHASES, REDEMPTION AND PRICING OF FUND
SHARES.................18
TAXES 21
STANDARD PERFORMANCE MEASURES 23
ADDITIONAL INFORMATION FOR INSTITUTIONAL
INVESTORS 26
EXPERTS 26
FINANCIAL STATEMENTS 26
APPENDIX 27
MISCELLANEOUS INVESTMENT PRACTICES AND RISK
CONSIDERATIONS
Investment Policies
The following supplements the information contained in the Prospectus
about the investment policies of the Short Fund, Intermediate Fund and
500 Plus Fund. Terms used herein have the same meanings as in the
Prospectus.
Repurchase Agreements. A Fund may invest in repurchase
agreements. A repurchase agreement is a contract under which a Fund
acquires a security for a relatively short period (usually not more than
one week) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the Funds' present intention to enter into
repurchase agreements only with commercial banks and registered
broker-dealers, and only with respect to obligations of the U.S.
Government or its agencies or instrumentalities. Repurchase agreements
may also be viewed as loans made by the Funds which are
collateralized by the securities subject to repurchase. Managers and the
Subadviser will monitor such transactions to determine that the value of
the underlying securities is at least equal at all times to the total amount
of the repurchase obligation, including the interest factor. If the seller
defaults, a Fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale including accrued
interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and required
to return the underlying collateral to the seller's estate.
Forward Commitments. A Fund may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement
time ("forward commitments," "when issued" and "delayed delivery"
securities) if a Fund holds until the settlement date, in a segregated
account, cash or high-grade debt obligations in an amount sufficient to
meet the purchase price, or if a Fund enters into offsetting contracts for
the forward sale of other securities it owns. Forward commitments may
be considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date. Where such purchases are made through dealers, a Fund relies on
the dealer to consummate the sale. The dealer's failure to do so may
result in the loss to the Fund of an advantageous return or price.
Although a Fund will generally enter into a forward commitment with
the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the Fund may dispose
of a commitment prior to settlement if Managers and the Subadviser deems
it appropriate to do so. A Fund may realize short-term profits or losses
upon the sale of forward commitments.
Securities Loans. A Fund may make secured loans of its securities
amounting to not more than 33 1/3% of its total assets, thereby realizing
additional income. The risks in lending portfolio securities, as with
other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. As a matter of policy, securities loans are made to
broker-dealers pursuant to agreement requiring that loans be
continuously secured by collateral in cash or short-term debt obligations
at least equal at all times to the value of the securities on loan. The
borrower pays to the Fund an amount equal to any dividends or interest
received on securities lent.
The Fund retains all or a portion of the interest received on investment
of the cash collateral, or receives a fee from the borrower. Although
voting rights, or rights to consent, with respect to the loaned securities
pass to the borrower, the Fund retains the right to call the loans at any
time on reasonable notice, and it will do so in order that the securities
may be voted by the Fund if the holders of such securities are asked to
vote upon or consent to matters materially affecting the investment.
The Fund may also call such loans in order to sell the securities
involved.
Borrowing. A Fund may borrow from banks and enter into reverse
repurchase agreements or dollar rolls up to 33 1/3% of the value of a
Fund's total assets (computed at the time the loan is made) in order to
take advantage of investment opportunities, for extraordinary or
emergency purposes, or for the clearance of transactions. A Fund may
pledge up to 33 1/3% of its total assets to secure these borrowings. If a
Fund's asset coverage for borrowings falls below 300%, the Fund will
take prompt action to reduce its borrowings even though it may be
disadvantageous at that time from an investment point of view. A Fund
will incur borrowing costs when it leverages, including payment of
interest and any fee necessary to maintain a line of credit, and may be
required to maintain a minimum average balance. If the income and
appreciation on assets acquired with borrowed funds exceed their
borrowing cost, the Fund's investment performance will increase,
whereas if the income and appreciation on assets acquired with
borrowed funds are less than their borrowing costs, investment
performance will decrease. In addition, if a Fund borrows to invest in
securities, any investment gains made on the securities in excess of the
costs of the borrowing, and any gain or loss on hedging, will cause the
net asset value of the shares to rise faster than would otherwise be the
case. On the other hand, if the investment performance of the
additional securities purchased fails to cover their cost (including any
interest paid on the money borrowed) to the Fund, the net asset value of
the Fund's shares will decrease faster than would otherwise be the case.
This speculative characteristic is known as "leverage."
Reverse Repurchase Agreements and Dollar Roll Agreements. A
Fund may enter into reverse repurchase agreements and dollar roll
agreements with commercial banks and registered broker-dealers to
seek to enhance returns. Reverse repurchase agreements involve sales
by a Fund of portfolio assets concurrently with an agreement by the
Fund to repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, a Fund continues to
receive principal and interest payments on these securities and also has
the opportunity to earn a return on the collateral furnished by the
counterparty to secure its obligation to redeliver the securities. Dollar
rolls are transactions in which a Fund sells securities for delivery in the
current month and simultaneously contracts to repurchase substantially
similar (same type and coupon) securities on a specified future date.
During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the
current sales price and the forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Fund will establish a segregated
account with its custodian in which it will maintain cash, U.S.
Government securities or other liquid high grade debt obligations equal
in value to its obligations in respect of reverse repurchase agreements
and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities retained by the
Fund may decline below the price of the securities the Fund has sold
but is obligated to repurchase under the agreement. In the event the
buyer of securities under a reverse repurchase agreement or dollar roll
files for bankruptcy or becomes insolvent, the Fund's use of the
proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether or not to enforce the
Fund's obligation to repurchase the securities. Reverse repurchase
agreements and dollar rolls are considered borrowings by a Fund.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a
security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make
interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are issued with a
number of classes or series, which have different maturities
representing interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. Payments of interest or
principal on some classes or series of CMOs may be subject to
contingencies, or some classes or series may bear some or all of the risk
of default on the underlying mortgages. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the
mortgage pools are repaid. In the event of sufficient early prepayments
on such mortgages, the class or series of CMO first to mature generally
will be retired prior to its stated maturity. Thus, the early retirement of
a particular class or series of a CMO held by the Funds would have the
same effect as the prepayment of mortgages underlying a mortgage-
backed pass-through security. Another type of CMO is a real estate
mortgage investment conduit ("REMIC") which qualifies for special tax
treatment under the Internal Revenue Code of 1986, as amended, and
invests in certain mortgages principally secured by interests in real
property and other permitted investments.
CMOs also include securities representing the interest in any excess
cash flow and/or the value of any collateral remaining after the issuer
has applied cash flow from the underlying mortgages or mortgage-
backed securities to the payment of principal of and interest on all other
CMOs and the administrative expenses of the issuer ("Residuals").
Residuals have value only to the extent that income from such
underlying mortgages or mortgage-backed securities exceeds the
amounts necessary to satisfy the issuer's debt obligations represented by
all other outstanding classes or series of the CMOs. In addition, if a
CMO bears interest at an adjustable-rate, the cash flows on the related
Residual will also be extremely sensitive to the level of the index upon
which the rate adjustments are based. As a non-fundamental policy
(meaning it can be changed without the vote of the shareholders), the
Short and Intermediate Fund will not invest in Residuals.
In reliance on an interpretation by the Securities and Exchange
Commission ("SEC"), the Funds' investments in certain qualifying
CMOs and REMICs are not subject to the 1940 Act's limitations on
acquiring interests in other investment companies. CMOs and REMICs
issued by an agency or instrumentality of the U.S. Government are
considered U.S. Government securities for the purposes of this
Prospectus.
Stripped Securities ("STRIPS"). STRIPS are usually structured with
two classes that receive different proportions of the interest and
principal distributions from a pool of underlying assets. A common type
of STRIP will have one class receiving all of the interest from the
underlying assets ("interest-only" or "IO" class), while the other class
will receive all of the principal ("principal-only" or "PO" class).
However, in some instances, one class will receive some of the interest
and most of the principal while the other class will receive most of the
interest and the remainder of the principal. STRIPS are unusually
volatile in response to changes in interest rates. The yield to maturity
on an IO class of STRIPS is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of
principal prepayments may have a measurably adverse effect on a
Fund's yield to maturity to the extent it invests in IOs. Conversely, POs
tend to increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated. Thus, if the
underlying assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recover its initial investment in these
securities, even if the STRIPS were rated of the highest credit quality
by S&P or Moody's, respectively. These risks (and potential benefits)
will be managed by investing in a variety of such securities and by
using certain hedging techniques, as described in "Derivatives Risk" in
the Prospectus. In addition, the secondary market for STRIPS may be
less liquid than that for other mortgage-backed or asset-backed
securities, potentially limiting a Fund's ability to buy or sell those
securities at any particular time.
The Funds expect that interest-only STRIPS will be purchased for their
hedging characteristics. Because of their structure, interest-only
STRIPS will most likely move differently than typical fixed income
securities in relation to changes in interest rates. For example, with
increases in interest rates, these securities will typically increase rather
than decrease in value. As a result, since they move differently to
changes in interest rates than the typical investments held by a Fund,
interest-only STRIPS can be used as hedging instruments to reduce the
variance of a Fund's net asset value from its targeted option-adjusted
duration. There can be no assurance that the use of interest-only
STRIPS will be effective as a hedging technique, in which event, a
Fund's overall performance may be less than if the Fund had not
purchased the STRIPS. STRIPS will not constitute more than 5% of a
Fund's net assets.
The determination of whether certain IO and PO STRIPS issued by the
U.S. Government and backed by fixed-rate mortgages are liquid shall
be made by the Trustees in accordance with applicable pronouncements
of the SEC. At present all other IO and PO STRIPS are treated as
illiquid securities for the purposes of the 15% limitation on illiquid
securities as a percentage of a Fund's net assets.
In addition to STRIPS issued by the U.S. Government, its agencies or
instrumentalities, the Funds may purchase STRIPS issued by private
originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose
subsidiaries of these entities. However, the Short and Intermediate
Funds will purchase only STRIPS that are collateralized by mortgage-
backed securities that are issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. Under no circumstances will the
Short or Intermediate Funds purchase STRIPS if such purchase would
cause STRIPS to exceed 5% of the assets of a Fund.
Zero Coupon Securities. The Funds may invest in "zero coupon"
securities, which are issued at a significant discount from face value and
pay interest only at maturity rather than at intervals during the life of the
security. Zero coupon securities tend to be more volatile than other
securities with similar stated maturities, but which make regular
payments of either principal or interest.
A Fund is required to accrue and distribute income from zero coupon
securities on a current basis, even though it does not receive the income
currently. Thus, a Fund may have to sell other investments to obtain
cash needed to make income distributions, which may reduce a Fund's
assets and may thereby increase its expense ratio and decrease its rate
of return.
Convertible Securities. The 500 Plus Fund may invest in convertible
securities. Convertible securities may be converted at either a stated
price or stated rate into underlying shares of common stock of the same
issuer. Convertible securities have general characteristics similar to
both fixed income and equity securities. The market value of
convertible securities declines as interest rates increase, and increases
as interest rates decline. In addition, because of the conversion feature,
the market value of convertible securities tends to vary with fluctuations
in the market value of the underlying common stocks and therefore will
also react to variations in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and consequently may not experience
market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock
increases, the prices of convertible securities tend to rise as a reflection
of the value of the underlying common stock. Issuers of convertible
securities may default on their obligations.
Corporate Debt Securities. The 500 Plus Fund may invest in
corporate debt securities which are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligation
(credit risk) and may also be subject to price volatility due to such
factors as interest rate sensitivity, market perception of the credit-
worthiness of the issuer and general market liquidity. Debt securities
issued by smaller and medium sized issuers may be less actively traded
than those of larger issuers and may experience greater fluctuations in
price. Smaller and medium sized issuers may be less seasoned, have
more limited product lines, markets, financial resources and
management depth, and therefore be more susceptible to adverse
market conditions than larger issuers.
Restricted Securities. Restricted securities represent securities that can
be sold in privately negotiated transactions, pursuant to an exemption
from registration under the Securities Act of 1933, as amended, or in
registered public offering. Restricted securities deemed to be liquid
under procedures established by the Funds' Board of Trustees are not
subject to the limitations on illiquid securities.
HEDGING AND OTHER STRATEGIES USING DERIVATIVE
CONTRACTS
Futures Contracts and Related Options. As a purchaser of a futures
contract, a Fund incurs an obligation to take delivery of a specified
amount of the obligation underlying the futures contract at a specified
time in the future for a specified price or, in "cash settlement" futures
contracts, to pay to (or receive from) the seller in cash the difference
between the original price in the futures contract and the market price
of the instrument on the specified date, if the market price is lower (or
higher, as the case may be). A futures contract sale creates an obligation
by a Fund, as seller, to deliver the specified type of financial instrument
called for in the contract at a specified future time for a specified price
or, in "cash settlement" futures contracts, to pay to (or receive from) the
buyer in cash the difference between the original price in the futures
contract and the market price of the instrument on the specified date, if
the market price is higher (or lower, as the case may be). The potential
losses from investment in futures contracts is unlimited. Options on
futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in return for
the premium paid to assume a position in a futures contract (a long
position if the option is a call and short position if the option is a put).
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security and the same delivery
date. If the sale price exceeds the offsetting purchase price, the seller
would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract
purchase is closed out by effecting a futures contract sale for the same
aggregate amount of the specific type of security and the same delivery
date. If the offsetting sale price exceeds the purchase price, the
purchaser would realize a gain, whereas if the purchase price exceeds
the offsetting sale price, the purchaser would realize a loss. There is no
assurance that a Fund will be able to enter into a closing transaction.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the
borrowing of funds by a broker's client, but rather, a good faith deposit
on the futures contract which will be returned to the Fund upon the
proper termination of the futures contract. The margin deposits made
are marked to market daily and the Funds may be required to make
subsequent deposits into the segregated account, maintained at its
Custodian for that purpose, or cash, U.S. Government securities or
other liquid high-grade debt securities, called "variation margin," in the
name of the broker, which are reflective of price fluctuations in the
futures contract. Currently, interest rate futures contracts can be
purchased on debt securities such as U.S. Treasury Bills and Bonds,
Eurodollar instruments, U.S. Treasury Notes and GNMA Certificates.
Exchanges limit the amount by which the price of a futures contract
may move on any day. If the price moves equal the daily limit on
successive days, then it may prove impossible to liquidate a futures
position until the daily limit moves have ceased. In the event of adverse
price movements, the Funds would continue to be required to make
daily cash payments of variation margin on open futures positions. In
such situations, if the Funds have insufficient cash, it may be
disadvantageous to do so. In addition, the Funds may be required to
take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. An
inability to close out options and futures positions could also have an
adverse impact on a Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which a Fund
engages in transactions in futures or options, either Fund could
experience delays and/or losses in liquidating open positions purchased
or sold through the broker and/or incur a loss of all or part of its margin
deposits with the broker.
The variable degree of correlation between price movements of futures
contracts and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the
value of a Fund's position. In addition, futures and futures option
markets may not be liquid in all circumstances. As a result, in volatile
markets, a Fund may not be able to close out a transaction without
incurring losses substantially greater than the initial deposit. Although
the contemplated use of these contracts should tend to minimize the risk
of loss due to a decline in the value of the hedged position, at the same
time they tend to limit any potential gain which might result from an
increase in the value of such position. The ability of a Fund to hedge
successfully will depend on the Subadvisor's ability to forecast pertinent
market movements, which cannot be assured.
In order to achieve its investment objective, a Fund may sell interest
rate futures in a different dollar amount than the dollar amount of
securities being hedged depending on the expected relationship between
the volatility of the prices of such securities and the volatility of the
futures contracts, based on duration calculations by the Subadvisor. If
the actual price movements of the securities and futures are inconsistent
with their durations as so calculated, the hedge may not be fully
effective.
A Fund will not maintain open short positions in interest rate futures
contracts if, in the aggregate, the value of the open positions (marked to
market) exceeds the current market value of its securities portfolio plus
or minus the unrealized gain or loss on those open positions, adjusted
for the expected volatility relationship between the Fund and the futures
contracts based on duration calculations. If this limitation should be
exceeded at any time, the Fund will take prompt action to close out the
appropriate number of open contracts to bring its open futures position
into compliance with this limitation.
Finally, the daily deposit requirements in futures contracts create a
greater ongoing potential financial risk than do options transactions,
where the exposure is limited to the cost of the initial premium. Losses
due to hedging transactions may reduce net asset value. Income earned
by a Fund from its hedging activities generally will be treated as capital
gains.
In accordance with regulations established by the Commodity Futures
Trading Commission, each Fund's aggregate initial margin and
premiums on all futures and options contract positions not held for bona
fide hedging purposes, will not exceed 5% of a Fund's net assets, after
taking into account unrealized profits and losses on such contracts.
Swaps, Caps, Floors and Collars. Swap agreements can be
individually negotiated and structured to include exposure to a variety
of different types of investments or market factors. Depending on their
nature, swap agreements may increase or decrease exposure to interest
rates, mortgage securities, or other factors such as stock or bond
indices. The Funds will enter into swaps only on a net basis, i.e., where
the two payment streams are netted out, with a Fund receiving or
paying, as the case may be, only the net amount of the two payments.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the
party selling such interest rate floor. An interest rate collar combines
the elements of purchasing a cap and selling a floor. The collar protects
against an interest rate rise above the maximum amount, but gives up
the benefits of an interest rate decline below the minimum amount.
There can be no assurance that a Fund will be able to enter into swaps,
caps, floors or collars on favorable terms. Furthermore, there can be no
assurance that the Funds will be able to terminate a swap or sell or
offset caps, floors or collars notwithstanding any terms in the
agreements providing for such termination. The Fund will enter into
swap contracts only on a net basis, i.e., where the two parties'
obligations are netted out, with the Fund paying or receiving, as the
case may be, only the net amount of any payments. Payments under a
swap contract may be made at the conclusion of the contract or
periodically during its term.
Inasmuch as these transactions are entered into for hedging purposes,
the Fund believes that swaps, caps, floors and collars do not constitute
senior securities and, accordingly, will not treat them as being subject to
its borrowing restrictions. The net amount of the excess, if any, of a
Fund's obligations over its entitlement with respect to each swap will be
accrued on a daily basis, and an amount of cash or liquid securities
having an aggregate net asset value at least equal to the accrued excess
will be maintained in a segregated account by a custodian that satisfies
the requirements of the Investment Company Act of 1940 ("1940 Act").
If there is default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the
transaction. There is no assurance that swap, cap, floor or collar
counterparties will be able to meet their obligations pursuant to their
contracts, or that, in the event of default, a Fund will succeed in
pursuing contractual remedies. The Fund thus assumes the risk that it
may be delayed in or prevented from obtaining payments owed to it
pursuant to swaps, caps, floors or collars.
The swap, cap, floor and collar market has grown substantially in recent
years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized documentation.
As a result, this market has become relatively liquid, although the Fund
will still treat these instruments as illiquid investments subject to the
limitation on such investments described under "Liquidity Risk" in the
Prospectus.
Inasmuch as these hedging transactions are entered into for hedging
purposes, the Funds believe swaps, caps, floors and collars do not
constitute senior securities and, accordingly, will not treat them as being
subject to its borrowing restrictions. The net amount of the excess, if
any, of a Fund's obligations over its entitlement with respect to each
swap will be accrued on a daily basis, and an amount of cash or liquid
securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by a
custodian that satisfies the requirements of the 1940 Act.
The Short Fund and Intermediate Fund will not write any caps, floors
and collars, and will not enter into any swap, cap, floor or collar
transaction unless the unsecured commercial paper, unsecured senior
debt or the claims-paying ability of the other party is rated either AA or
A-1 or better by Standard & Poor's Corporation ("S&P") or Aa or P-1
or better by Moody's Investors Service, Inc. ("Moody's") at the time of
entering into such transaction.
The 500 Plus Fund will not enter into any swap, cap, collar or floor
contract unless, at the time of entering into such transaction, the
unsecured senior debt of the counterparty is rated at least A by Moody's
or S&P.
Options. A put option gives the purchaser of the option the right to sell
and the writer the obligation, if the purchaser exercises his right, to buy
the underlying security at the exercise price during the option period. A
call option gives the purchaser of the option the right to buy and the
writer the obligation, if the purchaser exercises his right, to sell the
underlying security at the exercise price during the option period. Listed
options are issued by the Options Clearing Corporation ("OCC") which
guarantees the performance of the obligations of the parties to such
options.
The purchaser of an option risks losing his entire investment in a short
period of time. If an option is not sold while it has remaining value, or
if during the life of an option the underlying interest does not
appreciate, in the case of a call option, or depreciate, in the case of a
put option, the purchaser of such option may lose his entire investment.
On the other hand, given the same market conditions, if the potential
purchaser of a call option purchases the underlying interest directly
without purchasing a call option or if the potential purchaser of a put
option decides not to purchase the put option, such a potential
purchaser might have less of a loss. An option purchaser does not have
the choice of "waiting out" an unexpected decrease or increase in the
underlying instrument's price beyond the expiration date of the option.
The more that an option is out-of-the-money and the shorter its
remaining term to expiration, the greater the risk that a purchaser of the
option will lose all or part of his investment. Further, except where the
value of the remaining life of an option may be realized in the
secondary market, for an option purchase to be profitable the market
price of the underlying interest must exceed or, as applicable, be below
the exercise price by more than the premium and transaction costs paid
in connection with the purchase of the option and its sale or exercise.
A Fund's ability to close out its position as a purchaser of an exchange-
listed option is dependent upon the existence of a liquid secondary
market on option exchanges. Among the possible reasons for the
absence of a liquid secondary market on an exchange are (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an
exchange or the OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had
been listed by the OCC as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms.
OTC Options are purchased from or sold to dealers or financial
institutions which have entered into direct agreement with a Fund.
With OTC Options, such variables as expiration date, exercise price
and premium will be agreed upon between the Fund and the transacting
dealer, without the intermediation of a third party such as the OCC. If
the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that
option as written, the Fund would lose the premium paid for the option
as well as any anticipated benefit of the transaction. OTC Options and
their underlying securities are considered illiquid. The Funds will
engage in OTC Option transactions only with primary United States
Government securities dealers recognized by the Federal Reserve Bank
of New York. Managers and the Subadviser monitor the creditworthiness of
dealers with whom a Fund enters into OTC options transactions under the
general supervision of each Fund's Board of Trustees.
The hours of trading for options on debt securities may not conform to
the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the
underlying securities, significant price and rate movements can take
place in the underlying markets that cannot be reflected in the option
markets.
INVESTMENT RESTRICTIONS
The following restrictions (except as noted) have been adopted as
fundamental policies for the Funds, which means that they may not be
changed without the approval of a majority of the outstanding shares of
each of the Funds, as the case may be (as defined in the 1940 Act). A
Fund may not (except that none of the following investment restrictions
shall prevent a Fund from investing all of its assets (other than assets
which are not "investment securities" as defined in the 1940 Act) in an
open-end investment company with substantially the same investment
objectives):
1. Issue senior securities, borrow money or pledge its assets,
except that a Fund may borrow from banks or through reverse
repurchase agreements or dollar rolls up to 33 1/3% of the
value of its respective total assets (calculated when the loan is
made) for temporary, extraordinary or emergency purposes
and to take advantage of investment opportunities, and may
pledge up to 33 1/3% of the value of its total assets to secure
such borrowings. For purposes of this restriction, the purchase
or sale of securities on a "when issued" or "delayed delivery"
basis, the purchase and sale of futures contracts, the entry into
reverse repurchase agreements and dollar roll transactions,
short sales, interest rate swaps, mortgage swaps, over-the-
counter options, and collateral arrangements with respect
thereto are not deemed to be a pledge of assets and none of
such transactions or arrangements nor obligations of the Funds
to Trustees pursuant to deferred compensation arrangements
are deemed to be the issuance of a senior security.
2. Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be
an underwriter under certain federal securities laws.
3. For the Short and Intermediate Funds, purchase any security
(other than obligations of the U.S. Government, its agencies
and instrumentalities) if as a result: (i) with respect to 75% of
its total assets more than 5% of the Short or Intermediate
Fund's total assets (determined at the time of investment)
would then be invested in securities of a single issuer, or (ii)
25% or more of a Fund's total assets (determined at the time of
investment) would be invested in one or more issuers having
their principal business activities in the same industry.
4. For the Short and Intermediate Funds, purchase the securities
of any issuer which would result in owning more than 10% of
any class of the outstanding voting securities of such issuer.
5. For the 500 Plus Fund only, purchase any security (other than
obligations of the U.S. Government, its agencies and
instrumentalities and shares of other investment companies as
permitted pursuant to exemptive relief granted by the SEC) if
as a result 25% or more of a Fund's total assets (determined at
the time of investment) would be invested in one or more
issuers having their principal business activities in the same
industry.
6. Purchase any security, other than mortgage-backed securities,
or obligations of the U.S. Government, its agencies or
instrumentalities, if as a result a Fund would have invested
more than 5% of its respective total assets in securities of
issuers (including predecessors) having a record of less than
three years of continuous operation; except for investments in
regulated investment companies with the same objective.
7. Acquire, lease or hold real estate. (Does not preclude
investments in securities collateralized by real estate or
interests therein.)
8. Purchase or sell commodities or commodity contracts except
for hedging purposes.
9. Invest in interests in oil, gas or other mineral exploration or
development program.
10. Invest in companies for the purpose of exercising control or
management.
11.Purchase securities of other investment companies, except to the
extent permitted by the 1940 Act.
12. Make loans of money or property to any person, except through
loans of portfolio securities to qualified institutions, the purchase
of debt obligations in which a Fund may invest consistently with its
investment objectives and policies and investment limitations or
the investment in repurchase agreements with qualified institutions.
A Fund will not lend portfolio securities if, as a result, the
aggregate of such loans exceeds 33 1/3% of the value of a Fund's
respective total assets (including such loans).
13. Purchase securities on margin (though a Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions); provided that the deposit or payment by a Fund of
initial or variation margin in connection with options or futures
contracts is not considered the purchase of a security on margin.
14. Make short sales of securities or maintain a short position if, when
added together, more than 25% of the value of a Fund's net assets
would be (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales, and (ii) allocated to
segregated accounts in connection with short sales. Short sales
"against-the box" are not subject to this limitation.
It is contrary to a Fund's present policy, which may be changed without
shareholder approval, to:
(a) sell over-the-counter options which it does not
own; or
(b) sell options on futures contracts which options it
does not own.
(c) invest in residual interests in a REMIC or a
CMO.
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later
change in percentage resulting from changing total or net asset values
will not be considered a violation of such policy. However, in the event
that the asset coverage for borrowings falls below 300%, the Funds will
take prompt action to reduce its borrowings as required by applicable
laws.
In order to change any of the foregoing restrictions, which are
fundamental policies, approval must be obtained by shareholders of a
Fund. Such approval requires the affirmative vote of the lesser of (i)
67% or more of the voting securities present at a meeting if the holders
of more than 50% of voting securities are represented at that meeting or
(ii) more than 50% of the outstanding voting securities.
Other Policies
There are no restrictions or limitations on investments in obligations of
the United States, or of corporations chartered by Congress as federal
government instrumentalities. The underlying assets of a Fund may be
retained in cash, including cash equivalents which are Treasury bills,
short-term bank obligations such as certificates of deposit, bankers'
acceptances and repurchase agreements. However, it is intended that
only so much of the underlying assets of a Fund be retained in cash as is
deemed desirable or expedient under then-existing market conditions.
As noted in the Prospectus, a Fund may invest up to 15% of its
respective total net assets in illiquid securities.
BOARD OF TRUSTEES AND OFFICERS OF THE TRUSTS
The current Trustees and Officers of each of the Trusts, their business
addresses, principal occupations and dates of birth are listed below.
The Trustees provide broad supervision over the affairs of the Trusts
and the Funds. Unless otherwise noted, the address of the current
Trustees and Officers is the address of the Trusts: 40 Richards Avenue,
Norwalk, CT 06854.
JACK W. ABER - Trustee; Professor of Finance, Boston University
School of Management since 1972. He has served as a Trustee of the
Trust since March 1999. He has served as a Trustee since August 2000 and
also serves as a Trustee of The Managers Funds and The Managers/AMG Funds.
His date of birth is September 9, 1937.
WILLIAM E. CHAPMAN, II - Trustee; President and Owner,
Longboat Retirement Planning Solutions since 1998. From 1990 to
1998, he served in a variety of roles with Kemper Funds, the last of
which was President of the Retirement Plans Group. Prior to joining
Kemper, he spent 24 years with CIGNA in investment sales, marketing
and general management roles. He has served as a Trustee since August 2000
and also serves as a Trustee of The Managers Funds and The Managers/AMG
Funds. His date of birth is September 23, 1941
SEAN M. HEALEY - Trustee; President and Chief Operating Officer
of Affiliated Managers Group, Inc. since October 1999. From April
1995 to October 1999, he was Executive Vice President of Affiliated
Managers Group, Inc. From August 1987 through March 1995, he
served in a variety of roles in the Mergers and Acquisitions Department
of Goldman, Sachs & Co., the last of which was as Vice President. He
has served as a Trustee since August 2000 and also serves
as a Trustee of The Managers Funds and The Managers/AMG Funds.
His date of birth is May 9,
1961.
EDWARD J. KAIER - Trustee; Partner, Hepburn Willcox Hamilton &
Putnam since 1977. He has served as a Trustee since August 2000 and also
serves as a Trustee of The Managers Funds and The Managers/AMG Funds.
His date of birth is September 23, 1945.
MADELINE H. MCWHINNEY- Trustee; Member of the Investment
Committee, New Jersey Supreme Court since 1990. From 1977 to
1994, she was the President of Dale, Elliott & Company, Inc.,
Management Consultants. From 1983 to 1998, she was a Member of
the Advisory Board on Professional Ethics, New Jersey Supreme Court.
She has served as a Trustee since August 2000 and also serves as a Trustee of
The Managers Funds and The Managers/AMG Funds. Her date of birth is
March 11, 1922.
STEVEN J. PAGGIOLI- Trustee; Executive Vice President and
Director, The Wadsworth Group since 1986. Vice President, Secretary
and Director of First Fund Distributors, Inc. since 1991. Executive
Vice President, Secretary and Director of Investment Company
Administration, LLC since 1990. Trustee of Professionally Managed
Portfolios since 1991. He has served as a Trustee since August 2000 and
also serves as a Trustee of The Managers Funds and The Managers/AMG Funds.
His date of birth is April 3, 1950.
ERIC RAKOWSKI - Trustee; Professor, University of California at
Berkeley School of Law since 1990. Visiting Professor, Harvard Law
School 1998-1999. He has served as a Trustee since August 2000 and also serves
as a Trustee of The Managers Funds and The Managers/AMG Funds. His date of
birth is June 5, 1958.
THOMAS R. SCHNEEWEIS- Trustee; Professor of Finance,
University of Massachusetts since 1985. Managing Director, CISDM at
the University of Massachusetts since 1994. He has served as a Trustee
since August 2000 and also serves as a Trustee of the The Managers Funds
and The Managers/AMG Funds. His date of birth is May 10, 1947.
PETER M. LEBOVITZ - President; President of The Managers Funds
LLC. From September 1994 to April 1999, he was Managing Director
of The Managers Funds, L.P. (the predecessor to The Managers Funds
LLC). From June 1993 to June 1994, he was the Director of Marketing
for Hyperion Capital Management, Inc. From April 1989 to June 1993,
he was Senior Vice President for Greenwich Asset Management, Inc.
His date of birth is January 18, 1955.
DONALD S. RUMERY - Treasurer and Secretary; Chief Financial
Officer, Secretary and Treasurer of The Managers Funds LLC
(formerly The Managers Funds, L.P.) since December 1994. Chief Financial
Officer, Secretary and Treasurer of The Managers Funds since_____and
The Managers/AMG Funds since_______. From March 1990 to December 1994,
he was a Vice President of Signature Financial Group. From August 1980
to March 1990, he held various positions with The Putnam Companies,
the last of which was Vice President. His date of birth is May 29, 1958.
PETER M. MCCABE - Assistant Treasurer; Portfolio Administrator
and Assistant Treasurer of The Managers Funds LLC (formerly The
Managers Funds, L.P.) since August 1995. Assistant Treasurer of The Managers
Funds since________and Managers/AMG Funds since______. From July 1994 to
August 1995, he was a Portfolio Administrator at Oppenheimer Capital, L.P.
His date of birth is September 8, 1972.
LAURA A. DESALVO - Assistant Secretary; Legal/Compliance
Officer and Assistant Secretary of The Managers Funds LLC (formerly
The Managers Funds, L.P.) since September 1997. Assistant Secretary of The
Managers Funds since_______ and The Managers/AMG Funds since_______.
From August 1994 to June 1997, she was a law student. Her date of birth is
November 10, 1970.
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust.
Trustees' Compensation
The current Trustees have not yet received any compensation
from the Trusts. For their services, the Trustees are expected to be
compensated as follows:
Compensation Table:
Estimated Aggregate Total Estimated
Name of Trustee Aggregate Compensation Compensation
Compensation From Other from the Fund
from the Trusts Funds in the and the Fund
Complex Complex paid to Trustees
Jack W. Aber $ $ $
William E. Chapman, II $ $ $
Sean M. Healey none none none
Edward K. Kaier $ $ $
Madeline H. McWhinney $ $ $
Steven J. Paggioli $ $ $
Eric Rakowski $ $ $
Thomas R. Schneeweis $ $ $
____________________
(a) The Trusts do not expect to provide any pension or retirement
benefits to the current Trustees.
Information regarding the compensation of the Trustees of the Trusts
during the fiscal year ended March 31, 2000 is presented in the table
below. The Trusts paid no compensation to their officer or to the
Trustees who were directors, officers or employees of Smith Breeden.
Compensation Table for the fiscal year ended March 31, 2000
Aggregate Total Compensation
Name of Compensation from Trusts Paid
Trustee from Trusts to Trustee
Douglas T. Breeden* None None
Michael J. Giarla* None None
Stephen M. Schaefer $97,917 $97,917
Myron S. Scholes $97,917 $97,917
William F. Sharpe $97,917 $97,917
(a) The Trusts did not provide any pension or retirement benefits
to the Trustees for the fiscal year ended March 31, 2000.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Control Persons
The table below presents information regarding holders of 5% or more
of the shares of the Funds as of
July ---, 2000, including their names address and ownership
percentages.
WILL BE PROVIDED AS OF JULY 3, 2000
Management Ownership
As of July 3, 2000, Trustees and Officers beneficially owned less than
1% of each of the Fund's shares.
MANAGEMENT OF THE FUND
Investment Manager and Subadvisor
The Trustees provide broad supervision of the operations and affairs of
the Trusts and the Funds. The Managers Funds LLC ("Managers")
serves as investment manager to and distributor of the Fund. The
Investment Manager also serves as administrator of the Funds and
carries out the daily administration of the Trusts and the Funds. The
Investment Manager and its corporate predecessors have over 20 years
of experience in evaluating subadvisors for individuals and institutional
investors.
Managers is a wholly-owned subsidiary of Affiliated Managers Group,
Inc. ("AMG"), a publicly traded asset management holding company.
AMG serves as the Managing Member of The Managers Funds LLC.
AMG is located at Two International Place, 23rd Floor, Boston,
Massachusetts 02110.
Managers has retained the services of a subadviser by entering into an
advisory agreement with the Subadvisor known as a "Subadvisory
Agreement." The subadvisor is Smith Breeden Associates, Inc (the
"Subadvisor" or "Smith Breeden"). Smith Breeden is a money
management and consulting firm involved in (1) money management
for separate accounts such as pensions and endowments, (2) financial
institution consulting and investment advice, and (3) equity
investments. The firm specializes in high credit quality fixed-income
investments, interest rate risk management, and the application of
option pricing to banking and investments. Smith Breeden currently
advises, or manages on a discretionary basis, assets totaling over $27
billion. Of the $27 billion, more than $8 billion is managed on a
discretionary basis for a wide range of public and private sector
institutional clients. Smith Breeden has managed the assets in the
Funds since their inception in 1992 as either investment manager or
subadvisor.
Smith Breeden has discretion, subject to oversight by the Trustees and
the Investment Manager, to purchase and sell portfolio assets,
consistent with a Fund's investment objectives, policies and restrictions.
Generally, the services which a subadvisor provides to a Fund are
limited to asset management and related recordkeeping services. The
Subadvisor may also serve as a discretionary or non-discretionary
investment advisor to management or advisory accounts which are
unrelated in any manner to the Investment Manager or its affiliates.
A subadvisor or its affiliated broker-dealer may execute portfolio
transactions for a Fund and receive brokerage commissions, or
markups, in connection with the transaction as permitted by Sections
17(a) and 17(e) of the 1940 Act, and the terms of any exemptive order
issued by the Securities and Exchange Commission. Smith Breeden
does not have any affiliated broker dealers and does not expect to
receive any brokerage commissions, or mark-ups, in connection with
any transaction.
Compensation of Managers and Smith Breeden by the Fund
As compensation for the investment management services rendered and
related expenses under the Management Agreements, the Funds have
agreed to pay Managers an investment management fee of 0.70%
annually, which is computed daily as a percentage of the average of the
value of the net assets of each Fund and may be paid monthly.
As compensation for the investment management services rendered and
related expenses under the Subadvisory Agreement, Managers has
agreed to pay the Smith Breeden a fee (net of all mutually agreed upon
fee waivers and reimbursements required by applicable law) for
managing the portfolio, which is also computed daily and paid monthly
based on the average daily net assets that Smith Breeden manages. The
fee paid to Smith Breeden is paid out of the fee the Managers receives
from the Fund and does not increase the expenses of the Fund.
The fee rate may change if assets of the Funds fall below certain levels.
In addition, SBA agrees that if Managers has waived all or a portion of
a Fund's advisory fee, or if Managers has agreed to pay or reimburse
the expenses of a Fund above a certain level, SBA will, upon request by
Managers, waive a pro-rata share of the subadvisory fee payable to
SBA or reimburse the Fund for a pro-rata share of such expenses, so
that the amount of expenses waived or borne by SBA will bear the same
ratio to the total amount of the subadvisory fees with respect to such
Fund as the amount waived or borne by Managers.
Pursuant to an Agreement between Managers and SBA dated May 22,2000,
Managers may also pay SBA up to $-million at certain
points through July 31, 2005 if assets grow to certain target levels.
Management and Subadvisory Agreements
The Management Agreements provide that, subject to the general
supervision of the Trustees, Managers will provide a continuous
investment program for the Funds and determine the composition of the
assets of the Funds, including the determination of the purchase,
retention, or sale of securities, cash, and other investments for the
Funds. During the term of the Management Agreements, Managers will
pay all expenses incurred by it in connection with its activities under the
Management Agreements, including fees payable to subadvisors,
salaries and expenses of the trustees of the Funds who are employees of
Managers or its affiliates, and office rent of the Funds; but each Fund
will be responsible for all other expenses of its operation, including
among others brokerage commissions, interest, legal fees and expenses
of attorneys, and fees of auditors, transfer agents, dividend
disbursement agents, custodians, and shareholder servicing agents.
Managers will provide such services in accordance with the Funds'
investment objectives, investment policies, and investment restrictions.
The provision of investment advisory services by Managers to the
Funds will not be exclusive under the terms of the Management
Agreements, and Managers will be free to, and will, render investment
advisory services to others.
The Management Agreements provide that they will, unless sooner
terminated as described below, continue in effect for a period of two
years from their effective date and will continue from year to year
thereafter with respect to each Fund, so long as such continuance is
approved at least annually (i) by the vote of a majority of the Board of
Trustees of the relevant Trust or (ii) by the vote of a majority of the
outstanding voting securities of the relevant Fund (as defined in the
1940 Act), and provided that in either event they are also approved by
the vote of a majority of the Independent Trustees of the relevant Trust.
Each Management Agreement provides that it may be amended only in
accordance with the 1940 Act and that it terminates automatically in the
event of its assignment (as defined in the 1940 Act).
The Management Agreements may be terminated at any time, without
the payment of any penalty, (i) by the relevant Trust by vote of a
majority of its Board of Trustees, (ii) by vote of a majority of the
outstanding voting securities of the relevant Trust, or (iii) with respect
to any Fund, by vote of a majority of the outstanding securities of such
Fund, upon 60 days written notice to Managers. The Management
Agreements may be terminated by Managers upon 60 days written
notice to the Trust.
The Management Agreements provide that, except as may otherwise be
required by the 1940 Act or the rules thereunder, Managers shall not be
subject to any liability for any act or omission connected with services
rendered under the Management Agreements or for any losses that may
be sustained in the purchase, holding, or sale of any security, except by
reason of Managers willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or by reason of Managers' reckless
disregard of its obligations and duties under the Management
Agreements.
The Subadvisory Agreements provide that, subject to the general
supervision of the Board of the relevant Trust and Managers, SBA shall
manage the composition of each of the Funds, including the
determination of the purchase, retention, or sale of securities, cash, and
other investments for the Funds. Under the Subadvisory Agreements,
SBA is required to provide such services in accordance with each
Fund's investment objectives, investment policies, and investment
restrictions as stated in the relevant registration statement filed with the
SEC, as supplemented and amended from time to time. The provision
of investment advisory services by SBA to the Funds will not be
exclusive under the terms of the Subadvisory Agreements, and SBA
will be free to, and will, render investment advisory services to others.
The Subadvisory Agreements provide that they will, unless sooner
terminated as described below, continue in effect for a period of two
years from their effective date and will continue thereafter with respect
to each Fund, so long as such continuance is approved at least annually
(i) by the vote of a majority of the Board of the relevant Trust or (ii) by
the vote of a majority of the outstanding voting securities of the relevant
Fund (as defined in the 1940 Act). The Subadvisory Agreements
provide that they may be amended only in accordance with the 1940
Act and that they terminate automatically in the event of their
assignment (as defined in the 1940 Act).
The Subadvisory Agreements may be terminated: (i) by Managers at
any time, without payment of a penalty, upon notice to SBA and the
relevant Trust, (ii) at any time, without payment of a penalty, by the
relevant Trust or a majority of the outstanding voting securities of the
Fund, or (iii) by SBA at any time, without payment of a penalty, upon
30 days notice to Managers and the relevant Trust.
The Subadvisory Agreements provide that SBA shall not be subject to
any liability for any act or omission, error of judgment, or mistake of
law or for any loss suffered by Managers or the relevant Trust in
connection with the Subadvisory Agreements, except by reason of
SBA's willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of SBA's reckless disregard of
its obligations and duties under the Proposed Subadvisory Agreements.
Fee Waivers and Expense Limitations
As described in the Prospectus, Managers has made a voluntary
undertaking to limit the expenses of each Fund and has also entered into
an expense limitation agreement with respect to the Funds.
Capital Structure
The Managers Trust I and The Managers Trust II are both Massachusetts
business trusts. Trust I was organized under an Agreement and
Declaration of Trust dated December 18, 1991 (under the name Smith Breeden
Trust). Trust II was organized under an Agreement and Declaration of
Trust dated October 3, 1991 (under the name Smith Breeden Series Fund).
Copies of both Agreements, which are governed by Massachusetts law, are on
file with the Secretary of The Commonwealth of Massachusetts.
The Trustees have the authority to issue shares in an unlimited number
of series of either Trust. Each such fund's shares may be further divided
into classes. The assets and liabilities of each Fund will be separate and
distinct. All shares when issued are fully paid, non-assessable and
redeemable, and have equal voting, dividend and liquidation rights.
Shareholders of the Funds of each Trust will vote together in electing
the Trust's trustees and in certain other matters. Shareholders should be
aware that the outcome of the election of trustees and of certain other
matters for their trust could be controlled by the shareholders of another
fund. The shares have non-cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of the
trustees can elect 100% of the trustees if they choose to do so.
Neither Trust is required to hold annual meetings of its shareholders.
However, shareholders of each Trust have the right to call a meeting to
take certain actions as provided in the Declaration of Trust. Upon
written request by the holders of at least 1% of the outstanding shares
stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider such actions, the Trust II has undertaken
to provide a list of shareholders or to disseminate appropriate materials
(at the expense of the requesting shareholders).
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally
liable as partners for its obligations. However, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which both (i) any liability was greater than a
Fund's insurance coverage and (ii) a Fund itself was unable to meet its
obligations.
FUND CHARGES AND EXPENSES
Management Fees. Each Fund pays a monthly fee to Managers based
on the average net assets of the Fund, as determined at the close of each
business day during the month. The fee is computed at an annual rate
of 0.70%. Advisory fees for the past three fiscal years are as follows.
These advisory fees were paid directly to Smith Breeden, which served
as Investment Manager until July 31, 2000.
Advisory Fee
Advisory Fee Advisory Fee Paid by
Fiscal Year Paid by 500 Paid by Short Intermediate
Ended Plus Fund Fund Fund
March 31, 2000 $1,465,858 $374,112 $340,173
March 31, 1999 $1,090,372 $508,343 $355,620
March 31, 1998 $423,706 $727,735 $217,230
The following chart details the reimbursements to the Funds for each of
the last three fiscal years, under voluntary expense limitation
provisions. These reimbursements were made by Smith Breeden, which
served as Investment Manager during the periods indicated in this table.
Amounts Amounts Amounts
Fiscal Year Reimbursed to Reimbursed to Reimbursed to
Ended 500 Plus Fund Short Fund Intermediate Fund
March 31, 2000 $ 269,913 $ 155,667 $ 88,225
March 31, 1999 $ 251,051 $ 155,616 $ 83,434
March 31, 1998 $ 215,049 $ 231,365 $ 97,835
Code of Ethics
The Trustees have adopted a Code of Ethics under Rule 17j-1 of the
1940 Act on behalf of the Trust. The Code of Ethics of the Trusts
incorporates the code of ethics of the Managers (applicable to "access
persons" of the Trust that are also employees of Managers). In
combination, these codes of ethics generally require access persons to
preclear any personal securities investment (with limited exceptions
such as government securities). The preclearance requirement and
associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. The
restrictions also include a ban on trading securities based on
information about the trading within a Fund.
Administrative Services and Distribution Agreements
Under an Administration and Shareholder Servicing Agreement
between the Trusts and Managers, Managers also serves as
administrator (the "Administrator") of the Trusts. Under the terms of
this agreement, the Administrator will provide various administrative
services to the Trusts, including shareholder servicing and other Fund
support. This agreement was effective as of _______, 2000. Prior to
that time, the Trusts did not have a comparable agreement in place.
Under a Distribution Agreement between the Trusts and Managers,
Managers also serves as distributor (the "Distributor") in connection
with the offering of Fund shares on a no-load basis. The Distributor
bears certain expenses associated with the distribution and sale of
shares of the Fund. The Distributor acts as agent in arranging for the
sale of a Fund's shares without sales commission or other compensation
and bears all advertising and promotional expenses incurred in the sale
of such shares.
The Distribution Agreement between the Trusts and the Distributor may
be terminated by either party under certain specified circumstances and
will automatically terminate on assignment in the same manner as the
Management Agreement. The Distribution Agreement may be
continued annually so long as such continuation is specifically
approved at least annually by either the Trustees of the Trusts or by
vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Trusts cast in person at a meeting called for the
purpose of voting on such approval.
Custodian
State Street Bank and Trust Company ("State Street" or the
"Custodian"), 1776 Heritage Drive, North Quincy, Massachusetts, is
the Custodian for the Funds. It is responsible for holding all cash assets
and all portfolio securities of the Fund, releasing and delivering such
securities as directed by the Funds, maintaining bank accounts in the
names of the Funds, receiving for deposit into such accounts payments
for shares of the Funds, collecting income and other payments due the
Funds with respect to portfolio securities and paying out monies of the
Funds.
The Custodian is authorized to deposit securities in securities
depositories or to use the services of subcustodians, including foreign
subcustodians, to the extent permitted by and subject to the regulations
of the Securities and Exchange Commission.
Transfer Agent
Boston Financial Data Services, Inc., P.O. Box 8517, Boston,
Massachusetts 02266-8517, is the transfer agent (the "Transfer Agent")
for the Funds.
Independent Public Accountants
PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, is the independent public accountant for the
Funds. PricewaterhouseCoopers LLP will conduct an annual audit of
the financial statements of the Funds, assists in the preparation and/or
review of the Funds' federal and state income tax returns and consults
with the Funds as to matters of accounting and federal and state income
taxation. For the Funds' last fiscal year ended March 31, 2000, Deloitte
and Touche LLP served as independent auditor.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Transactions on U.S. stock exchanges, commodities markets and
futures markets and other agency transactions involve the payment by
the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. In addition, a particular broker may charge
different commissions according to such factors as the difficulty and
size of the transaction. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price
paid by a Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by a Fund includes a
disclosed, fixed commission or discount retained by the underwriter or
dealer.
The Subadvisory Agreement provides that Smith Breeden place all
orders for the purchase and sale of securities which are held in a Fund's
portfolio. In executing portfolio transactions and selecting brokers or
dealers, it is the policy and principal objective of the Smith Breeden to
seek best price and execution. It is expected that securities will
ordinarily be purchased in the primary markets. Smith Breeden shall
consider all factors that it deems relevant when assessing best price and
execution for the Funds, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the
commission, if any (for the specific transaction and on a continuing
basis).
In addition, when selecting brokers to execute transactions and in
evaluating the best available net price and execution, Smith Breeden is
authorized by the Trustees to consider the "brokerage and research
services" (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended), provided by the broker ("soft-
dollar arrangements"). Smith Breeden is also authorized to cause the
Funds to pay a commission to a broker who provides such brokerage
and research services for executing a portfolio transaction which is in
excess of the amount of commission another broker would have
charged for effecting that transaction. Smith Breeden must determine in
good faith, however, that such commission was reasonable in relation to
the value of the brokerage and research services provided viewed in
terms of that particular transaction or in terms of all the accounts over
which the Smith Breeden exercises investment discretion. Brokerage
and research services received from such brokers will be in addition to,
and not in lieu of, the services required to be performed by Smith
Breeden. The fees of the Smith Breeden are not reduced by reason of
their receipt, if any, of such brokerage and research services. Managers
may direct the Smith Breeden to employ certain specific brokers who
have agreed to pay certain Fund expenses. Thus use of such brokers is
subject to best price and execution, and there is no specific amount of
brokerage that is required to be placed through such brokers.
The Trustees will periodically review the total amount of commissions
paid by the Funds to determine if the commissions paid over
representative periods of time were reasonable in relation to
commissions being charged by other brokers and the benefits to the
Funds of using particular brokers or dealers.
Currently, Smith Breeden conducts extensive proprietary research, and
is not dependent on any broker for such research and analysis and, thus
is able to transact business with brokers regardless of the brokers'
research capabilities or provision of such research to brokerage
customers. Smith Breeden uses multiple electronic quotation services
for trading and pricing purposes. Smith Breeden pays for these services
directly out of its subadvisory fees. Thus, Smith Breeden is not
currently, and for the Funds' last fiscal year, was not, involved in any
soft-dollar arrangements and is not affiliated with any broker-dealer.
The following table details the approximate brokerage commissions
paid by the Funds for the last three fiscal years:
Fiscal Year Ended 500 Plus Fund Short Fund IntermediateFund
March 31, 2000 $137,216 $ 23,765 $ 8,663
March 31, 1999 $ 48,899 $ 16,929 $ 5,999
March 31, 1998 $ 26,251 $ 25,408 $ 2,038
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchasing Shares
Investors may open accounts with the Funds through their financial
planners or investment professionals, or by the Trust in circumstances
as described in the Prospectus. Shares may also be purchased through
bank trust departments on behalf of their clients and tax-exempt
employee welfare, pension and profit-sharing plans. The Trusts reserve
the right to determine which customers and which purchase orders the
Trusts will accept.
Certain investors may purchase or sell Fund shares through
broker-dealers or through other processing organizations that may
impose transaction fees or other charges in connection with this service.
Shares purchased in this way may be treated as a single account for
purposes of the minimum initial investment. The Funds may from time
to time make payments to such broker-dealers or processing
organizations for certain recordkeeping services. Investors who do not
wish to receive the services of a broker-dealer or processing
organization may consider investing directly. Shares held through a
broker-dealer or processing organization may be transferred into the
investor's name by contacting the broker-dealer or processing
organization or the Transfer Agent. Certain processing organizations
and others may receive compensation from the Trust's Investment
Manager out of its legitimate profits in exchange for selling shares or
for recordkeeping or other shareholder related services.
Purchase orders received by a Fund before the close of business of the
New York Stock Exchange (usually 4:00 p.m. New York Time), c/o
Boston Financial Data Services, Inc. at the address listed in the
Prospectus on any Business Day will receive the net asset value
computed that day. Orders received after that time from certain
processing organizations, which have entered into special arrangements
with the Investment Manager, will also receive that day's offering price.
The broker-dealer, omnibus processor or investment professional is
responsible for promptly transmitting orders to the Trusts. Orders
transmitted to the Trusts at the address indicated in the Prospectus will
be promptly forwarded to the Transfer Agent.
Federal Funds or Bank Wires used to pay for purchase orders must be
in U.S. dollars and received in advance, except for certain processing
organizations which have entered into special arrangements with the
Trusts. Purchases made by check are effected when the check is
received, but are accepted subject to collection at full face value in U.S.
funds and must be drawn in U.S. Dollars on a U.S. bank.
To ensure that checks are collected by the Trusts, redemptions of shares
which were purchased by check are not effected until the clearance of
the check, which may take up to 15 days after the date of purchase
unless arrangements are made with the Investment Manager. However,
during this 15-day period, such shareholder may exchange such shares
into any other of the Funds. The 15-day holding period for redemptions
would still apply to shares received through such exchanges.
If the check accompanying any purchase order does not clear, or if there
are insufficient funds in your bank account, the transaction will be
canceled and you will be responsible for any loss which a Fund incurs.
For current shareholders, the Funds can redeem shares from any
identically registered account in the Funds as reimbursement for any
loss incurred. The Trusts have the right to prohibit or restrict all future
purchases in the event of any nonpayment for shares. Third party
checks which are payable to an existing shareholder who is a natural
person (as opposed to a corporation or partnership) and endorsed over
to a Fund or the Custodian will be accepted.
In the interest of economy and convenience, share certificates will not
be issued. All share purchases are confirmed to the record holder and
credited to such holder's account maintained by the Transfer Agent.
Redeeming Shares
Any redemption orders received before the close of regular trading on
the New York Stock Exchange (usually 4:00 p.m. New York Time) on
any Business Day will receive the net asset value determined at the
close of regular trading on that Business day.
Redemption orders received after 4:00 p.m. will be redeemed at the net
asset value determined at the close of trading on the next Business Day.
Redemption orders transmitted to the address indicated in the
Prospectus will be promptly forwarded to the Transfer Agent. If you
are trading through a broker-dealer or investment advisor, such
investment professional is responsible for promptly transmitting orders.
There is no redemption charge. The Funds reserve the right to redeem
shareholder accounts (after 60 days notice) when the value of the Fund
shares in the account falls below $500 due to redemptions. Whether a
Fund will exercise its right to redeem shareholder accounts will be
determined by the Investment Manager on a case-by-case basis.
If a Fund determines that it would be detrimental to the best interest of
the remaining shareholders of the Fund to make payment wholly or
partly in cash, payment of the redemption price may be made in whole
or in part by a distribution in kind of securities from the Fund, in lieu of
cash, in conformity with the applicable rule of the Securities and
Exchange Commission. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets to
cash. The method of valuing portfolio securities is described under the
"Net Asset Value," and such valuation will be made as of the same time
the redemption price is determined.
Investors should be aware that redemptions from a Fund may not be
processed if a redemption request is not submitted in proper form. To
be in proper form, the request must include the shareholder's taxpayer
identification number, account number, Fund number and signatures of
all account holders. All redemptions will be mailed to the address of
record on the shareholder's account. In addition, if a shareholder sends
a check for the purchase of shares of a Fund and shares are purchased
before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take
up to 15 days. The Funds reserve the right to suspend the right of
redemption and to postpone the date of payment upon redemption
beyond seven days as follows: (i) during periods when the NYSE is
closed for other than weekends and holidays or when trading on the
NYSE is restricted as determined by the SEC by rule or regulation, (ii)
during periods in which an emergency, as determined by the SEC,
exists that causes disposal by the Fund of, or evaluation of the net asset
value of, portfolio securities to be unreasonable or impracticable, or
(iii) for such other periods as the SEC may permit.
Exchange of Shares
An investor may exchange shares from a Fund into shares of any series
of the Trusts without any charge. An investor may make such an
exchange if following such exchange the investor would continue to
meet the Fund's minimum investment amount. Shareholders should
read the Prospectus of the series of the Trust they are exchanging into.
Investors may exchange only into accounts that are registered in the
same name with the same address and taxpayer identification number.
Shares are exchanged on the basis of the relative net asset value per
share. Since exchanges are purchases of a series of the Trust and
redemptions of the Fund, the usual purchase and redemption procedures
and requirements apply to each exchange. Shareholders are subject to
federal income tax and may recognize capital gains or losses on the
exchange for federal income tax purposes. Settlement on the shares of
any series of a Trust will occur when the proceeds from redemption
become available. The Trusts reserve the right to discontinue, alter or
limit the exchange privilege at any time.
Net Asset Value
The net asset value per share of a Fund is equal to the value of the Fund
(assets minus liabilities) divided by the number of shares outstanding.
The Funds compute net asset value once daily on Monday through
Friday on each day on which the NYSE is open for trading, at the close
of business of the NYSE, usually 4:00 p.m. New York time. Trading in
certain securities is substantially completed each day at various times
prior to the close of regular trading on the NYSE. The values of these
securities used in determining the net asset value of a Fund's shares are
computed as of such times. Because of the amount of time required to
collect and process trading information of large numbers of securities
issues, the values of certain securities (such as convertible bonds and
U.S. Government securities) are determined based on market quotations
collected earlier in the day at the latest practicable time prior to the
close of the NYSE. Occasionally, events affecting the value of such
securities may occur between such times and the close of the NYSE that
will not be reflected in the computation of a Fund's net asset value. If
events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair market
value following procedures approved by the Trustees.
The net asset value will not be computed on the day the following legal
holidays are observed: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. The Short Fund and
Intermediate Fund will also not be priced on Columbus Day and
Veterans' Day. The Funds may close for purchases and redemptions at
such other times as may be determined by the Trustees to the extent
permitted by applicable law. The time at which orders are accepted and
shares are redeemed may be changed in case of an emergency or if the
NYSE closes at a time other than 4:00 p.m. New York time.
Dividends and Distributions
The Short Fund and Intermediate Fund intend to pay monthly
distributions to their shareholders of net investment income. The 500
Plus Fund intends to make quarterly distributions of net investment
income. All Funds will distribute net realized gains at least annually.
Each Fund may make additional distributions if necessary to avoid
imposition of a 4% excise tax or other tax on undistributed income and
gains.
If a shareholder has elected to receive dividends and/or their
distributions in cash and the postal or other delivery service is unable to
deliver the checks to the shareholder's address of record, the dividends
and/or distribution will automatically be converted to having the
dividends and/or distributions reinvested in additional shares. No
interest will accrue on amounts represented by uncashed dividend or
redemption checks.
TAXES
Taxation of the Funds
Each of the Funds intends to qualify each year as a regulated investment
company ("RICs") for federal income tax purposes. To so qualify, each
Fund must, among other things: (i) derive at least 90% of their gross
income for each taxable year from dividends, interest, payments with
respect to loans of securities and gains from the sale or other disposition
of securities or certain other related income; and (ii) diversify their
holdings so that at the end of each quarter of the taxable year (A) at
least 50% of the value of each of the Fund's assets would be represented
by cash, U.S. Government securities, securities of other RICs, and other
securities which, with respect to any one issuer, do not represent more
than 5% of the value of each of the Fund's assets nor more than 10% of
the voting securities of such issuer and (B) not more than 25% of the
value of each of the Fund's assets are invested in the securities of any
one issuer (other than U.S. Government securities or the securities of
other RICs).
If the Funds qualify as RICs and distribute to their shareholders at least
90% of their net investment income (including tax-exempt interest and
net short-term capital gain but not net capital gain, which is the excess
of net long-term capital gains over net short term capital losses), then
the Funds will not be subject to federal income tax on the income so
distributed. However, the Funds will be subject to corporate income tax
on any undistributed income. In addition, either of the Funds would be
subject to a nondeductible 4% excise tax on the amount by which the
income it distributed in any calendar year would be less than a
minimum distribution amount. The minimum distribution amount
required to avoid the excise tax for a calendar year equals the sum of (i)
98% of a Fund's ordinary income (excluding tax-exempt interest
income) for such calendar year; (ii) 98% of the excess of capital gains
over capital losses for the one year period ending on October 31 of each
year; and (iii) 100% of the undistributed ordinary income and gains
from prior years. For purposes of the excise tax, any income or capital
gains retained by, and taxed in the hands of, either of the Funds will be
treated as having been distributed.
The Funds intend to distribute sufficient income so as to avoid
corporate income tax and excise tax. The Funds may be subject to a 4%
excise tax to the extent that the amount of ordinary income distributed
during the calendar year is less than 98% of the ordinary income
(excluding tax-exempt interest income) for the year. The Funds will
endeavor to pay dividends in such a manner that an excise tax will not
be incurred. The Funds also may elect to retain all or a portion of its
net capital gain, as described under "Taxation of Shareholders
Distributions" below.
Any capital losses resulting from the disposition of securities can be
used only to offset capital gains and cannot be used to reduce a Fund's
ordinary income. Such capital losses may be carried forward for eight
years. If any capital losses have not been utilized at the time a Fund
terminates, such capital losses will become unusable.
Taxation of Shareholders
Distributions. In general, all distributions to shareholders attributable
to a Fund's net investment income (including any tax-exempt interest
income distributed) will be taxable as ordinary dividend income
whether paid in cash or in additional shares.
To the extent a Fund realizes net capital gains, it intends to distribute
such gains at least annually and designate them as capital gain
dividends. Capital gain dividends are taxable as capital gains, whether
paid in cash or in additional shares, regardless of how long the shares
have been held. A Fund may elect to retain net capital gains and pay
corporate income tax thereon. In such event, a Fund would most likely
make an election that would require each shareholder of record on the
last day of the Fund's taxable year to include in income for tax purposes
his proportionate share of the Fund's undistributed net capital gain. If
such an election is made, each shareholder would be entitled to credit
his proportionate share of the tax paid by the Fund against his federal
income tax liabilities and to claim refunds to the extent that the credit
exceeds such liabilities. In addition, the shareholder would be entitled
to increase the basis of his shares for federal tax purposes by an amount
equal to 66% of his proportionate share of the undistributed net capital
gain.
Shareholders receiving distributions in the form of additional shares
will be treated for federal income tax purposes as receiving an
equivalent amount of cash. In general, the basis of such shares will
equal the amount of cash that the shareholder would have received if he
had elected to receive distributions in cash.
Liquidating distributions which, in the aggregate, exceed a shareholder's
basis in shares will be treated as gain from the sale of shares. If a
shareholder receives, in the aggregate, liquidating distributions which
are less than such basis, such shareholder will recognize a loss to that
extent. Dividends and other distributions by a Fund are generally
taxable to the shareholders at the time the dividend or distribution is
made.
If a shareholder purchases shares at a cost that reflects an anticipated
dividend, such dividend will be taxable even though it represents
economically a return of part of the purchase price. Investors should
consider the tax implications of buying shares shortly prior to a
distribution.
Sale or Redemption of Shares. The sale, exchange, or redemption of
Fund shares may give rise to a gain or loss. In general, any gain or loss
realized upon a taxable disposition of shares will be treated as long-
term capital gain or loss if the shares have been held for more than one
year. Otherwise the gain or loss on the sale, exchange or redemption of
Fund shares generally will be treated as short-term capital gain or loss.
In addition, any loss (not already disallowed as provided in the next
sentence) realized upon a taxable disposition of shares held for six
months or less will be treated as long-term, rather than short-term, to
the extent of any long-term capital gain distributions received by the
shareholder with respect to the shares. All or a portion of any loss
realized upon a taxable disposition of Fund shares will be disallowed if
other Fund shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased shares will
be adjusted to reflect the disallowed loss.
Tax-Exempt Investors. If a shareholder that is a benefit plan investor
(e.g., an individual retirement account, pension plan 401(k) plan, or
Keogh plan) or charitable organization (a "Tax Exempt Investor")
incurs debt to finance the acquisition of its shares, a portion of the
income received by the Tax-Exempt Investor with respect to its shares
would constitute unrelated business taxable income ("UBTI"). In that
case, the UBTI portion of the Tax Exempt Investor's income from its
investment in a Fund for the year would equal the total income
recognized by the Tax-Exempt Investor in that year multiplied by the
ratio of the Tax-Exempt Investor's average acquisition debt balance to
the average tax basis of its shares for the year. A Tax Exempt Investor
is generally subject to federal income tax to the extent that its UBTI for
a taxable year exceeds its annual $1,000 exclusion.
Tax Consequences of Certain Fund Investments
Hedging Transactions. Each of the Funds intends to engage in various
hedging transactions. Under various provisions of the Code, the result
of such investments and transactions may be to change the character of
recognized gains and losses, accelerate the recognition of certain gains
and losses, and defer the recognition of certain losses. For example, the
tax treatment of futures contracts entered into by a Fund as well as
listed nonequity options written or purchased by a Fund on U.S.
exchanges (including options on debt securities and options on futures
contracts) will be governed by section 1256 of the Code. Absent a tax
election for "mixed straddles" (described below), each such position
held by a Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if it were closed out), and all resulting
gain or loss will be treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss, with subsequent adjustments made
to any gain or loss realized upon an actual disposition of such positions
(currently, the 60% long-term portion will be treated as if held for more
than 12 months). When a Fund holds an option or contract governed by
section 1256 which substantially diminishes the Fund's risk of loss with
respect to another position of its Portfolio not governed by section 1256
(as might occur in some hedging transactions), that combination of
positions generally will be a "mixed straddle" that is subject to the
straddles rules of section 1092 of the Code. The application of Section
1092 might result in deferral of losses, adjustments in the holding
periods of a Fund's securities and conversion of short-term capital
losses into long-term capital losses. Either Fund may make certain tax
elections for its "mixed straddles" that could alter certain effects of
section 1256 or section 1092.
Tax Implications of Certain Investments. Certain of a Fund's
investments, including investments in stripped securities, will create
taxable income in excess of the cash they generate. In such cases, a
Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute to its
shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
The character of a Fund's taxable income will, in most cases, be
determined on the basis of reports made to the Funds by the issuers of
the securities in which they invest. The tax treatment of certain
securities in which a Fund may invest is not free from doubt and it is
possible that an IRS examination of the issuers of such securities could
result in adjustments to the income of a Fund. The foregoing discussion
is a general summary of certain of the current federal income tax laws
regarding both Funds and investors in the shares.
THE TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY.
EACH SHAREHOLDER IS ADVISED TO CONSULT ITS OWN
TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES TO IT OF AN INVESTMENT IN A FUND,
INCLUDING THE EFFECT AND APPLICABILITY OF STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER
TAX LAWS. THIS DISCUSSION IS NOT INTENDED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING.
STANDARD PERFORMANCE MEASURES
Performance
As noted in the Prospectus, a Fund may from time to time quote various
performance figures to illustrate its past performance. It may
occasionally cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules
adopted by the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations, or
alternatively, that every non-standardized performance quotation
furnished by a Fund be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used by a
Fund are based on the standardized methods of computing performance
mandated by the SEC. An explanation of those and other methods used
by a Fund to compute or express performance follows.
Total Return
The average annual total return is determined by finding the average
annual compounded rates of return over one, five, and ten year periods
(or for the life of a Fund, if shorter) that would equate an initial
hypothetical $1000 investment to its ending redeemable value. The
calculation assumes no sales charge is deducted from the initial $1000
purchase order, capital gains and all income dividends are reinvested at
net asset value on the reinvestment dates during the period. The
quotation assumes the account was completely redeemed at the end of
each one, five and ten year period and the deduction of all applicable
charges and fees.
A Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1000 investment, according to the
following formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment
made at the beginning of 1, 5, or 10 year periods at the end of
said 1, 5, or 10 year periods (or fractional portion thereof).
As discussed in the Prospectus, a Fund may quote total rates of return in
addition to its average annual total return. Such quotations are
computed in the same manner as a Fund's average annual compounded
rate, except that such quotations will be based on a Fund's actual
aggregate return for a specified period as opposed to its average return
over certain periods.
Yield
Current yield reflects the income per share earned by a Fund's portfolio
investments. Current yield is determined by dividing the net investment
income per share earned during a 30 day base period by the offering
price or net asset value per share, as the case may be, on the last day of
the period and analyzing the result, according to the following formula:
Yield = 2 [(a-b + 1)6 -1]
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive dividends.
d = the maximum offering price or net asset value per share,
as the case may be,on the last day of the period.
The following table shows the average annual total return for the
periods stated, and yield for the Funds for the 30-day period ended
March 31, 2000.
Average Annual Total Return
One Year Five Years Inception 30-Day Yield
Short Fund 2.75% 5.06% 5.15% 7.80%
Intermediate Fund 0.40% 6.41% 7.11% 6.05%
500 Plus Fund 14.91% 25.80% 21.05% NA
The investment results of the Funds, like all others, fluctuate over time.
Thus, performance figures should not be considered to represent what
an investment may earn in the future or what the yield or total return
may be for any future period.
Current Distribution Rate
Yield, which is calculated according to a formula prescribed by the
SEC, is not indicative of the amounts which will be paid to a Fund's
shareholders. Amounts paid to shareholders are reflected in the quoted
"current distribution rate." The current distribution rate is computed by
dividing the total amount of dividends, excluding long-term capital
gains, per share paid by a Fund during the past twelve months by its
current net asset value. Under certain circumstances, such as when there
has been a change in the amount of dividend payout, or a fundamental
change in investment policies, it might be appropriate to annualize the
dividends paid over the period such policies were in effect, rather than
using the dividends during the past twelve months. The current
distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than
dividends and interest, such as short-term capital gains and net
equalization credits and is calculated over a different period of time.
Volatility
Occasionally statistics may be used to specify a Fund's volatility or risk.
Measures of volatility or risk are generally used to compare fund net
asset value or performance relative to a market index. One measure of
volatility is beta. The ratio of the expected excess return on a Fund to
the expected excess return on the market index is called beta. Equity
funds commonly use the S&P 500 as their market index. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of
less that 1.00 indicates volatility less than the market. Another measure
of volatility or risk is standard deviation. Standard deviation is used to
measure variability of net asset value or total return around an average,
over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
A statistic often used by sophisticated institutional investors when
comparing the relative performance of portfolios is the Sharpe Ratio.
This statistic is a Fund's excess return (relative to T-Bills) divided by
the standard deviation of its returns.
Comparisons and Advertisements
To help investors better evaluate how an investment in a Fund might
satisfy their objective, advertisements regarding either of the Funds may
discuss various measures of a Fund's performance as reported by
various financial publications. Advertisements may also compare
performance (as calculated above) to performance as reported by other
investments, indices, and averages. The following publications, indices,
and averages may be used:
a) Lipper-Mutual Fund Performance Analysis, Lipper-Fixed
Income Analysis, and Lipper-Mutual Fund Indices - measures
total return and average current yield for the mutual fund
industry and rank individual mutual fund performance over
specified time periods assuming reinvestment of all
distributions, exclusive of sales charges.
b) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk, total
return, and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
c) Mutual Fund Source book, published by Morningstar, Inc. -
analyzes price, yield, risk, and total return for equity and fixed
income funds.
d) Financial publications: Barron's, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money
magazines - rate fund performance over specified time periods.
e) Consumer Price Index (or Cost Of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure of
change, over time, in the price of goods and services, in major
expenditure groups.
f) Stocks, Bonds, Bills, and Inflation, published by Ibbotson
Associates - a historical measure of yield, price, and total
return for common and small company stock, long-term
government bonds, treasury bills, and inflation.
g) Savings and Loan Historical Interest Rates - as published in
the U.S. Savings & Loan League Fact Book.
h) Salomon Brothers Broad Bond Index - measures yield, price,
and total return for Treasury, Agency, Corporate, and
Mortgage bonds. All issues mature in one year or more and
have at least $50 million outstanding, with the exception of
mortgages. The entry criteria for mortgage issues is $200
million for each coupon.
i) Salomon Brothers Mortgage Index - measures only the
mortgage component of the Salomon Brothers Broad Bond
Index.
j) Salomon Brothers Composite High Yield Index or its
component indices - measures yield, price and total return for
Long-Term High Yield Index, Intermediate Term High Yield
Index, and Long-Term Utility High Yield Index.
k) Lehman Brothers Aggregate Bond Index or its component
indices - measures yield, price and total return for Treasury,
Agency, Corporate, Mortgage, and Yankee bonds.
l) Lehman Brothers Government/Corporate Bond Index.
m) Standard & Poor's Bond Indices - measure yield and price of
Corporate, Municipal, and Government bonds.
n) Other taxable investments including certificates of deposit
(CD's), money market deposit accounts (MMDA's), checking
accounts, savings accounts, money market mutual funds,
repurchase agreements, and government securities.
o) Historical data supplied by the research departments of
Lehman Brothers, First Boston Corporation, Morgan Stanley,
Salomon Brothers, Merrill Lynch, Goldman Sachs, Prudential
Securities and Donaldson Lufkin and Jenrette.
p) IBC's Money Fund Report - industry averages for 7-day
annualized and compounded yields of taxable, taxfree and
government money funds.
q) Total returns and yields for Treasury Securities and fixed
income indices as published by Ryan Laboratories or other
suppliers.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices
and averages is not identical, and in some cases is very different, to a
Fund's portfolio, that the averages are generally unmanaged and that the
items included in the calculations of such averages may not be identical
to the formula used by a Fund to calculate its figures. In addition, there
can be no assurance that a Fund will continue its performance as
compared to such other averages.
Shareholders should note that the investment results of a Fund will
fluctuate over time, and any presentation of a Fund's current yield or
total return for any period should not be considered as a representation
of what an investment may earn or what a shareholder's yield or total
return may be in any future period.
Shareholders should also note that although the Funds believe that there
are substantial benefits to be realized by investing in its shares, such
investments also involve certain risks. (See "Investment Objectives and
Policies of the Fund Risks of Mortgage Securities" in the Funds'
Prospectus).
ADDITIONAL INFORMATION FOR INSTITUTIONAL
INVESTORS
As the investments permitted to the Funds are primarily in mortgage
securities issued or guaranteed by the U.S. Government or its agencies
and instrumentalities, the shares of either the Short or Intermediate
Fund may be eligible for investment by federally chartered credit
unions, federally chartered thrifts, and national banks. Either of the
Funds may be a permissible investment for certain state chartered
institutions as well, including state and local government authorities and
agencies. Any financial institution or agency considering an investment
in either of the Funds should refer to the applicable laws and
regulations governing its operations in order to determine if a Fund is a
permissible investment.
EXPERTS
The annual financial statements of the Funds included in the Trusts'
March 31, 2000 Annual Report as filed with the SEC on May 30, 2000 and
incorporated herein by reference have been so incoporated
in reliance upon the report of Deloitte & Touche LLP,
independent auditors, given in authority of said firm as experts in
auditing and accounting.
FINANCIAL STATEMENTS
The Financial Statements of the Funds included in the Trusts
March 31, 2000 Annual Report as filed with the SEC on May 30, 2000 are
incorporated by reference to the annual report.
DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S AND
MOODY'S INVESTORS SERVICE, INC.
STANDARD & POOR'S
AAA
An obligation rated `AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA
An obligation rated `AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
A
An obligation rated `A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB
An obligation rated `BBB' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Obligations
rated `BB', `B', `CCC', `CC', and `C' are regarded as having
significant speculative characteristics. `BB' indicates the least degree
of speculation and `C' the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB
An obligation rated `BB' is less vulnerable to nonpayment that
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
B
An obligation rated `B' is more vulnerable to nonpayment than
obligations rated `BB', but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC
An obligation rated `CCC' is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment
on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
CC
An obligation rated `CC' is currently highly vulnerable to
nonpayment.
C
A subordinated debt or preferred stock obligation rated `C' is
CURRENTLY HIGHLY VULNERABLE to nonpayment. The `C'
rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action taken, but payments on this obligation are
being continued. A `C' also will be assigned to a preferred stock issue
in arrears on dividends or sinking fund payments, but that is currently
paying.
D
An obligation rated `D' is in payment default. The `D' rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during
such grace period. The `D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
r
This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating.
Examples include: obligations liked or indexed to equities, currencies,
or commodities; obligations exposed to severe prepayment risk - such
as interest-only or principal-only mortgage securities; and obligations
with unusually risky interest terms, such as inverse floaters.
N.R.
This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular obligation as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa
Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa
Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than the Aaa securities.
A
Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa
Bonds which are rated Baa are considered as medium grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through Caa. The modifier 1
indicates that the obligation ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking in the lower end of that generic rating category.
SMITH BREEDEN TRUST
FORM N-1A
PART C. OTHER INFORMATION
Disclosure in Part C contemplates
the consummation of the pending transaction between
Smith Breeden Associates, and Managers as described in the cover letter
with the exception of Item 28, Location of Records.
Item 23. Exhibits.
(a) Declaration of Trust: To be filed by amendment
(b) By-Laws: Incorporated by Reference
(c) Instruments Defining Rights of Security Holders:
Incorporated by Reference
(d) (i) Form of Management Agreement
Incorporated by Reference
(ii)Form of Subadvisory Agreement
Incorporated by Reference
(e) Form of Underwriting or Distribution Agreement:
To be filed by amendment
(f) Bonus, Profit Sharing, Pension and Other
Similar Arrangements: Not Applicable
(g) Custodian Agreement: To be filed by amendment
(h) Other Material Contracts:
Administration Agreement: To be filed by
amendment
Shareholder Services Agreement: To be filed by
amendment
Accounting Services Agreement: To be filed by
amendment
(i) Legal Opinion: To be filed by amendment.
(j) Other Opinions:
Independent Auditors' Consent
(k) Financial Statements Omitted from Item 22: Not
Applicable
(l) Initial Capital Agreements: Incorporated by
Reference
(m) Form of Rule 12b-1 Plan for Managers
Trust I: Not Applicable
(n) Financial Data Schedule: Not Applicable
(o) Rule 18f-3 Multiclass Plan: Not Applicable
Item 24. Persons Controlled by or under Common Control
with Registrant.
As of 5/30/2000, there were no persons controlled by
or under common control with the Smith Breeden
U.S. Equity Market Plus Fund.
Item 25. Indemnification.
Reference is made to Article VIII
of Registrant's Declaration of Trust with respect to
indemnification of the Trustees and officers of
Registrant against liabilities which may be incurred
by them in such capacities.
Insofar as indemnification for liability arising under
the Securities Act of 1933, as amended (the "Act"),
may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and
Exchange Commission ("SEC"), such indemnification is
against public policy as expressed in the Act, and is
therefore, unenforceable. In the event that a claim
for indeminfication against such liabilities (other
than the payment by the Registrant of expenses incurred
or paid by a trustee, an officer or a controlling
person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Each disinterested Trustee has entered into an
indemnity agreement with the Adviser whereby the
Adviser indemnifies each disinterested Trustee against
defense costs in connection with a civil claim which
involves the Trustee by virtue of his position with
the Fund.
Item 26. Business and Other Connections of Investment Adviser.
The Managers Funds LLC, a registered
investment adviser, serves as investment adviser to the Trust.
The Managers Funds LLC is a subsidiary of Affiliated
Managers Group, Inc. ("AMG") and a wholly owned subsidiary
serves as its Managing Member. The Managers Funds LLC serves
exclusively as an investment adviser to and distributor of shares of
investment companies registered under the 1940 Act. The business and other
connections of the officers and directors of The Managers
Funds LLC, are listed in Schedules A and D of its ADV Form
as currently on file with the Commission, the text of which
Schedules are hereby incorporated herein by reference. The
file number of said ADV Form is 801-56365.
The Managers Funds LLC has hired a Subadviser
for each Fund of the Trust. The business and other connections
of the officers and directors of each Sub-Adviser are listed in
their respective Schedules A and D of its ADV Form as
currently on file with the Commission, the text of which
Schedules are hereby incorporated herein by reference. The Subadviser
for each Fund is Smith Breeden Associates, Inc, ADV Form File Number is
801-17567.
Item 27. Principal Underwriters.
(a) The Managers Funds LLC acts as principal
underwriter for the Registrant. The Managers Funds
LLC also acts as principal underwriter for Managers
AMG Funds and The Managers Funds.
(b) The following information relates to the
directors, officers and partners of The Managers Funds
LLC:
The business and other connections of the officers and
directors of The Managers Funds LLC are listed in Schedules
A and D of its ADV Form as currently on file with the
Commission, the text of which Schedules are hereby
incorporated herein by reference. The file number of said ADV
Form is 801-56365.
(c) Not Applicable.
Item 28. Location of Accounts and Records.
The accounts, books or other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules thereunder will be kept by
the Registrant at the following offices:
(1) PFPC Global Services, Inc., 211 South Gulph Rd.
PO Box 61767, King of Prussia, PA 19406
(2) Smith Breeden Associates, Inc., 100 Europa
Drive, Suite 200, Chapel Hill, NC 27514
Item 29. Management Services.
There are no management-related service
contracts other than the Fund Management Agreement relating
to management services described in Parts A and B.
Item 30. Undertakings.
(a) The Registrant previously has undertaken to
promptly call a meeting of shareholders for the purpose
of voting upon the question of removal of any trustee
or trustees when requested in writing to do so by the
record holders of not less than 10 percent of the
Registrant's outstanding shares and to assist its
shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications.
(b) The Registrant hereby undertakes to furnish to
each person to whom a prospectus is delivered a copy
of the Registrant's latest annual report to
shareholders upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940,
as amended, the Registrant certifies that it
has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City
of Chapel Hill, the State of North Carolina, on the 2nd
day of June, 2000.
SMITH BREEDEN TRUST
By
Michael J. Giarla
President
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940,
this Amendment to the Registration Statement
has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
Michael J. Giarla President, Principal June 2, 2000
Executive Officer,
and Trustee
Douglas T. Breeden* Trustee June 2, 2000
Stephen M. Schaefer* Trustee June 2, 2000
Myron S. Scholes* Trustee June 2, 2000
William F. Sharpe* Trustee June 2, 2000
Marianthe S. Mewkill Principal Financial June 2, 2000
and Accounting Officer
* By Marianthe S. Mewkill, Attorney-in-Fact pursuant to
power-of-attorney filed previously.
